FBT Stands Fringe Benefits

Question: Discuss about the FBT Stands for Fringe Benefits. Answer: Introduction: This is a tax case related to FBT. FBT stands for Fringe benefits. It is the important part of business. It helps to attract quality staffs to the business. Once a company decides to provide fringe benefit tax, the company should be aware of the taxation implication in the hands of the company (S 32.20). The following benefits are mainly considered as fringe benefit; The benefits in terms of providing; Car Expenses related to car services like maintenance, fuel, and chauffeur. Car parking facility Low interest loan Entertainment expenses Payment or reimbursement of personal expenditure (S 32.25). Al most all work related equipments are that are provided to the employee in the due course of his employment and used by the employee for the official purpose then the benefits are not to be considered as FBT. There is some equipment and protective dressing which is being used by the employee in relation to his work is not considered as fringe benefits. The list of fringe benefits is allowed to be treated as exception and hence the following expenses are not charged under FBT; Phones, tablets, laptops, GPS navigation Computer software Briefcase Other items used in the service only2. The duel use items are considered as FBT. Once the company decides to provide those benefits to the employee that can be either used for work related purpose and for personal reasons those benefits attract FBT like; Use of car for the private purpose Offering employee the discounted loan Paying for the gym membership Entertainment tickets In this case study these factors which are related to FBT is witnessed; Here in this case Mary Jackson, a marketing consultant was relocated to Brisbane on 10 February 2016. The company given her following benefits; Transfer for furniture $4000 Entertainment allowance $5000 Laptop $2400 and mobile phone $800 Home Telephone $330, 50% used for personal purpose A company car valued $30,000 An allowance for professional subscription $1500 Low interest loan of $500,000 used for purchasing property Here, the tax liability of Mary Jackson includes her salary and entertainment allowances. The entertainment allowance is fixed allowance paid to her and added with salary. Therefore this allowance cannot be considered as fringe benefit (S 32.20). Tax Liability of Mary Jackson Salary $120,000 Add: Entertainment allowance $5,000 Professional Subscription $1,500 Total Salary $126,500 Tax Liability on Salary $18,201 $37,000 @19% $3,572 $37,001 $80,000 @32.5% $13,975 $80,001 $126,500 @ 37% $17,205 Total Tax Liability $34,751 FBT in the hand of Elite Retail Telephone 165 Low Interest Free loan 500000 (Benchmark interest during the period is 5.65%) Interest according to benchmark rate @5.65% 28250 Less: Actual Interest paid @4% 20000 Benefit 8250 Total Fringe benefit 8415 FBT @49% 4123.35 It is to be understood that Laptop valued $2400 and mobile phone of $800 is used for the official purpose and it also under the exemption of FBT norms. The car valued $30,000 provided to the employee is for official reasons. Therefore this benefit will not be considered as fringe benefit. The lower interest loan is however is to be considered to be fringe benefit by the amount lower interest paid. Here the case is related to computation of capital gain. It is nothing but the difference between the cost price of the asset and at the price at which the asset is disposed off. Once the assessee pays the capital gain tax, it is considered as the normal income tax, though it is referred as CGT. If the assessee makes capital loss, it cannot adjust it against normal income or loss, it has to be treated separately. The assessee has the option to carry forward the capital loss in the next tax year. It will only be adjusted against the capital gain in the next year (S 100.10). Most of the personal assets are not covered under capital gain tax. The assets like home, car and other personal assets cannot be considered as the capital assets. CGT is also not applicable for depreciating assets. The capital gain earned in other part of the world will be taxable in the hand of an Australian resident. The ascertaining of residential status is important in this respect5. There are two methods that can be used to ascertain capital gain, one is indexation method and another is discount method. Indexation benefit will be given to those assets acquired before 21September 1999. The consumer price index (CPI) is used for the indexation. Indexation is primarily used to increase the cost base of the asset4 (S 100.20) According to the discount method of calculation of capital gain tax, the tax liability of the assets under capital gain will be reduced by 50%. This is an important aspect of calculation of capital gain tax calculation. The important factor that needs to be considered in the tax calculation is the date of ownership of the asset (S 100. 30). Here in this case Scott purchased a block of land on 1980 in Brisbane. He constructed a house for $60000 and property was rented since then. The capital gain and the capital loss can be calculated based on discount method. The discount method of calculation is better for individuals and it saves cost. Capital Gain Tax indexation Sale price $800,000 Less: Indexed cost of land $225,417 CPI 30 Sept 1986 43.2 CPI 31 March 2016 108.2 Less: Indexed cost of construction $150,278 Capital Gain $424,306 Capital Gain Tax Discount Sale price $800,000 Less: Cost of land $90,000 Less: cost of construction $60,000 Capital Gain $650,000 Capital gain would be reduced by 50% $325,000 The discount method of the calculation would be more acceptable to Scott. Even if the property was transferred to his daughter at lower cost, it would be treated as the capital gain. The market value of the asset has to be ascertained and then the capital gain tax has to be calculated accordingly. The tax calculation will be same as Scott sold the property at $800,000. Therefore he had to pay same capital gain tax even if he had transferred the asset to his daughter at $200,000. References: Australian Taxation Office, Types of fringe benefits (25 September 2016) https://www.ato.gov.au/General/fringe-benefits-tax-(fbt)/types-of-fringe-benefits/ Australian Taxation Office, FBT exemptions and concessions (25 September 2016) https://www.ato.gov.au/General/Fringe-benefits-tax-(FBT)/FBT-exemptions-and-concessions/ Australian Taxation Office, Work-related items exempt from FBT (25 September 2016) https://www.ato.gov.au/General/fringe-benefits-tax-(fbt)/do-you-need-to-pay-fbt-/work-related-items-exempt-from-fbt/ Australian Taxation Office, Capital gains tax (25 September 2016) https://www.ato.gov.au/General/Capital-gains-tax/ Australian Taxation Office, Working out your capital gain (25 September 2016) https://www.ato.gov.au/General/Capital-gains-tax/Working-out-your-capital-gain-or-loss/Working-out-your-capital-gain/ Australian Taxation Office, The indexation method of calculating your capital gain (25 September 2016) https://www.ato.gov.au/General/Capital-gains-tax/In-detail/Calculating-a-capital-gain-or-loss/The-indexation-method-of-calculating-your-capital-gain/ Australian Taxation Office, Why do you need a market valuation? (25 September 2016) https://www.ato.gov.au/General/Capital-gains-tax/In-detail/Real-estate/Transferring-real-estate-to-family-or-friends/?page=3