Determining Fringe Benefit Consequences For Charlie And Shine Homes

Determination of Car FBT

Advise both Charlie and Shine Homes about the fringe benefit Consequences of these events. You are required to Compute the taxable benefit where necessary.

The following study is concerned with the determination of the fringe benefit consequences of Shine Homes and Charlie. As evident from the following scenario Charlie is an employee of Shiney Homes Pty Ltd working as the real estate agent. Homes on the other hand performs a business of landscaping and provided Charlie with the 4 wheel drive sedan. As stated under Section 6 of the Miscellaneous Taxation Rulings and Fringe Benefit Tax Assessment Act 1986 it lays down the circumstances under which the fringe benefit tax will be tax will be levied on car (Miller & Oats 2016).

As defined under the taxation rulings of MT 2027 personal use under sub-section 136 (1) any kind of use made by an employee or associates which is not completely used in the phase of generating taxable income of the employee will be considered as personal use (Pope et al., 2016). However, under sub-section 136 (1) a definition on the operating cost valuation method for commercial journey has been stated in effect of any kind of use of car other than the personal use made by an employee (Christie, 2015). As defined under paragraph 3 of the Miscellaneous Taxation Ruling 2027 details concerning the business journey is required to be recorded in the logbook or identical kind of document if the business kilometres travelled by the car are used in the determination of the personal use part of a car for the purpose of applying the operating cost method. Hence, it is found from the case study that Charlie travelled a total of 50,000 km relating to work. In determining the fringe benefit of the car used by Charlie operational cost valuation method will be used in compliance with sub-section 136 (1) of the Miscellaneous Taxation Rulings of 2027 (Fleurbaey&Maniquet, 2015).

A critical question arises in determination of the personal and commercial use. Therefore, whether the car used by the member of staff or the employee was wholly in the phase of the generating taxable earnings of the employee (Kabinga, 2015). This comprise of all the use that is completely made by the employee in the phase of acquiring or generating the taxable proceeds or performing the business activities for the purpose of generating the taxable proceeds in agreement with the sub section 136 (1). If further follows the use made in the phase of employment by the member of staff with the employer who presented the car for business carried on by the member of staff or an additional employment action of the employee might make up for business use of the car for Fringe Benefit Tax (Lang, 2014). Furthermore, use of car made by the employment during the phase of business that is carried on by the member of staff might similarly be considered as the business use for this purpose.

Operating Cost Method

From the given scenario of Charlie and Homes, it can be said that Charlie made the use of the car during the course of his employment with Charlie who provided him with the car to carry on the activities of the business. The use of car by Charlie constitutes business use of car in producing the assessable income of the employee and hence attracts Fringe Benefit Tax.

The test involved in determining the business use and private use for FBT purpose is identical that has been defined under the income tax law in ascertaining whether the expenditure acquired in using the car are considered deductions under section 51 of the Income Tax Assessment Act 1997. There are evidences from the case study that expenditure incurred by Charlie on car is for the employment use that can be completely considered for deductions for income tax purpose (Barkoczy, 2016). In ascertaining the differences between the personal and business use FBT can be used by raising the question whether Charlie had occurred expenditure on the use of the car and the expenses in the present case of Charlie would be considered as the allowable deduction for income tax.

Operating Cost Method
In the Books of Charlie
For the year ended 2016/17
Particulars	Amount ($)
Petrol and oil per month	6000
Repairs and Maintenance per month	10500
Registration per annum	240
Insurance per annum	960
Car parking fee	2400
	20100
Gross Taxable Value (a)	6030
Employee Contribution (b)	0
Taxable Value of the benefits	6030

In consistent with the present case study of Charlie and Homes, the guidelines from the Miscellaneous Taxation Rulings of 2027 established principles relating to Income tax (Snape& De Souza, 2016). As evident, Charlie correspondingly in compliance with the requirement of Sub-division F of Division 3 of the income tax assessment act in ascertaining the expenses of car occurs the ruling and Homes are deductible for the purpose of income tax (Braithwaite, 2017). 

As stated in the taxation rulings of IT 112 the conclusion held in the case of  Lunney and Hayley v FCT (1958) confirmed the circumstances that travelling between residence and an individual’s usual place of employment or trade is considered as the ordinary private travel (Cao et al., 2015). Travelling to place of employment is regarded as the essential pre-requisite in generating the earnings and it is not regarded in the phase of earning that income. Therefore, the kilometres travelled by Charlie to his work will be considered as private and the fact that Charlie used the car during the course of his employment would not change the results. It is understood that the place of work or employment is significantly itinerant in nature (Saad, 2014). Citing the reference of Newsom v Robertson (1952) 2 All ER 728; (1952), the cost that is occurred by the barrister in travelling between his home to the place of his business would be considered as expenses. The court acknowledge that traveling the expenditure occured in travelling from home to chambers or to various courts in the course of day does not amounted to expenses.

Log Book Method Computation
In the books of Homes
For the year ended 2016/17
Particulars	Amount ($)
Total Kilometres Travelled	80000
Distance travelled for Business use	50000
Distance travelled for Private use	30000
Percentage of Business Use	62.5
Expenses:
Petrol and oil per month	6000
Repairs and Maintenance per month	10500
Registration per annum	240
Insurance per annum	960
Car parking fee	2400
Total Expenses	20100
Taxable value of the FBT	12562.5

Log Book Method Computation

From a long time, it has been recognized that travel by an member of staff from his home might comprise business travel on the circumstances that the nature of the office or unemployment is inherently itinerant (Woellner et al., 2016). Citing the reference of Simon in Taylor v Provan (1975) AC 194travel of Charlie will be regarded as employment travel since travel formed the fundamental part of his work (Robin, 2017). Furthermore, the terms of employment for Charlie required him to discharge his employment responsibilities at additional place of employment.

According the FBT Act 1986, Charlie was using the car of his employer partly for work purpose and partly for private purpose (Blakelock& King, 2017). Charlie incurred cost on petrol, repairs and maintenance, insurance and registration. Therefore, Charlie for the purpose of FBT deductions can claim the work related portion of petrol and repairs since it was used in gaining or producing the assessable income.  

A car parking fringe benefit may originate if the employer present the car parking to the member of staff and all the subsequent state of affairs are met;

1. The car is parked at the premise which is owned or leased under the direction of the contributor
2. The car is parked for more than four hours
3. The car is leased or owned or under the control of the employee
4. The car is presented in relation of the employee’s employment
5. The car is used by the employee to travel between the place of residence and work or work and home for a minimum of once in day
6. There is a business-related parking place that imposes charge on a fee for all day parking within the radius of one kilometre of the premises

As evident from the above stated conditions, Charlie has parked his car at a secure parking for which the employer Shine Homes paid $200 each week. It is found that the car was parked in Charlie’s garage and was under the control of the provider. The car was provided to Charlie in respect of his employment. Furthermore, Charlie used the car to travel from home to work and work to home each day (Fry, 2017). Therefore, a fringe will arise in context of the Charlie and Homes can claim deductions for the parking fees paid on behalf of his employee.

According to the Fringe Benefit Tax Act 1986, provision of entertain represents entertainment in the form of drink or recreation, accommodation or travel in connection with the entertainment (Williamson et al., 2017). As evident from the case study that Charlie has incurred a minor accident and was unable to use the vehicle for a period of 2 weeks. This took place a week prior to the Charlie wedding and Shine Homes undertook the decision of hiring the car for that period in order to allow Charlie to go his honeymoon. Furthermore, Shine Homes paid Charlie’s honeymoon accommodation. The current circumstances is in accordance with the fringe benefit tax provision and attracts tax liability for entertaining employees and non-employees for a weekend tour at the tourist place or offering them with the a holiday. From the given scenario it is found that Shine Homes paid the accommodations trip for Charlie and the same cannot be claimed as deductions for Charlie however, Shine Homes on the other hand can claim for deductions. Charlie is however required to declare such allowance in his tax return as income.

Employment duties of an Itinerant Nature

The taxation rulings of TR 94/25are applicable to the employers and are held liable for tax that is imposed under the section 5 of the Fringe Benefit Tax Act 1986. The rulings provide that subsection 51 (1) of the Income Tax Assessment Act 1936 is applicable to claim for fringe benefits tax and taxpayers that are employers (Ismer&Jescheck, 2017). Specifically, the rulings is concerned with the timing of the fringe benefit and fringe benefit tax instalments that are incurred for the purpose of subsection 51 (1). According to the taxation rulings of TR 94/25 or fringe benefit tax instalments are generally occured in producing or generating taxable earnings that is unavoidably occured performing the business with the amount of those tax are deductible under the subsection 51 (1) of the ITAA(Gordon &Keuschnigg, 2017).

The liability for Fringe Benefit Tax for Shine Homes originates under the commonwealth legislation. As defined under section 5 of the Fringe Benefit Tax Act 1986, tax is generally imposed in accordance with the fringe benefits taxable sum of an employer during a year of tax (Fleurbaey&Maniquet, 2017). Citing the reference of Tubemakers of Australia Ltd v. FC of T 93 Fringe Benefit Taxable sum comprises of amount incurred in ordinary case represents the sum of all the values which is allocated to the numerous Fringe Benefit provided by Shine Homes to his employee Charlie (McDaniel, 2017). 

From the given scenario, it is evident that Shine Homes incurred several expenses such as honeymoon accommodation, car hire cost, parking fees and these expenses are incurred in gaining or producing assessable income (Bankman et al., 2017). In compliance with subsection 51 (1) of the ITAA 1997 the expenses incurred by Shine Homes was incurred in generating the taxable earnings that is inevitably occured in carrying on of a business and shall be considered as a deductible expenses.

Conclusion:

To conclude with it is found from the case study that fringe benefit expenses events are taxable under the FBT Act 1986. The study takes into the considerations the relevant sections and case laws in arriving at the decision related to car fringe benefit. The use of car by Charlie constitutes business use of car in producing the assessable income of the employee and hence attracts Fringe Benefit Tax.

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