Taxation Law

Taxation Law

Question 1

Introduction

Fringe benefits tax (FBT) is a tax clause applied by the Australian tax system. The tax clauses applied within the fringe tax benefits scheme include non cash employment benefits which an employer receives by his employer. The tax in respect of fringe tax benefits is the responsibility of the employer and is not levied on the employee. It is levied on the employer irrespective of the way through which benefits are provided to the employee.

Calculations of the tax liability

For the year 2011and 2012 Fringe Benefits Tax is payable by the employer at a tax rate of 46.5%. The tax rate of fringe benefits is a combination of the highest marginal income tax rate 45%, and the Medicare levy of about 1.5%. The fringe benefit tax rate is applied to the gross taxable value which excludes any contribution made by the employee of the company.

Most of the employers like Chatswood Pty Ltd can effectively recover their Fringe Benefit tax payable (New South Wales, 2003).

The Australian Tax Office can approach Chatswood Pty Ltd, but if it is not the case then it as it is the employee's income, so employee's like Paul must pay the relevant fringe benefit tax. Similarly, if peter has the option of salary packaging, he can effectively receive fringe benefits in lieu of cash salary paid to him by Chatswood Pty Ltd. Similarly if Fringe Benefits Tax liability either current or future is expected or evident, fringe tax liability in this case must then be packaged in order to cover the liability for which for employer like Chatswood Pty Ltd will be liable (Commerce Clearing House1986).

Chatswood Pty Ltd will enjoy exemptions from fringe benefits tax if it provides the following benefits to its employees including peter, these primarily include

Benefit provided for Remote area housing for an employee.

Partial house allowed if the employee is living away from his house.

Expenses incurred in relocating an employee.

Superannuation expenses incurred by employers. These include retirement and pension contributions made privately.

Benefits incurred irregularly and infrequently by employees. These benefits must be less than $ 300 in monetary value.

Benefits provided which include Work associated items some of which are protective clothing, briefcases, tools of trade, portable digital assistants including laptops and gadgets, mobile phones etc.

All of the above stated exempt benefits are also exempt from income tax in the hands of the employee as well.

The fringe benefits provided by Chatswood Pty Ltd to Paul can be examined separately in order to determine the fringe tax benefits liability of Chatswood Pty Ltd.

Company maintained car

Paul has been provided with a fully maintained company car by Chatswood Pty Ltd which was bought for $22,500. Paul has travelled for about 20,000 km during 1 April 2011 to 31 March 2012, for private purposes and has contributed nothing during the period From 1 April 2011 to 31 March 2012.

The first thing that need to be decided by chatswood Pty ltd is to determine the method through which car benefits will be assessed, chats wood ...