Issue:
The present issue is based on the determination of the fringe benefit consequences of Shine Homes and Charlie. From the case study, it is found that Charlie worked as the real estate agent for Shine Homes Ptd Ltd and was provided with a sedan. As defined under Section 6 of the Miscellaneous Taxation Rulings and Fringe Benefit Tax Assessment Act 1986 there are situations under which fringe benefit tax is levied on car (Barkoczy, 2016).
Laws:
- Section 6 of the Miscellaneous Taxation Rulings
- Fringe Benefit Tax Assessment Act 1986
- taxation rulings of MT 2027
- sub-section 136 (1) of the Miscellaneous Taxation Rulings of 2027
- section 51 of the Income Tax Assessment Act 1997
- Lunney and Hayley v FCT (1958)
- Newsom v Robertson (1952) 2 All ER 728; (1952)
- Simon in Taylor v Provan (1975) AC 194
- Tubemakers of Australia Ltd v. FC of T 93
Application:
The taxation rulings of MT 2027 with reference to sub-section 136 (1) states that any form of use made by employee that is not entirely related to the course of producing taxable income by an employee shall be regarded as personal use. According to the paragraph 3 of the Miscellaneous Taxation Ruling details regarding business use of car must be incorporated in the log book or any similar file for the business kilometres travelled in applying the operating cost method (Christie, 2015). As evident from the case study, Charlie used the car for 50 kilometres related to work purpose. In agreement with the sub-section 136 (1) of the Miscellaneous Taxation Rulings of 2027 to determine the fringe benefit of car that was used by Charlie operational cost valuation method will applied.
As a rule, it is necessary to determine the private and business use of the car. Hence, whether the car used by employee or the associate was exclusively for gaining assessable income of the employee forms an important question (Kabinga, 2015). With reference to sub section 136 (1) it follows that the use of car made by employee in the course of employment provided by the employer to employee for the purpose of carrying of an employment activity may be regarded as the business use of the car for Fringe Benefit Tax.
As observed from the case study Charlie used the car in the course of his employment with Homes Pty Ltd and gave him the car for carrying the business activity. The use of car by Charlie represents business use in generating taxable income of the employee and this result in Fringe Benefit Tax.
In determining whether the expenses incurred in using the car shall be allowable as deductions under section 51 of the Income Tax Assessment Act 1997, there are certain facts obtained from the case study that can be regarded as allowable deductions for income tax purpose (Miller & Oats, 2016).
In agreement with the scenario of Charlie and Homes, the expenditure incurred by them can be considered as allowable deductions under Sub-division F of Division 3 stated in Miscellaneous Taxation Rulings of 2027 associated to Income Tax. As held in the case of Lunney and Hayley v FCT (1958) the viewpoint stated in the case affirmed the situations that travel between home and a person’s regular place of employment will be viewed as private travel. Travel to work is viewed as pre-requisite in producing the assessable income and it is not undertaken at the time of earning that income (Pope et al., 2016). Hence, the kilometres travelled by Charlie to workplace would be viewed as private and the use of car by Charlie would not alter the outcomes. As held in Newsom v Robertson (1952) 2 All ER 728; (1952), the cost occurred by the barrister in traveling between his place of residence to the place of work would be regarded as an expense.
It has been recognised that travel from home by an employee may be regarded as business travel only under situations that the nature of the office or place of employment is inherently itinerant. With reference to Simon in Taylor v Provan (1975) AC 194 travel by Charlie would be viewed as travel for employment purpose because travel was the fundamental part of his employment (Woellner et al., 2016). Additionally, the employment terms of Charlie necessitated him to discharge his duties of employment in more than one place of work. The use of car by Charlie was partly for employment purpose of and partially for private use. As per the FBT Act 1986, for the purpose of FBT Charlie can claim FBT deductions associated with work associated to the cost of petrol and repairs because it was used in gaining the assessable income.
A car parking Fringe Benefit might arise if the employer provides the car parking to the employee and below listed criteria are met;
- The car is parked beyond four hours
- The car is hired or controlled by the employee
- The car is given to discharge the employment duties
- There is a commercial parking place that charges fee for the car parked for entire day inside the range of one kilometre
- The car is used by employee use by employee for travelling purpose from work to home or home to work for at least once in a day (Saad, 2014).
From the case, study it is observed that Charlie has parks the car at a secure place for which he is paid $200 every week by the employer. Furthermore, Charlie parked the car in his garage, which was controlled by him. Charlie used the car for travelling between his place of employment and home every day. Hence, this results in fringe benefit for Charlie and on the other hand, Homes can claim deductions for the parking fees that is paid on behalf of the employee.
From the case study, it is evident that Shine Homes Pty Ltd provided Charlie with the honeymoon accommodation and the present situation falls within the Fringe Benefit Tax Act 1986, which results in tax liability. As evident Shine Homes paid the cost of accommodations for Charlie and Shine Homes and claim as allowable deductions. However, Charlie shall be under obligation of declaring such types of allowance in his income tax return.
Subsection 51 (1) of the Income Tax Assessment Act 1936 is applied to claim fringe benefit for the taxpayers that are employers (Snape & Souza, 2016). The liability concerning the Fringe Benefit Tax for Shine Homes arises under the legislation of Commonwealth. With reference to Tubemakers of Australia Ltd v. FC of T 93 FBT includes the sum that is occurred in ordinary case reflecting the amount of value which is allocated to the several FBT given by Shine Homes to his employee Charlie. From the case study it is observed that Shine Homes incurred numerous FBT expenditure in the form of honeymoon accommodation, car hire cost, parking fees. With reference to subsection 51 (1) of the ITAA 1997 these expenses were incurred by Shine Homes in gaining the assessable income and will be regarded as deductible expenditure.
Conclusion:
On arriving at the conclusion, it is can be stated that the fringe benefit expenditure are considered for the purpose of tax under the FBT Act 1986. The study considers the various aspects of fringe benefit tax incurred in respect of Charlie and Homes Pty Ltd. The use of car by Charlie will be regarded as business use in gaining the taxable income and this attracts FBT.
Reference List:
Barkoczy, S. (2016). Foundations of Taxation Law 2016. OUP Catalogue.
Christie, M. (2015). Principles of Taxation Law 2015.
Kabinga, M. (2015). Established principles of taxation. Tax justice & poverty.
Miller, A., & Oats, L. (2016). Principles of international taxation. Bloomsbury Publishing.
Pope, T. R., Rupert, T. J., & Anderson, K. E. (2016). Pearson's Federal Taxation 2017 Individuals. Pearson.
Saad, N. (2014). Tax knowledge, tax complexity and tax compliance: Taxpayers’ view. Procedia-Social and Behavioral Sciences, 109, 1069-1075.
Snape, J., & De Souza, J. (2016). Environmental taxation law: policy, contexts and practice. Routledge.
Woellner, R., Barkoczy, S., Murphy, S., Evans, C., & Pinto, D. (2016). Australian Taxation Law 2016. OUP Catalogue.
