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HI6028 Taxation Theory, Practice &
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Law

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Taxation

Fringe benefits tax of FBT can be termed as the tax that is paid by the employer on the value
of benefits that is given to the employees. It can even be described as the non-wage payment
or advantage that the employer bestows on the employees. Rapid Heat Pty Ltd is a
manufacturer of bathtub who provides some fringe benefits to one of the employees. During
the year 2017-18, Jasmine was given a car, loan along with other good that is being
manufactured by the company. Hence, in this scenario, Rapid-Heat will be required to pay
the FBT. The computation of FBT is shown below:

FBT on the usage of Car

The employer will be subjected to FBT when the car is provided to the employee for usage.
In this scenario, the employer needs to pay the FBT. However, if the car does not meet the
definition of the car then residual fringe benefits will come into action. Further, there are
many other instances when the utilization of car is exempted from fringe benefit. The
computation of the FBT on tax can be done in either of the two ways that are the statutory
method or the operating cost method (Pratt & Kulsrud, 2013). The statutory method of
computation of the FBT is utilized because the operating cost method needs the presence of
log books with the complete details of the travelling done in terms of kilometres and personal
purpose.

In the present scenario, Rapid-Heat Pty Ltd has provided Jasmine with a car on 1st May 2017
that was purchased on the same date for an amount of $33,000. The expenses that are
incurred by Jasmine constitute to $550 on the car that was reimbursed by the company and
the car travelled for around 10,000 km. Further, it needs to be noted that Rapid Heat Pty Ltd
was unable to utilize the car for a period of 15 days during the year. Hence, in the absence of
information, the computation of the FBT will be done as per the statutory method.

As per statutory method-

A*B*C
- E
Value of benefit = D

Where,

A = Car cost

B = Statutory Percentage

C = vehicle was used for private purpose

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Taxation

D =Days in the Year

E = Contribution of the Employee

The following data were gathered from the case

A = 33000, B = 0.20, C = 320, D = 335 and E = 0

Hence, the computation can be done in the following manner

33000 * 0.20 *320

- 0 = 6,304
Value of Benefits = 335

Value grossed up = 6304 * 2.1463 = 13,531

Fringe benefit tax on loan:

A fringe benefits tax on the loan is chargeable when the employer does not charge the interest
or a very low level of interest in charged on loan. When the interest rate is lower as compared
to the benchmark rate then the interest rate is considered as a low-interest rate. If the
employee owes a debt to the employer and the employee fails to make the payment on time
and furthermore, the employer does not ask for the same then it will be treated as a fringe
benefit and will be exempt from the ambit of FBT (Nethercott et. al, 2013). In the provided
case, it is noted that Rapid Heat Pty Ltd has provided jasmine with a loan amounting to
$,500,000 at the rate of interest at 4.45%. Out of that, a sum of $450,000 was utilized to
purchase a holiday home and the remaining amount was provided to the husband to purchase
a share in Telstra without any part of interest. As per the current standard, the threshold rate
is 5.95%

Hence, fringe Benefit value on loan = (Bench mark rate - rate charged by employer) * Loan
Amount

From the case study we have

Fringe Benefit value on loan = (5.95% - 4.45%)* 500000 * 7/12 = 4,375

Grossed up Value = 4,375 * 1.9608 =

8,579

3
Taxation

When the loan is given by the employer to the employee and if the amount is used for the
purchase of assets that generates income, such amount is deductible for the FBT computation.
However, in the current scenario, the shares are purchased by the husband of Jasmine and
hence deduction cannot be claimed by the employer (Nethercott et. al, 2013)

(a)

Fringe benefits tax on goods:

An FBT on the goods of the company is chargeable when the company sells the goods to the
employee at a price that is lower than the current market price. In such a scenario, the
employer will be subjected to pay FBT on the difference that exists in the price at which the
goods are sold to the employee (Sadiq et. al, 2005)

In the present scenario, Rapid-Heat Pty Ltd has sold the goods to the employee (Jasmine) ar
an amount of $1300 while the same goods are sold in the market at a price of $2600. Hence,
the company will be required to pay FBT on the difference that exists between $1300 and
$2600. Hence,

Value of fringe benefit tax on goods = 2600 - 1300 = 1300

Grossed up Value = 1300 * 2.1463 = 4,078

The overall value of fringe benefit tax that i chargeable is as follows:

Grossed up value of Car = 13,531

Grossed up value of Loan = 8,579

Grossed up value of Goods = 4,078

TOTAL = 26,188

FBT charged at the rate of 49% will amount to $ 12,832

(b)

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Taxation

Further if Jasmine used the amount of $50,000, the loan that was received by the employer to
purchase the share of Telstra then the employer will be entitle for a deduction of interest on
the amount $50,000. The new amount of FBT would be as follows:

Value of fringe benefit on loan = (5.95% - 4.45%) * 450000 * 7/12 =

3,938

Grossed up value = 3938 * 1.9608 = 7,721

Now, the total fringe benefit tax that would have been chargeable would be,

Grossed up value of Car = 13,531

Grossed up value of Loan = 7,721

Grossed up value of Goods = 4,078

TOTAL = 25,330

FBT charged at the rate of 49.25% will amount to $ 12,475.

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Taxation

References

Kobestky, M. (2005) Income Tax: Text, Materials and Essential Cases. Sydney: The
Federation Press

Nethercott, L., Richardson, G.,& Devos,K.. (2013) Australian Taxation Study Manual.
Oxford university Press

Pratt, J. W. and Kulsrud, W. N. (2013) Federal Taxation. Penguin Publishers

Raymond H. P. (2002) Accounting for Fixed Assets. John Wiley and Sons, Inc

Renton N.E. (2005) Income Tax and Investment, 2nd Ed. Oxford University press

Sadiq,K., Coleman, C., Hanegbi, R., Jogarajan,S., Krever, R.,Obst, W., & Ting, A. (2014)
Principles of Taxation Law. Sydney.