Topic 5 Fringe Benefits Tax (FBT)

Question 1

Illustration 1

Assume that Carlton Limited purchases a new car costing $25,000 on 1 April 2016 for the use of an employee Patrick Cripps. Each night, the car is garaged at Cripp’s house, many kilometres from Carlton’s place of business and is thus deemed available for private use under sec. 7(3)

Cripps, in fact, travelled 20,000 kilometres in the car up to 31 March 2017, using the car 25% of the time for business, and 75% of the time for private use ( i.e., 5,000 kilometres travelled were on business, and 15,000 kilometres travelled were on private use).

Log book and odometer records have been kept. Operating costs for the year (other than deemed depreciation and interest) were $4,000 and Cripps contributed $1,000 towards these costs .

Calculate the taxable value of the car fringe benefit.

Answer 1

Illustration 1

Assume that Carlton Limited purchases a new car costing $25,000 on 1 April 2016 for the use of an employee Patrick Cripps. Each night, the car is garaged at Cripp’s house, many kilometres from Carlton’s place of business and is thus deemed available for private use under sec. 7(3)

Cripps, in fact, travelled 20,000 kilometres in the car up to 31 March 2017, using the car 25% of the time for business, and 75% of the time for private use ( i.e., 5,000 kilometres travelled were on business, and 15,000 kilometres travelled were on private use).

Log book and odometer records have been kept. Operating costs for the year (other than deemed depreciation and interest) were $4,000 and Cripps contributed $1,000 towards these costs .

Calculate the taxable value of the car fringe benefit.

Answer

Question 2

Illustration 2

On 1 April 2016 Carlton Ltd. lends $100,000 to their employee Patrick Cripps at an interest rate of 4% pa repayable on 31 March 2017. Cripps uses 40% of the borrowed funds for income producing purposes and is therefore entitled to a deduction of 40% of the interest paid on the loan. Cripps pays all interest payments on the due dates but does not repay any of the principal sum borrowed during the FBT year.

Calculate the taxable value of the loan fringe benefit.

Answer 2

Illustration 2

Loan Fringe Benefit

Taxable Value (TV):

= Loan Benefit x (Statutory interest – Actual interest)

= $100,000 X (5.65% - 4.00%)

= $1,650

s. 19 FBTAA:

40% of the loan is to be used for income producing purposes and is ‘otherwise deductible’ to the employee

Reduced tax value of the loan:

RTV = $1,650 X 0.6 = $990

(NB: There is no GST payable therefore the grossed up value to be taxed to the employer is:

$990 x 1.9608 = $1,941

and FBT PAYABLE = $1,941 x 49% = $951

Question 3

Illustration 3

(a) Due to his high sales figures, Murphy received a trip to Cairns from his employer which cost his employer $5,000. He was awarded the trip on the 14th March.

Discuss any tax consequences of the above.

(b) If the trip to Cairns had been for Murphy to attend a computer conference, would this

change your answer in part (a) above?

Answer 3

Illustration 3

(a) This is a Property Fringe Benefit: (sec. 45 FBTAA)

 Taxable Value of trip is the cost to the employer

 TV = $5,000

 As the trip would be subject to GST (is a Type 1

Benefit) & therefore the gross up rate is 2.1463

 Grossed up Amount = $5,000 X 2.1463 = $10,732

 FBT payable by the employer is:

 $10,732 x 0.49 = $5,258

(b) If trip was to attend a computer conference then no

FBT is payable as it is work related and therefore otherwise deductible.

(provided no private component or entertainment)

Question 4

Illustration 4

Chris Judd purchased a new desktop non-portable computer from his employer Harvey Norman Ltd, a computer retailer, at a cost of $1,800. This price represented a discount of 33% on the normal selling price to the public. The cost of the computer to Norman was $1,600.

Discuss the tax consequences of the above transaction.

Answer 4

Illustration 4

 A ‘Desktop PC’ is not an exempt benefit

 This is an in-house property fringe benefit as the employer is a retail seller of computer equipment (staff discount) sec.42

 Taxable value of the benefit is the ‘arm’s length price’ to the provider less amount paid by employee

 However as Judd (employee) paid more than the cost to Norman (employer) there is no fringe benefit

Question 5

Question 1

To what extent are the following items fringe benefits?

•  entertainment allowances
•  motor vehicle allowances
•  golf club membership fees
•  children’s school fees
•  professional association membership fees

Answer 5

QUESTION 1

If paid for by an employer then:

 Entertainment allowance is assessable as income sec 15-2. Not a fringe benefit (FB).

 Motor vehicle allowance is assessable as income sec 15-2. Not a FB.

 Golf club fees are an ‘Expense Payment’ FB (Type 1) and subject to FBT. Gross-Up by 2.1463 and employer pays FBT

 School fees are an ‘Expense Payment’ FB (Type 2) and subject to FBT. Gross-Up by 1.9608 and employer pays FBT.

 Professional Association membership fees are an ‘Expense Payment’ FB but the FBT payable is reduced by the “otherwise deductible” rule. Thus as the membership fees would be deductible in full, the FBT payable is reduced to Zero.

Question 6

Question 2.

On 1st of April the taxpayer is given a loan by his employer of $400,000 at 3% p.a. repayable on demand. The loan was used to finance the purchase of his new principal residence in Hawthorn.

Required:

Explain if the loan gives rise to a FBT liability. If so, calculate any FBT payable.

Answer 6

QUESTION 2

Answer

For year ended 31 March 2017, benchmark rate is 5.65%. As the $400,000 is used for private purposes the loan gives rise to a FBT liability as follows:

$400,000 x (5.65% - 3.00%) = $10,600 x 1.9608 = $20,784 (FBT taxable value)

FBT payable = $20,785 x 49% = $10,184

Question 7

Question 3.

A confused employer asks your opinion on the following events:

 + the employer pays an employee’s telephone account

 + a lump sum payment is made to a retiring employee from the employer sponsored superannuation fund.

 + free use is given to an employee’s family of a holiday home owned by the employer.

 + the employer pays $3,500 of the employee’s private medical fund (Medibank Private) contributions.

 + an employer lends $80,000 interest free to an employee who purchases shares in a company on which fully franked dividends will be paid.

Required:

With respect to the above events, advise the employer as to:

(i) which items are fringe benefits, and
(ii) whether any fringe benefits tax will be payable.

Answer 7

QUESTION 3

Answer

 Telephone account is an ‘Expense Payment’ FB. However FBT is only payable on the private component of the telephone account

 Superannuation payments are taxed as Income to a recipient employee and are excluded from FBT. Hence not subject to FBT.

 Use of holiday home is a ‘Property’ FB and FBT is payable on the ‘market value’ at the time of using the Holiday home.

 Private Medical Fund contibutions are an ‘Expense Payment’ FB and $3,500 is subject to FBT.

 Interest free loan is a ‘Loan’ FB. But as the loan is used for income producing purposes, no FBT is payable.