Taxation Law Australia

1. Alan is an employee at ABC Pty Ltd (ABC). He has negotiated the following remuneration package with ABC:

 

• salary of $300,000;

• payment of Alan's mobile phone bill ($220 per month, including GST). Alan is under a two-year contract whereby he is required to pay a fixed sum each month for unlimited usage of his phone. Alan uses the phone for work-related purposes only;

• Payment of Alan's children's school fees ($20,000 per year). The school fees are GST free.

 

ABC also provided Alan with the latest mobile phone handset, which cost $2,000 (including GST).

 

At the end of the year ABC hosted a dinner at a local Thai restaurant for all 20 employees and their partners. The total cost of the dinner was $6,600 including GST.

 

(a) Advise ABC of its FBT consequences arising out of the above information, including calculation of any FBT liability, for the year ending 31 March 2015. Assume that ABC would be entitled to input tax credits in relation to any GST-inclusive acquisitions.

 

(b) How would your answer to (a) differ if ABC only had 5 employees?

 

(c) How would your answer to (a) differ if clients of ABC also attended the end-of-year dinner?

 

2. Rubber Co manufactures tennis balls. On 1 January 2010, Rubber Co purchased a new machine for $1.1m (inclusive of GST) which it used to produce the tin cans in which its tennis balls were placed for sale to retailers. At the time of acquiring the machine , Rubber Co estimated that the machine would have an effective life of 10 years before it needed to be replaced. Subsequently, on 1 January 2014, as a result of new technology, a better quality machine became available and Rubber Co decided to sell the original machine for $330,000 (inclusive of GST) and purchase a new machine for $2.2m (inclusive of GST).

 

Requirement:

 

What are the tax consequences of these arrangements under Div 40ITAA97?
 

 

(1).

Fringe Benefit Tax

The fringe benefits are mainly certain types of benefits that provided by the employers to the employees other than cash benefits such as salary, wages, commissions or rewards. The assessable fringe benefit is when the fringe benefit exceeded $2,000 in a fringe benefit tax year as per rules prescribed by Australian (Body, 2008) Taxation office. As per the undertaken case study the ABC PTY Ltd provides one of its employee named Alan mobile phone bill $220/month including GST, as Alan use the phone for office use only thus its will be not included in fringe benefit. Besides this, the company pay Alan’s children’s school fees $20,000/year and it must be included in fringe benefit. Besides this, company provide Alan a latest mobile phone handset, which cost $2,000, including GST it must be included as fringe benefit (Martin, Gregor and Rice, 2008). Apart from this, company spend $6,600, including GST in a Thai restaurant for the dinner of its 20 employees with their partner. This amount will be included in fringe benefit. In this case the fringe benefit tax will be calculated as follows:

a) ABC have to pay fringe benefit tax for Alan’s children’s school fees $20,000/year as it is GST free thus it is considered type 2 benefit. The tax rate will be applied @ 1.9608 (Taxation reform blueprint, 2004).

$20,000*1.9608 = $39,216

FBT rate 49% thus $39,216*49% = $19215.84     

For the handset provided by the company $2,000 including GST is considered as type 1 benefit. The tax rate will be applied @ 2.1463

$2,000*2.1463 = $4292.60

FBT rate 49% thus $4292.60*49% = $2103.374 (WALLER, 2007).

The company spend $6,600, including GST in a Thai restaurant for dinner of the 20 employees, which is considered as type 1 benefit. The tax rate will be applied @ 2.1463

$6,600*2.1463 = $ 14165.58

FBT Rate 49% thus $ 14165.58 * 49% = $6941.1342

b) No, the answer will be the same as the company has to pay the same cost.

c) Yes, this time the answer will be differ as the clients also included in the dinner thus it will not be fringe benefit and it will be considered as business meeting and the employees are supposed to perform their duties. 

(2).

In the year 2010, on 1^st January, Rubber Co purchased a new machine at the rate of $1.1m including the GST and the effectiveness of the machines is seemed to be 10 years. In the year 2014, 1^st January, Rubber Co decided to sell off the original machine at the rate of the $330,000 with including the GST and thus the company was also able to purchase the new machine at the rate of $2.2m with the inclusion of GST (WALLER, 2007). Thus according to the tax consequences of the arrangements that are made according to the Div 40ITAA97, the taxes should be paid for the growth and the expansion of the purchases for the sales and thus it also helps for continuation of the purchases and the one sell. According to the act of the Div 40ITAA97, the company Rubber Co has to pay all the taxes with including the number of times the purchases and the sales of the goods takes place. Thus for the proper following of the taxation system, the Div 40ITAA97 is applied in the case of the maintenance of the website for the proper generation of the bills and thus helps in the maintenance of the accounts of the company (Martin, Gregor and Rice, 2008). The usage of the accounting software is also included for the enhancement of the proper maintenance of the account of the company and thus it also helps in the reduction of the taxes for the proper carrying out the business process. 

References

Body, J. (2008). Design in the Australian Taxation Office. Design Issues, 24(1), pp.55-67.

Martin, N., Gregor, S. and Rice, J. (2008). User centred information design practices and processes at the Australian Taxation Office. Information Design Journal, 16(1), pp.53-67.

Taxation reform blueprint. (2004). [Barton, A.C.T.]: Australian Chamber of Commerce and Industry.

WALLER, V. (2007). The Challenge of Institutional Integrity in Responsive Regulation: Field Inspections by the Australian Taxation Office. Law & Policy, 29(1), pp.67-83.