CHAPTER 7 – FRINGE BENEFITS TAX

Principles of Taxation Law 2020

Answers to Questions

CHAPTER 7 – FRINGE BENEFITS TAX

Question 7.1

Determine whether the following benefits are fringe benefits or exempt fringe benefits and, where applicable, the relevant category of fringe benefit. Provide reasons for your answer:

  • Payment to employee for the estimated cost of the employee’s home phone bill as the employee sometimes has to use the home phone for work purposes.
  • Provision of accommodation at the family home to a child who is over 21 and works in the family business.
  • Payment of employee’s superannuation contribution by the employer to a complying superannuation fund.
  • Loan by Company X to one of its directors, Rupert, who is also a shareholder in the company. The company’s rules do not permit loans to directors.
  • Payment of taxi fare by employer for employee to travel home after working late.
  • Flowers sent to a sick employee. The flowers cost $75.
  • Provision of a car for an employee’s private use, including payment of all fuel costs by the employer.
  • Provision of sandwiches at a lunchtime seminar held at the employer’s premises.
  • Provision of an all-expenses-paid holiday to an employee who has had to work every weekend for the last six months.
  • Provision of two laptop computers to an employee who regularly attends clients’ premises.

Answer

  • Not a fringe benefit. It is an allowance as the employee is paid a pre-determined amount for the expense: see [7.80].
  • Issue is whether it is provided “in respect of employment” or because of the family relationship. Further investigation is needed, such as finding out whether the child is otherwise properly remunerated for their work in the family business: see [7.70].
  • Not a fringe benefit. Excluded from the definition of “fringe benefit”: see [7.80].
  • Not a fringe benefit. Loan provided due to the shareholder relationship not “in respect of employment”: see [7.70].
  • Exempt fringe benefit: see [7.350].
  • Exempt fringe benefit: see [7.320].
  • Fringe benefit. It is a car fringe benefit. The payment of the fuel costs are not a separate fringe benefit and are part of the car fringe benefit: see [7.100].
  • Exempt fringe benefit. Not a meal entertainment fringe benefit because it is not related to “entertainment”: see [7.230]. Not a property fringe benefit because it is exempt: see [7.260].
  • Fringe benefit. It is a residual fringe benefit: see [7.280].
  • One laptop is an exempt fringe benefit: see [7.330]. The second laptop is a property fringe benefit: see [7.250]. However, if the employer is a ‘small business entity’, both laptops can be treated as exempt benefits. See [7.330] and [3.210].


Question 7.2

Jenny is an employee of the university. She is provided with 10 gift vouchers worth $50 each for use at the local supermarket as a Christmas gift. Advise Jenny and the university of the tax consequences of this transaction.

Answer

The provision of the vouchers is the provision of a fringe benefit. They would likely constitute a residual fringe benefit. Although each individual voucher is valued at less than $300 and may qualify for the minor benefit exemption, they must be looked at cumulatively as they are similar benefits and the total value is more than $300: see [7.320]. Therefore, the university is subject to FBT in relation to the provision of the vouchers: see [7.280]; [7.400]–[7.420]. The vouchers are non-assessable non-exempt income for Jenny: see [7.440].

Question 7.3

Loo is an employee at a large real estate agency. He has negotiated the following benefits with his employer:

  • Provision of a car for work and personal use. Loo was provided with the car for the period 1 April 2019 to 31 March 2020. The leased car value was $22,000 at 1 April 2019, and the car had only been leased for a year at that time. Loo is required to pay for any petrol costs which he has determined to be $1,300 for the period 1 April 2019 to 31 March 2020.
  • Provision of the latest model smart phone on 1 April each year as Loo is usually “on the street” and needs a good phone to do his job. Loo estimates that he uses the phone 70% for work purposes. The phone was purchased new on 1 April 2019 for $1,100 (including GST).

Advise Loo’s employer as to the FBT consequences (including calculation of any FBT liability) arising out of the above information. You may assume that any benefits are Type 1 fringe benefits.

Answer

  • Provision of car
    • Qualifies as a car fringe benefit as the car is available for Loos’s private use: FBTAA, s 7.
    • In the absence of an election to use the cost basis method (and further information), the statutory formula method is used:
    • Taxable value = (0.2 * $22,000 x 366/366) – $1,300 = $3,100
      • Base value = Leased car value
      • Number of days car provided as fringe benefit = 366 because car provided for the entire FBT year and it is a leap year.
      • There is a recipient’s contribution of $1,300 for the petrol costs for which Loo was not reimbursed.

See [7.100]–[7.130].

  • Mobile phone handset
    • This is an exempt fringe benefit (s 58X of FBTAA) as the mobile phone is primarily for use in Alan’s employment: see [7.330].
  • Fringe benefits taxable amount = $3,100 x 2.0802 = $6,449. See[7.410].
  • FBT payable = $6,449 x 47% = $3,031: see [7.420].

Question 7.4

Jasmine borrowed $15,000 from her employer on 1 February 2020 to pay for her wedding. The loan was provided at an interest rate of 2%. The wedding was on 29 February 2020 and on that day, Jasmine’s employer informed her that she only needed to repay $10,000 of the loan.

Advise Jasmine’s employer as to the FBT consequences (including calculation of any FBT liability) arising out of the above information. You may assume that the wedding costs are not a deductible expense for tax purposes. You may also assume that any benefits are Type 2 benefits.

Answer:

There are two fringe benefits arising here. At the end of the FBT year, 31 March 2020, Jasmine has received a loan fringe benefit and a debt waiver fringe benefit.

The taxable value of the loan fringe benefit is:

1 Feb to 29 Feb: $15,000 x (5.37%-2.0%) x (29/366) = $40: and

1 Mar to 31 Mar: $10,000 x (5.37%-2.0%) x (31/366) = $29

See [7.170][7.190].

The taxable value of the debt waiver fringe benefit is the amount of the loan that is waived, ie $5,000: see [7.150].

Fringe benefits taxable amount = [($40 + $29) + $5,000] x 1.8868 = $9,564. The loan fringe benefit and the debt waiver fringe benefit are both Type 2 fringe benefits as they are “financial supplies” which are “input-taxed supplies” and therefore do not include GST. They are not creditable acquisitions from the employer’s perspective. See [7.410].

FBT payable = $9,564 x 47% = $4,495: see [7.420].

Question 7.5

Rita’s employer sells furniture. On 17 January 2020, Rita purchased a table from her employer for $1,000. The table would usually be sold for $3,000 and cost the employer $500 to purchase. The employer decided to give Rita a tablecloth for the table as a “free gift” for the purchase of the table. The tablecloth would usually be sold for $150 and cost the employer $50 to purchase. Rita’s employer also decided to host a “leap year party” on 29 February 2020 for all employees and their partners. In total, there were 20 attendees (10 employees and 10 partners) and the party cost $3,300 (including GST). The party was held at a local Mexican restaurant.

Advise Rita’s employer as to the FBT consequences (including calculation of any FBT liability) arising out of the above information. You may assume that any benefits are Type 1 benefits. You may also assume that Rita’s employer has no other meal entertainment expenditure for the year, elects for Div9A to apply to the provision of meal entertainment fringe benefits and determines the taxable value of meal entertainment fringe benefits using the 50/50 split method.

Answer:

Provision of table for $1,000

  • The table would be an “in house property fringe benefit” as they are sold to customers in the ordinary course of the business: FBTAA, Div 11.
  • The table is acquired by Rita’s employer therefore the taxable value is the lesser of the cost for the employer to acquire the property or the cost to acquire the property from the employer. Here, the taxable value would be the cost for the employer to acquire the property as that is the lower amount = $500.
  • The taxable value is reduced by $1,000 for recipient’s contribution to $0.

Provision of tablecloth for free

  • The tablecloth would be an “in house property fringe benefit” as they are sold to customers in the ordinary course of the business: FBTAA, Div 11.
  • The tablecloth is acquired by Rita’s employer therefore the taxable value is the lesser of the cost for the employer to acquire the property or the cost to acquire the property from the employer. Here, the taxable value would be the cost for the employer to acquire the property as that is the lower amount = $50.
  • The taxable value may be further reduced to nil under s 62 FBTAA as it is an “in-house fringe benefit”.

See [7.250]–[7.270] and [7.370].

“Leap year party”

  • This is a meal entertainment fringe benefit and can be captured by a number of categories – property fringe benefit; meal entertainment fringe benefit; residual fringe benefit.
    • As stated in the facts, Rita’s employer chooses to apply Div 9A to its meal entertainment fringe benefits and uses the 50/50 split method:
      • Taxable value = 50% x $3,300 = $1,650
      • See [7.230] and [7.240].
  • As there are 10 employees and their partners, the taxable value of each fringe benefit is 1650/20 = $82.50. However, since we assumed that the employer has elected to use the 50:50 split method to value meal entertainment, the use of the minor benefit exemption under s 58P will not be available.
  • Fringe benefits taxable amount = ($1,650x 2.0802) = $3,432: see [7.410].
  • Fringe benefits tax liability = $3,432 x 47%= $,1613: see [7.420].
 
Reference no: EM132069492

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