The Taxable Value of the Benefit - Assignment Example

Your name: Course name: Professors’ name: Date Question 1a. FBT is described as a tax levied within the Australian tax system through the Australian taxation office. This tax becomes applicable to benefits which are provided by the employer to an employee as a result of the employment, in the form of non-cash benefits(CCH Australia 2011a). While the benefits are provided by an employer to the employees, the tax is levied on the employers as opposed to the employee(Australian Government 1986). The fringe benefit determination is based on the respect to the employment of the person being provided with irrespective of whether the person uses the benefits directly or indirectly through an associate. The different forms of benefits provided by employers are subject to determination of taxation through two different methods. The taxable value of the benefit is normally less the contributions which an individual employee might have made towards the benefit. Within the context of the FBT, there are various benefits which are described, and which employers can provide to their employees. The case mentioned above involves two types of fringe benefits which the employer provided Emma; car fringe benefit and loan fringe benefit. There are various issues which might arise in relation to the regulations provided regarding the taxation of these benefits. These include the taxations calculations and other factors which are essential in determining the method of calculating the taxation(Ault & Arnold 2010). While there are some benefits which might be exempt for the provisions of FBT, the benefits provided to Emma by Periwinkle do not fall within the category of the exempt benefits. The exempt benefits are also not charged income tax upon the employees and cannot be included within the reportable fringe benefits provided to employees. The calculation of the taxes payable upon the fringe benefits is conducted through two different methods. The employer is expected to make calculations of the fringe benefits tax for the year period between 1st April and 31st march, for each year. The most commonly utilised methods for calculating these taxes are the statutory formula and employee contribution methods. In the calculation of this tax, special cases might be applied on the employer who provided vehicles, like the one offered to Emma by Periwinkle. Since the employee does not make any contributions towards the employer who provided vehicles, statutory formula methods becomes the only available option for calculating the FBT. Within the case mentioned above, this calculation would be conducted through the statutory formula method(Black 2008). The amount of tax charged is taken as a percentage of the number of kilometres travelled (in this case 10,000) during the year. The number of kilometres considered includes both private travel and business mileage. This formula has however changed with effect from July 1st 2014, the calculation will be based on a flat rate of 20 % of the mileage covered during the year. Within the context of car fringe benefits, post-tax contributions made by the employees commonly reduce the FBT. These FBT liabilities arise from fringe benefit of a car provided through a novated lease. The element of novated lease commonly presents an advantage to both the employer and employee, and most employers use this as a salary packaging arrangement for their employees. The novated leases provide significant financial benefits to both the employer and employee at no extra cost to the business operations of the employer. The provision of a novated lease to the employee can enable the employer to reduce the FBT levied (Bourassa & Grigsby 2000). Within the provisions of novation contracts, the employee selects a car of their choice, for which the financial obligations of repayments are done by the employer. This becomes deducted from the remuneration provided to the employees. This becomes a contribution which the employee makes; hence should be deducted on the final FBT. The loan fringe benefit provided to Emma by Periwinkle is also subject to the prevailing conditions and provisions of the FBT act. The method of calculating this loan is also similar to the other method. Within the context of this loan however, the loan might be exempt from the provision of FBT. Within the above mentioned case, the exemption might apply since the employer waved some of the costs of the good purchased form the organisation(Barkoczy et al. 2010). This waiver of a fraction of the loan provides a platform for exempting the loan from FBT. The statutory interest rate is utilised in making calculation to determine the amount of taxes payable, by the employer, on the fringe benefit loan provided. The employer partakes all the repayment obligations of the employees to the financial institution. Fringe benefits on loans occur when the interest rate charged by the organisation is lower than the statutory interest rate, which is applicable within the specified settings. Question 1b The loan is not subject to exemption from the FBT under any circumstances which might arise. When the fees involved in the establishment of the loan become waved, this becomes residual fringe benefit to the employee. The taxable value of the loan is calculated independently for different loans which might be provided. Notional interest on the loan can enable income tax deduction to be offered to the employee(Cooper 2012). Within the context of the loan provided to Emma, there are no deductions which can be imposed upon the loan. The loan is not subject to any deductions which are applicable like the taxable benefits. If Emma had utilised the loan to purchase shares for herself instead of lending to the husband, the loan would not be considered as taxable benefit. This would be performed because the loan remains wholly deductible(Fishman 2013). In seeking to prove the deductibility of the taxes on the loan, Emma would be mandated by the provisions of the law to provide the employer with a declaration. This declaration would include the description of how the loan has been put to use. The interest generated from the loan when it is used for income generation becomes the basis upon which the deductions will be based. The taxable value would become different if Emma bought the shares herself rather than lending money to her husband to purchase the shares. Question 2 Understanding the taxation rules remains a fundamental element in enhancing the functional capability of businesses to pay taxes and avoid falling into tax traps. Taxations within a business setting present a fundamental challenge to business people in establishment of the calculating methods. Understanding the implications of business decisions on the taxation element remains essential in seeking to ensure that a business does not get affected negatively by taxations concerns(Tran-Nam et al. 2000). The payment of income taxes on business equipment which has a depreciating value commonly creates taxation challenges for the businesses. The simplified depreciation rules have been developed to make calculations regarding income tax deductions made on depreciating business assets for small businesses(Parliament of Australia 1997). These rules stipulate and define what constitutes a small business and are aimed at promoting the success of small businesses within the country. Within the provisions of the regulations, one can write off assets costing less than $6500 each, then polling together the depreciating assets and establish a depreciation rate: Most of the depreciating assets owned by Alpha fall within this category of assets which can be written off. The business can opt to write off these assets instead of calculating the depreciation of these assets(Woellner et al. 2012). This is however, complicated by the business requirements to utilise the same assets in running the daily operations of the business. In seeking to utilise the taxation benefits presented by the simplified rules, Alpha should clearly identify the assets which will be utilised within the current year, and have been in use during the previous year. This will involve the calculations of various cost associated to the assets which might be transferred to the business. This will include costs and improvements made to the assets which are being utilised for taxable purposes; described as profitable activities. Any cost additional which will be incurred must be factored in order to establish an accurate estimation of the deductions which will be made(AAT Case 2012). Income tax calculations for the business must include the deduction of miscellaneous expenses incurred by the organisation like depreciation. While the taxation law mandate the reporting of all income to the business, the expenses of the business are also essential in seeking to make tax deductions(CCH Australia 2011b). The legitimate deductions present a fundamental element for reducing the tax bill payable by many organisations. The capital investments of the business are considered as essential elements for consideration when seeking to establish legitimate tax deductions(Sørensen & Johnson 2010). These are defined as assets which businesses use for period exceeding a year. Since the cost cannot be deducted at a go, the costs become distributed over a period of time for which the assets is expected to remain usable. This makes depreciation a fundamental element of consideration when seeking to establish deduction. The ATO provides guidelines into approaches within can be utilised to make calculations of tax deductions for different business. The calculation for tax deductions will be based on the total of pooled assets held at the beginning of the year which is $ 5430. The pool rate for the year is 30%. The calculation if undertaken using the following formula Opening pool balance x pool rate = $ 5430 x 30% = $ 1629 Capital gains tax (CGT) concessions present a set of valuable tax exemptions upon satisfaction of various factors, by small businesses. The law applies to business assets which have been active and are utilised in conducting business activities(Australian Taxation Office 1999). Various CGT concessions are accorded to small businesses and Alpha can take advantage of the availability of these concessions in seeking to reduce taxation bills. The organisation can make application for tax deductions based on the valuation of assists and the provisions of CGT. Accessing these concessions will enable the Alpha to determine when the organisation can pool the assists together to claim deduction on the taxes. Pooling of the assets will be conducted in order to eliminate the numerous calculations which are conducted for each asset independently. These concessions also enable the business to make adjustments for the pool rather than making adjustments for independent assets. Alpha can easily develop a depreciation schedule which they can utilise in accessing the various concessions provide by the taxation law. The organisation will be able to make calculations of deductions based on the information available regarding depreciation of the business assets. The business does not need to inform ATO of the intention to use concessions, although there might be need to provide evidence indicating the utilisation of the approved method for calculating the decoctions made regarding depreciation of assets(Saez et al. 2009). When the business annual turnover exceeds $2 million, the organisation will become ineligible to use the simplified depreciation rule and begin using the uniform capital allowance. GST credit can also be claimed if the proposed assets are purchased for both private and business utilisation. The apportionment of this claim is conducted through estimation of the value of the assets which is meant for business purposes and this becomes deducted for the tax(Warren et al. 2005). The annual apportionment of GST is accorded to small business: with a turnover of below $2 million and business which have opted to make GST payments in instalments. This provision enables small business to make personalised choices of the apportionments which they shall be paying. Generally, there are numerous deductions which Alpha can claim from the income taxes levied based on the information available regarding the assets of the business. When completing the tax return the organisation can make various claims in tax deductions as a result of depreciation of the assets provided in the information. Depreciation remains one of the common income tax deductions which are claimed by business entities. If the business incurred costs for goods which were private and also utilised for business purpose, GST credit claim can be made for deduction to be implemented upon the income tax levied(Young 2013). Within the context of this regulation, however, the deductions are claimed for the business related portion of the costs. CGT concessions can also result in deductions of the taxes although in most cases there might be apportionment of the levied taxes in seeking to make payment relatively easy for the small businesses. References AAT Case, 2012, Rental property deductions, https://www.ato.gov.au/Individuals/Income-and-deductions/In-detail/Investments,-including-rental-properties/Rental-property-expenses/ Ault, HJ & Arnold, BJ 2010, Comparative Income Taxation: A Structural Analysis, Kluwer Law International, Berlin. Australian Government 1986, Fringe Benefits Tax Assessment Act, Treasury. Australian Taxation Office 1999, Income Tax and Fringe Benefits Tax: Members of Parliament - Allowances, Reimbursements, Donations and Gifts, Benefits, Deductions and Recoupments, Australian Taxation Office, Melbourne. Barkoczy, S. et al., 2010, Australian Tax Casebook, CCH Australia Limited, Melbourne. Black, C 2008, Fringe benefits tax and the company car: aligning the tax with environmental policy, Environmental and Planning Law Journal, vol.25, no.3, pp.182–195. Bourassa, SC & Grigsby, WG 2000, Income tax concessions for owner-occupied housing, Housing Policy Debate, vol.11, no.3, pp.521–546. CCH Australia 2011a, Australian Master Tax Guide, CCH Australia Limited, Melbourne. CCH Australia 2011b, Australian Tax Casebook, CCH Australia Limited, Melbourne. Cooper, J 2012, Superannuation and tax considerations, Taxation in Australia, vol.46, no.8, pp.343–349. Fishman, S 2013, Tax Deductions for Professionals, Nolo Press, Berkeley. Parliament of Australia, 1997, Income Tax Assessment Act, Melbourne. Saez, E, Slemrod, JB. & Giertz, SH 2009, The elasticity of taxable income with respect to marginal tax rates: a critical review, Journal of Economic Literature, American Economic Association, vol.50, no.1, pp.3–50. Sørensen, PB & Johnson, SM 2010, Taxing capital income: Options for reform in Australia. In Australia’s Future Tax and Transfer Policy Conference, Melbourne Institute, Melbourne:, pp. 179–235. Tran-Nam, B. et al., 2000, Tax compliance costs: Research methodology and empirical evidence from Australia, National Tax Journal, pp.229–252. Warren, N, Harding, A & Lloyd, R 2005, GST and the Changing Incidence of Australian Taxes: 1994–95 to 2001–02, eJournal of Tax Research, vol.3, no.1, pp.114–145. Woellner, R. et al., 2012, Australian taxation law, CCH Australia Limited, Melbourne. Young, G 2013, Taxation in Australia, Taxation in Australia, vol.48, no.1, pp.31–35. Read More