Taxation For Business Taxpayer And Fringe Benefit Tax Liability Calculation

Taxation for Business Taxpayer

Describe about the Taxation for Business Taxpayer.

Based upon the given information it is known about Petra that he is a taxpayer and has retrieved a whole sum of $600,000 from the tennis court sale. The main objective is to calculate the various laid out facts and then surmise and state whether it falls under the ordinary income or not (Clark, 1990).

Rule

Every taxpayer income cannot be treated as assessable for tax permits. As per the advocating statement under ITAA 1997 it has been subjected to two main divisions as underlined:

Section 6(5) – Under this classification, income is referred as one that is derived as per the concepts present under ordinary description. It doesn’t have any confined definition, and thus the scope is laid as an undefined orientation which clusters doubtful meaning in getting the exact determination of this assessable income under this section (Chase, 1991).

However, in order to grasp the definition and classification of income as per the tax ruling and case laws in conformity with section 6(5) three central derivation must be depicted in order to extract that of ordinary income as under:

Income earned during an engagement in personal exertion- For example, the income generated in case of employment or engagement in various activities where the taxpayer can exercise to produce commercial value (Roney, 1926).

Income earned from investments made in property – For example, the rent income from owned property, various investment, dividend received from share investments and bank balanced received interest

Income earned by conducting a business activity- The statement made under TR 97/11 is quite crucial and applied to make sure stating that this activity of the taxpayer should be wholly categorized as business and not a hobby (Royse, 1987).

Section 15(15) – Any hidden transaction that taxpayer put into execution to earn a profit will bring potential gains. This notable highlights decision is made under the section of the Antlers Pty Ltd v. Federal Commissioner of Taxation 97 ATC 4192 case. As per this case the taxpayer is not involved in any business segment, so profit is seen from the time of activity outbreak thus executes the same.

Application

Here Peta is seen to be buying a house having two tennis courts. Her intention over this matter is given under:

This property residence can be her permanent to reside with the family.

There will be an ideal ground provided by tennis court which later on can be liquidated to earn profits.

Fringe Benefit Tax Liability Calculation

Before Peta starts building units on the tennis court, she receives an offer from local tennis club indicating their absolute interest upon her court and willing to buy it. However, this was a condition basis and demanded that the property should be restored. Since Peta could see a huge profit from the selling thus, she cancelled her plans about setting up units. The tennis court required a sum of $100,000 where lot other actives to be done (Schaller et al., 1988). Again after restoration, the court goes and into the hands of the tennis club and Peta get a payment of $600,000.

The sum amounting to $600,000 is out of the extension of income as per the section 6(5). It is because the case has no detailed description regarding Peta’s real estate development or restoration of tennis courts (Royse, 1987). This money received from the sale would have proceeded as a business income if Peta were on a regular basis of renovating and selling courts type business. But since Peta initial intention was to build additional units there at the place, therefore, this is not the case.

Conclusion

This discussion state that selling of tennis court is not subjected as ordinary income stated per section 6(5) even if it falls under the boundary of assessable income under section 15(15).

As per the benefits that Alan receives from his employer core detailed is to the question entitled that describes his underlying FTB liability.

Rule

Potential FTB liability is calculated over fringe benefits as per the provision under FBTAA 1986. In this matter section, 58X clearly excludes the mobile nature over FBT if its imputed only for work purpose (Roney, 1926). Again, remuneration of overhead does not account any fringe benefit given to the employee. Further, those fringe benefits that lies within $300 does not bring into FBT liability according to the law benefit absolution clause.

School fees

School fees fall under personal expense. Thus the employer gets the extension of the fringe benefit.

Value subject to FBT on account of school fees = Total fees paid by employer * Gross up factor

The value of gross up factor is periodically adjusted and is also driven by the classification of goods as Type 1 or Type 2 based on whether GST applies or not (Gilders et. al., 2015).

FBT payable on school fees = 0.49* (Value subject to FBT on account of school fees)

School Fees

Dinner

The matter that employer acquires food expenses other than the business house, then meals that arise out of fringe benefit would be elongated. For computing the FBT liability on meal benefit the employer can make two approaches. The employer makes a choice seeing the guest formation and calculating the guests (Schaller et al., 1988). Since upon food expenses no deduction can be claimed so at the time of client the employer intends on reducing the total expenses keeping in mind the computation analysis of the FBT liability.

If the employer incurs food expense outside the business premises, then fringe benefit related to meals would be extended. With regards to the computation of FBT liability on meal benefit, the employer has a choice to make as two alternative approaches are available. Here methods are discussed for calculating FT over meal related fringe benefits.

This method is taken into account when there is no client, and the guest list is constrained with only employees and their associates. This method comprises the computation of FBT liability upon the actual expense on the meal. As here the employee has authority to claim for a tax deduction (Roney, 1926).

FBT liability = 0.49* Actual meal cost incurred *Gross up factor

50-50 Split Method

As per this method the clients along with the employees and associates are considered on the guest list. Here FBT liability is computed on favour of the actual food expenses acquired by the employee (Chase, 1991). Using this method the employee can minimize the FBT liability since mean expenses are not deductible. It is thus crucial that to note that meal expenses on employees and associates remains deductible, and this amount is 50% of the actual cost.

FBT liability = 0.49* 0.5* Actual meal cost incurred *Gross up factor

Application

Even though his employer pays the mobile bill of Alan, but it does not amount to any expense fringe benefit as the bill only had work related calls. Also, no FBT liability would arise on account of the mobile phone given by the employer to Alan as indicated in Section 58X, FBTAA 1986.

School fees

Fees amount paid by ABC = $ 20,000

It is known from the given information that it is not subject to GST, which implies that the gross-up factor would be 1.9608

Hence, FBT payable by ABC on account of school fees = 0.49 * 20000 * 1.9608= $19,215.84

Dinner

Dinner

a) The employer organizes the dinner at a Thai Restaurant, and so meal fringe benefit has been elongated to the invitees.

Total employees invited for the dinner = 20

These were accompanied by their associated, and the actual food bill came out to be $ 6,600.

Total money spent on food bill of the employees alone would be 50% of the total expense or $ 3,300. The above result in a per employee food bill amounts $ 165.

It is considered that the meal fringe benefit is nominal and doesn’t exceed the threshold value ($300). Thus there is no FBT liability seen here.

B) As per the given info, the invitees count to only five employees having the same food bill. Hence it is now clear that meal fringe benefit per employee is nominal, and FBT liability can be introduced (Clark, 1990). The appropriate method is the actual method which the employee would find feasible to use.

Meal Related FBT payable by ABC (Actual Method) = 0.49 * 6600 *2.1463 = $ 6,941.13

As GST has been paid upon food bill, so input credits will allow the company to reduce the tax burden marginally

C) Now after the involvement of clients the guest composition seems to be altered at the dinner which would bring a shifting in the method plan from actual to 50:50 split methods. This corresponding FBT liability imposed on ABC is given under:

Meal Related FBT payable by ABC (50:%0 Split Method) = 0.49* 0.5*6600 *2.1463 = $ 3,470.6

Conclusion

As per the discussion above the employee, ABC has to pay FBT for the expense fringe benefit because of the fees and meal benefit (Chase, 1991). As seen the exact FBT liability according to meal fringe benefit fluctuates taking into consideration the guest composition and their count that are invited for dinner at Thai Restaurant.

References

Clark, G.R., 1990. Product Liability: an Examination of the Effect of the Doctrine of Forum Non Conveniens on Australian Litigants in the United States of America. Bond L. Rev., 2, p.i.

Chase, A.R., 1991. Lender Liability Paradox: A Fresh Approach, The. Tul. Envtl. LJ, 5, p.1.

Roney, E., 1926. Liability for Defects in the Manufacture of Machines Intrinsically Dangerous. U. Det. Bi-Monthly L. Rev., 10, p.70.

Royse, R., 1987. Determining a Drawee Banks’s Liability for Payment over the Forged Endorsement of a Co-Payee. Com. LJ, 92, p.339.

Schaller, J.P., Medaglia, M.E., Kelly, R.N. and LeBel, A.P., 1988. Excess, Surplus Lines and Reinsurance: Recent Developments in Umbrella and Excess Liability Insurance.