Law and Taxation Final Assessment FBT and Depreciation of Assets Calculations
Fringe Benefit Tax Liability
(I) Statutory Rate:
A flat statutory rate of 20% applies (subject to transitional rules), regardless of the distance travelled, to all car fringe benefits you provide after 7.30pm AEST on 10 May 2011 (except where there is a pre-existing commitment in place to provide a car).
As Emma did not use car for 15 days and went on for Interstate thus Periwinkle’s FBT liability as at 31 March 2014, at the end of the FBT year, would be determined as follows:
An Employee’s Car FBT is determined by as Follows:
Fringe Tax Benefit Value = (.20 x Base Value x N0. of Days Used / No of Days in Year) – Recipients Paid
FTB Value = (.20 x $33000 x 320/365) – $550
= ($6600 x .876) – $550
= $5781.6 – $550
= $5213.6
In Order to Find Fringe Benefit, We will multiply FB Value with Gross up Value;
FB = $5213.6 x 2.0647
FB = $10801
(II) Loan Fringe Benefit Tax
Taking Value from Case, We Can State Data As;
Loan (Months) = 7 (September 1st to March 31st)
Total Loan = $500,000
Statutory Interest = 6.45%
Actual Interest = 4.45%
The amount from Loan Used for Generating Income = (10%) of $50,000
Now Putting Values into the Loan Tax Value Formula;
Loan Taxable Value = (Notional Amount of Interest – Actual Amount of Interest)
= (500,000 x 6.45%) – (500,000 x 4.45%)
= $ 32250 – $22250
= $10,000
Reduce Taxable Value After Taking into Account the “Otherwise Deductible Rule” (RTV):
RTV = TV – (GD – RD)
= $10,000 – ($500,000 x 6.45% x 10%) – ($500,000 x 4.45% x 10%)
= $10,000 – ($3225 -$2225)
RTV = $9000
In Order to Calculate FBT Tax on loan, we will multiply RTV with Gross up Value;
FB = $9000 x 1.869
FB = $16821
(ii) In House Fringe Benefit Tax:
Emma bought tub at price of 1300 dollars is not subject house fringe benefit. Thus according to Fringe Benefits Tax Assessment Act 1986 Section 22a Taxable value of in-house expense payment fringe benefits (1) Subject to this Part, the taxable value in relation to a year of tax of an in-house property expense payment fringe benefit (in this subsection called the actual fringe benefit ) provided during the year of tax is the amount that, if: (a) the provision of property to which the actual fringe benefit relates were an in-house property fringe benefit (in this subsection called the notional fringe benefit ); and (b) the recipients contribution in relation to the notional fringe benefit were equal to the recipients expenditure reduced by whichever of the following amounts is applicable: (i) the amount of the payment referred to in paragraph 20(a) reduced by the amount of the recipients contribution in relation to the actual fringe benefit; (ii) the amount of the reimbursement referred to in paragraph 20(b) (Austlii, n.d.).
(III) In House Fringe Benefit, Tax Free Threshold
According to Fringe benefit Tax Assessment Act 1986 Section 62 (1), Where one or more in-house fringe benefits in relation to an employer in relation to a year of tax relate to a particular employee of the employer, the taxable value of that fringe benefit, or the sum of the taxable values of those fringe benefits, as the case may be, in relation to that year shall be reduced by: (a) if the taxable value or the sum of the taxable values does not exceed $1,000–an amount equal to the taxable value or the sum of the taxable values; or (b) in any other case–$1,000 (Austlii, n.d.).
On the other hand, According to Fringe Benefit Tax Assessment Act 1986 Section 42 when the employee is retailer and manufactures of identical property then the actual taxation value is subject to 75% of lowest arm length Price (Austlii, n.d.). So we can calculate taxation value as;
Taxation Value = ($1300 – $1000) x 0.75
= 300 x .75
= $225
FB Can Be Calculated By Multiplying Taxation Value with Gross up Value;
FB = $225 x 1.869
FB = $421
Finally Calculating Fringe Tax Liability of We need to Add all the FB Values and Multiply with Tax Rate of Year 2013/14 , which is 46.5%, We Will Get;
Fringe Tax Benefit Liability = Sum of All FB Taxes x 46.5 %
= $10801 + $16821 + $421 x 46.5%
= $28043 x 46.5%
FBT Tax Liability = $ 13040
Question No.02
Solutions:
Alpha’s Business Pool Balance
Closing pool balance from previous year $5300
- a) Opening pool balance for current year $5300
- b) Add new asset purchase (Printer) $700
Sub Total $6000
Calculation of Decline in Year 2014:
- a) $5300 x 37.5% = $1987.5
- b) $700 x 75% = $131.25
Deduction of Decline in Value in Year 2014 = $2118.75
Closing Pool Balance at End of Year 2014 will be $43881.25 = ($5300 + $700 – $2118.75)
According to Income Tax Assessment Act 1997 Section 40.425 (7) of allocating assets to low pool cost, one cannot allocate a * depreciating asset to a low-value pool if you deduct amounts for it under Subdivision 328-D (about capital allowances for small business entities). Moreover also in Section (8), one cannot allocate a * depreciating asset to a low-value pool if you are entitled under Section 355 (100) to a * tax offset for a deduction under Section (355- 305) for the asset for an income year starting before, or at the same time as, the allocation has effect (Austlii, n.d.).
With respect to Alpha, bad news is that they may have ordinary income as a result of expensing or depreciation. And this will entitle organization 3.8 percent tax on Net Investment Income. When you dispose of a capital asset, the amount of depreciation allowable for that asset will be taxed at your ordinary income rates, not the capital gains rate. This means that if you realize a capital gain on the sale or other disposition of property used in your trade or business, you probably won’t get the benefit of the special capital gains tax rate on the entire amount of your gain (Taxes, 2014).
Maintaining individual records for low-cost items for taxation purposes can impose significant compliance costs. Providing immediate write-off for such items would, however, provide undue tax benefits for those who are significant investors in low-value items and provide scope for tax avoidance. Taxpayers will be allowed to pool assets where they cost $1,000 or less. This option will replace the existing provision under which items costing less than $300 can be expensed. The use of pooling for assets costing $1,000 or less will not be mandatory, but where taxpayers elect not to use the pool they will be required to depreciate each item separately according to the rate of depreciation determined by its effective life. Under the diminishing value depreciation method, taxpayers have to continue to depreciate assets until disposed of, or scrapped. This can impose compliance costs upon taxpayers. Providing taxpayers with an option to include assets with opening tax values of $1,000 or less in the low-value pool will provide a mechanism for taxpayers to simplify the record keeping in relation to low-value assets for taxation purposes. Under the accounting standards, depreciation of assets is only required where it is material (Allowances, n.d.).
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