Taxation Law



Taxation Law

Introduction

Under the employment settings of an employee in an organization, he/she is entitled with some of the benefits associated with employment. Employees are offered with their benefit packages as their total compensation program. The range of these benefits offered is most often 30 to 40 percent above the employee's basic salary (Australian Taxation Office, 2006). Now the question arises, why companies do not provide their employees with increased 30 to 40% salaries and give them a choice to opt for the benefits on their own?

According to the research, it has been found that there are four main reasons behind such arrangement of providing benefits by the employers to its employees in an employment setting (Australian Tax Facts, 2012). These four reasons are:

Incentives - Many of the employers try to entice their employees to join their organization by offering them such offers. A firm and healthy benefit package is as good as salary dollars.

Lower Cost - The main reason for the employer offering benefits instead of cash salaries is that according to Smith, a decade ago most of the employers started adopting benefit plans in lieu of paying cash salaries, simply for tax benefits (2007). Based on the calculations according to this article, it has been clearly found that tax collected on salaries is much different than tax collected on the same worth of benefits provided by the employer.

Work Satisfaction - Employees feel more satisfied and happier with the paid and managed benefit program set the employer in an employment setting. These benefits reduce the stress level of the employees by giving the responsibility of such benefits to the employer which is effectively managed by him through such benefit program design.

Staff morale - Lastly, staff morale remains high. Happier and healthier staff means, greater satisfaction and greater satisfaction then leads to increased productivity.

There are a lot more reasons based on which an employer wants its employees to be provided with benefits in lieu of paying them cash salaries. In our paper we are going to give an overview about the fringe benefits and their taxation. Moreover, we will also be looking at the capital gains subject to taxation through solving some practical examples.

Discussion

What is a fringe benefit?

A fringe benefit is referred to any type of benefit provided by an employer to an employee other than salaries or wages in an employment setting. It may either be monetary or non-monetary in nature. In simple words, any benefit provided by an employer to its employee (either former or present) is known as a fringe benefit (Australian Taxation Office, 2006).

Employee is termed as a person entitled to receive wages or salary from his employment. All the benefits that have been provided in respect of someone who has died in employment are not termed as fringe benefits because the deceased person does not come in the definition of “employee” under Fringe Benefit Taxation (FBT) legislation. The term FBT in itself is very broad and has general meanings for FBT ...