Australasian Benefits Tax and Travel

Question: Discuss about the Australasian Benefits Tax and Travel. Answer: Introduction: According to the rules and guidelines of ATO, assessable income are those that can be earned from income from direct and indirect sources. ITA Act, 1997 reflects that all the residents of Australia are subjected to pay taxes. Sec-6-15 further reflects that only ordinary and statutory income needs to fall under assessable income. If any income do not fall under these categories, then, that income will not be considered as an assessable income. On the other hand, Section 10-5, provides certain provisions of assessable incomes. These provisions are about inclusion of assessable income amounts that are not ordinary incomes. These incomes can be of various types such as insurance bonus, sale of fixed, capital assets, or properties, employer giving a lump sum amount to its employer, provision for bad debts, recovery of bad debts, gains from foreign exchange, swapping of debt and equity, etc. These incomes not fall under the category of ordinary incomes (Austlii.edu.au. 2016). On the other hand, there are various types of income categories falling under ordinary income. These are in the form of income received from sale of property, profit of an organization, reserves and surplus, salaries and wages, interest on bank deposit, rental income, etc. It can be also inferred that in case of every ordinary income, all the gains are either convertible on cash or received in cash. If there is no existence of real gain, then that particular income should not fall under the category of ordinary income. It can be also highlighted that, in case of ordinary income like sale of property, then, an individual is required to pay taxes on the net sale proceeds received on that property (Austlii.edu.au. 2016). In the given case, it can been seen that a tennis court has been purchased by Peta and this was present in her house. The main objective of Peta is to earn profits by selling the three units of the tennis court. This can be considered as an assessable income under Section 10-5. If Peta, could sell the house in units after incurring all the expenses, this could have been included as her business income and termed as an ordinary income under Sec-6-15. However, it has been seen that he has sold the tennis court to the club as a whole and not in units. Due to this reason, such kind of income can be included as ordinary income (Reddy 2014). The main reason is that this income has been generated in the intention to make profits. The main intention of Peta was not to sell the tennis court as a whole, but in units. However, since her intention was to make profit and the income received is readily convertible in case, therefore, the total income of $600,000 can be termed as an ordinary income and not a statutory income of Peta in accordance to the provision of section-5. It can be also seen that Peta did not involve herself in real-estate business and if she had to include this as under ordinary income, then, she has to pay taxes on her net income received. On the other hand, she can also get a 50 percent tax rebate, if the total amount of income received is shown as a capital gain in her books of account (Hodgson 2015). FBT consequences of the organization Pomerleau (2014.) opines that fringe benefit tax can be defined as the taxable amount on benefits given to the employees. FBT is applicable to all the benefits in case of benefits of family members of the employee. Generally, FBT can be calculated with the help of two methods, which are, lower gross-up rate and higher gross-up rate. There are different types of fringe benefits that an organization can give to its employees. This can be in the form of entertainment fringe benefits, car benefit, special discount benefit, etc. However, it is also be noted that all the various types of fringe benefits needs to related to the employment of that particular employee (Kenny 2014). In the given case study, the organization ABC Pty Ltd gives several amounts of fringe benefits to its employee Alan. The employer receives a salary of $30000, a mobile bill of $220*12= $2640 per year and payment of Alans childrens school fees as well. According to the Fringe Benefit Tax assessment Act, 1986, if any item is used for work related purpose, and then those expenses are exempted from FBT liability (Austlii.edu.au. 2016). However, it has been also seen that, the organization ABC Pty Ltd pays mobile bills to a third party and not to Alan directly. Therefore, mobile expenses will be considered as taxable fringe benefit. On the other hand, it can be inferred that FBT not includes the total amount of salaries and wages paid to the employees. Therefore, the salary of $300,000 of Alan will not be included in Fringe tax benefit (Kudrna, Tran and Woodland 2015) Apart from this, it can be inferred that the employer pays the fees of employees child. According to FBTA Act 1986 (Section 20), such expenses needs to be treated as expense fringe benefit and due to this reason, the employer ABC Pty Ltd needs to pay the liability of such expenses. It has been also seen that the organization hosted a dinner of all the employees resulting in a cost of $6600, and per head of cost of $330. Therefore, this will come under the head of entertainment benefits as per ATO guidelines. Due to this reason, the organization ABC Pty Ltd needs to include this while calculating their FBT liability (Iknow.cch.com.au. 2016). Apart from this, since ABC Pty Ltd is not a small organization, therefore, 49 percent FBT rate will be charged on net taxable benefit of the organization (Austlii.edu.au. 2016). The following table reflects the FBT tax consequences that the organization ABC Pty Ltd can face. Table 1: FBT liability of the organization ABC Pty Ltd (Source: Created by Author) The above table reflects that the total amount of FBT liability of the organization ABC Pty Ltd will be around $22339. This has been calculated with the segmentation of two columns ie, GST inclusive amount and GST Fee amount. Two columns have been separated as it helps in the multiplication of Gross-up rates with the respective values. Only 5 employees included In the given scenario, there will be a change in total dining cost incurred in the restaurant, if total amount of employees decreases from 20 to 5. The per-head cost of dining will increase and it will have an effect on the total FBT liability of the organization ABC Pty Ltd. This can be reflected with the assist of the following table:- Table 1: FBT liability of the organization ABC Pty Ltd in case of 5 employees (Source: Created by Author) From the above table, it can be inferred that the organization ABC Pty Ltd will have a higher amount of FBT liability if the employees are reduced to five. Clients attending dinner The above scenario would have any impact on the total tax liability of the firm ABC Pty Ltd. This is mainly because FBT liability can be only imposed in case of employees and not for clients. Therefore, no deductions will be done in calculation of FBT for the business organization ABC Pty Ltd (Delany 2012). References Austlii.edu.au. (2016). Australasian Legal Information Institute (AustLII). [online] Available at: https://www.austlii.edu.au/ [Accessed 21 Sep. 2016]. Chan, C., 2014. Earnouts and CGT: Fine-tuning the. Tax Specialist, 18(1), p.27 Delany, T.P., 2012. Fringe benefits tax Dunne, J., Aldred, J., Gorton, T. and Taylor, H., 2015. 2014 cases show a continuing trend of high ATO success rate. Taxation in Australia, 50(1), p.20. Hodgson, H., 2015. Fringe benefits tax and travel to and from work: how can employers sponsor alternative forms of travel?. Australian Tax Law Bulletin, 2, p.1. Iknow.cch.com.au. (2016). Australian Tax Accounting | CCH iKnow. [online] Available at: https://www.iknow.cch.com.au/topic/tlp1041/overview/assessable-income [Accessed 21 Sep. 2016] Kenny, P., 2014. Small business CGT concessions: The SBE and $6 m net asset value basic conditions. Tax Specialist, 17(4), p.157. Kudrna, G., Tran, C. and Woodland, A., 2015. The dynamic fiscal effects of demographic shift: The case of Australia. Economic Modelling, 50, pp.105-122. Pomerleau, K., 2014. The high burden of state and federal capital gains tax rates. Tax Found, pp.1-8. Reddy, C., 2014. The Taxation of Mining Payments to Traditional Owners: An Unfair Blunt Tool?. Available at SSRN 2479162.