Answers:
1. a) The following assumptions are made to determine the “Fringe Benefits Tax (FBT)” liability of ABC Private Limited from Alan’s viewpoint:
Bill from mobile phone usage:
The mobile phone bills are often paid on the part of the employers, which the staffs use for official purpose (Becker, Reimer & Rust, 2015). It has been observed that Alan was not provided with any amount to pay mobile expenses; instead, the payment was made to the service provider directly. As the monthly mobile expenditure is below $500, the overall annual amount is obtained as $2,640. Thus, ABC Private Limited could consider this expense as FBT.
Wages and salaries:
The wages and salaries incurred to the staffs are not included in FBT (Cao et al., 2015). Hence, Alan’s salary should not be included in order to compute FBT liability.
Calculating the taxable amount of FBT:
From the employer’s perspective, the mobile phone expense is to be categorised as expenditure, since it arises from work purpose. Thus, the purchase price needs to be considered to compute the entire amount of GST items. After the calculation is over, gross amount should be excluded to compute the taxable FBT amount (Barkoczy, 2016).
School fees of children:
ABC Private Limited has paid the school fees of Alan’s children, which comprise of Alan’s personal expenditures. Thus, while calculating FBT, it must not be considered (Eccleston & Woolley, 2015).
Entertainment programs:
As the employers incur money to entertain their staffs through special programs, it could be adjudged as entertainment fringe benefits (Lang, 2014). The justification of claim is possible only when the amount is incurred solely for the staffs. However, as the individual amount spent for entertaining each staff is complex to compute, ABC Private Limited could not consider this amount in its FBT calculation.
Additional GST benefits:
In order to adjust the entire taxable amount, the adjustment is made with the FBT rate of 49% in order to compute the FBT liability related to the employer (Ato.gov.au, 2017).
Based on the above assumptions, the FBT liability associated with ABC Private Limited is discussed as follows:
b) According to the case study, the dinner cost for each staff would be on the rising scale. As a result, the FBT liability of the organisation would be increased. Based on the given case, the calculation related to FBT liability is represented as follows:
On the other hand, if change is not made in the total cost per staff, the dinner cost is minimised accordingly. As a result, the FBT liability would not change and hence, there would be no change in answer and it would remain as $22,339.35.
c) According to the above discussion, the FBT application is possible for benefits related to the staffs. In case, the organisation considers the clients, FBT would include the amount spent on the employees. Hence, ABC Limited could not claim any deduction for entertaining the clients.
2. The income accumulated from direct and indirect sources for the Australian residents within or outside the country is considered as assessable income. In the words of Petty et al., (2015), the asset sale has resulted in income, which is to be taken into account as assessable income for the taxpayers.
As per ITAA 1997, ordinary income as well as statutory income would come under assessable income. The ordinary income is the amount gathered through ordinary path of action. As per “Section 6(5) of the Act”, the classification of ordinary income is discussed as follows:
- The income obtained from personal exertion as leave encashment coupled with wages and salaries
- The income obtained from asset as rent, dividend accumulated from share investments and interest earned through deposits (Taylor & Richardson, 2013)
- The income obtained from business transactions as net income, sale of shares and farming income
However, the course of action that fails to generate any normal action is considered as statutory income. As per “Section 10(5) of the Act”, such incomes are discussed as follows:
- Capital gains through sale related to capital assets
- Huge amount obtained after employment termination or closure of contract service
- Insurance bonus
- Recovery of bad debt
- Trade exchange income
- Royalty
- Trade recognition
The calculation related to statutory income is made distinctly for ascertaining the taxable amount from income generation. From the case study, it has been identified that Peta has bought a house two years back having two tennis courts and she has planned to stay in the same through sale of the tennis courts in unit terms. However, these courts have been sold together for $600,000.
The income generated by selling tennis courts could be classified as assessable income. This is because the asset was bought to make profit through sale of tennis courts. In addition, Peta has incurred $100,000 to develop and resurface fences in relation to tennis courts. Thus, according to “Section 6(5) of the Act”, Peta’s income could be termed as assessable income (Saad, 2014).
However, Peta has not carried out any real estate deals, although she has intended to sell the property in parts. In addition, it is to be noted that Peta has not sold the property because of some obligations. Thus, the amount gained from property sale could be adjudged as statutory income.
Moreover, Peta should make tax payments on net gains; in case, the representation is made as ordinary income. The taxable amount is to be computed by subtracting the entire asset-purchasing price and other expenses from net income. Hence, if it is considered as the capital gain, an exemption of 50% on net gains could be exempted (Ato.gov.au, 2017).
References:
Ato.gov.au. (2017). Retrieved 2 June 2017, from https://www.ato.gov.au/Business/Income-and-deductions-for-business/Working-out-your-assessable-income/What-to-include-in-your-assessable-income/
Ato.gov.au. (2017). Retrieved 2 June 2017, from https://www.ato.gov.au/Business/Income-and-deductions-for-business/Working-out-your-assessable-income/What-to-include-in-your-assessable-income/
Barkoczy, S. (2016). Foundations of Taxation Law 2016. OUP Catalogue.
Becker, J., Reimer, E., & Rust, A. (2015). Klaus Vogel on Double Taxation Conventions. Kluwer Law International.
Cao, L., Hosking, A., Kouparitsas, M., Mullaly, D., Rimmer, X., Shi, Q., ... & Wende, S. (2015). Understanding the economy-wide efficiency and incidence of major Australian taxes. Treasury WP, 1.
Eccleston, R., & Woolley, T. (2015). From Calgary to Canberra: Resource taxation and fiscal federalism in Canada and Australia. Publius: The Journal of Federalism, 45(2), 216-243.
Lang, M. (2014). Introduction to the law of double taxation conventions. Linde Verlag GmbH.
Petty, J. W., Titman, S., Keown, A. J., Martin, P., Martin, J. D., & Burrow, M. (2015). Financial management: Principles and applications. Pearson Higher Education AU.
Taylor, G., & Richardson, G. (2013). The determinants of thinly capitalized tax avoidance structures: Evidence from Australian firms. Journal of International Accounting, Auditing and Taxation, 22(1), 12-25.
Saad, N. (2014). Tax knowledge, tax complexity and tax compliance: Taxpayers’ view. Procedia-Social and Behavioral Sciences, 109, 1069-1075.
