Assignment in lieu of the Workbook Assessment
Mr Dominic Supreme owns a pizza restaurant. However, for public health reasons he has now closed the restaurant side of the business and is currently operating on a takeaway basis only. He has several employees working in the kitchen and delivering pizzas. He also owns various assets, including a rental property.
Enzo is Dominic's head chef and he is provided with the use of a Toyota RAV4 motor car as well as his salary of $100,000 per year. The car was purchased by Dominic on 1 April 2018 for $55,000. Dominic has not made the election under section 10 of the Fringe Benefits Tax Assessment Act. Enzo travelled 10,000 km in the car during the FBT year ended 31 March 2019 and, of this, 4,000 km were for business purposes. Enzo paid for the petrol for the car and this amounted to $900 for the FBT year ended 31 March 2019. Enzo was not reimbursed for the petrol.
Maria is Dominic's store manager and she was given an interest free loan of $500,000 by Dominic on 1 January 2019. Maria used the loan for two purposes: 60% for the purchase of an investment property and 40% to pay off her home mortgage.
Because of the current health crisis, Dominic pays the private health insurance premiums of all his staff and these premiums were $55,000 for the year ended 31 March 2019.
Dominic purchased a rental property on 1 July 2018 for $1,200,000. To finance this purchase, he borrowed $1 million from Megabank at an interest rate of 5%. To arrange for the loan Dominic paid a total of $4,000 for a loan application fee, a valuation fee and legal fees on 1 July 2018. He also paid stamp duty of $52,000 and $3,200 in legal fees in connection with the purchase of the property.
In August 2018 Dominic fixed the door to the rental property which was broken at the time of his purchase for a cost of $900. He also purchased new refrigerator for the rental property of $3,000 on 1 November 2018. The useful life of the refrigerator is 10 years. Dominic replaced the entire roof of the rental property in October 2018 at a cost of $35,000 after it was severely damaged in a hailstorm in September 2018. He used substantially the same type of material that was there before.
On 10 June 2019 he sold the rental property for $1,500,000. The costs he incurred on the sale were $30,000 for real estate agent's commission and $2,000 for advertising. He also sold the refrigerator on 10 June 2019 for $2,000. With the proceeds of the property sale, Dominic repaid his loan from Megabank on the date of sale.
Dominic purchased some BHP Billiton Limited shares in May 1990 for $50,000 and then sold them in May 2019 for $100,000. He purchased an antique clock for $600 in June 2000 and sold it in June 2019 for $4,000. Dominic also sold his Mercedes sports car in April 2019 for $60,000 which he purchased in April 2001 for $20,000.
Dominic wants to maximise his deductions at all times. Assume that Dominic can claim GST input tax credits for the provision of all fringe benefits he provides apart from the loan.
Required: Part 1 (10 marks) What fringe benefits tax (FBT) must Dominic pay for the year ended 31 March 2019?
Part 2 (10 marks) What is Dominic's net capital gain or net capital loss for the year ended 30 June 2019?
Part 3 (10 marks) What income tax deductions can Dominic claim for the year ended 30 June 2019?
Please note: Students must give reasons for their answer. This discussion must include an analysis of the pertinent sections of the relevant legislation, rulings and the relevant case law. If relevant, students must show calculations.
With the strengthen taxation planning, the proper tax liability of the individual is determined. For running the economy of any country, government needs to have some taxation related laws, so that, funds may be received for development activities. Having taxation laws will help the business organisations also in regulating their business activities accordingly. A business entity should have proper understanding of these laws to avoid any mistake in paying tax and following compliance part of such Act. In this report, discussion about Fringe benefit tax, and the provision may allowed in a particular condition.
However, details related to the Fringe benefit tax owned by Mr Dominic has been given as below (Butler, & Calcott, 2018). It is an income (FBT) of an employee , similar to compensation or wages in a different way, For the intent of fringe benefit tax (FBT), an employee involves a: present, potential or past employee, business owner, beneficiary of a trust that operates in the business. Fringe benefit tax is different from ITA (Income Tax Act) and will be measured on the fringe benefit's taxable value. Employers are expected to self-assess their FBT liability for the FBT year (that is, April 1 to March 31) and request an FBT return. FBT may be applied to workers by raising the concessional benefit rate or cost-free. Workers can also be named at any level, i.e. all employees are regarded as employees in the company (Pasztor, & Valent, (2016). Employers will demand income tax deduction on fringe benefits offered to workers and tax on fringe benefits charged. Firms must self-evaluation the sum of FBT, (Fringe Benefits Tax) that they are required to pay when submitting their FBT return at the end of each FBT year (April 1 through March 31).
Advantage applied to Dominic chef ENGO:
(i) In the given issue, computation or calculation has been made and, the advantages applied according to the standard method and the formula of calculating is 20per cent * base value of the car which is Doller 55000*(number of days in the FBT year which is 365 days in which the car was shipped / number of days in the year as (we know it is 365 days in year)} -contribution to the employees is amounted to $900.
Calculation: FBT is computed (Fringe Benefit Tax) =20 per cent * base value $50000 (365/365) -$900 and the value expand to ENGO is = $10100
(Ii) In the given issue we should computing, the benefit’s applied according to the operating method: calculation of total expenditure cost * car percentage of personal use – donation / offering of worker
Calculation: The amount of FBT (Fringe benefit tax) is computed =$55000*(6000/10000)}-$900, then the value is $32100 (Leibowitz, 2013).
The employer selects one of the strategies that yield the lowest taxable benefit, in the case above computing by standard method approach, its value is $10100. Furthermore, the facts of report in question are close to those of FCT v. Star City Private Limited (27 February 2009), and the judges also take a judgement in the report pursuant to the rules according to the provision of fringe benefit tax (SoonYew, et al. 2008).
B FBT (Fringe benefit tax) owned by Dominic store manager Maria. ?
In the given issue we should calculate , the advantages applied in that the formula of calculating is Fringe benefit elongate to Maria = The value of loan – interest value rate on loan * ( Number of loan issued month / completed month counted )
Computation have been done as below.
The amount of FBT (Fringe benefit tax) is computed= Loan amount value $500000* interest rate is 5.20 %*( month of loan, 3 / month count 12) then the value computed is $6500. So the advantages applied to Maria by this method is $6500 (Ewing, 2007).
Computation of the capital gain and loss have been made as below.
|Computation of the Capital gain|
|Total sale proceed||$ 1,500,000.00|
|Less:||Reducing by COGS|
|Total commission||$ 30,000.00|
|Advertisement||$ 2,000.00||$ 32,000.00|
|Total net sales||$ 1,468,000.00|
|Less:||Total purchase case|
|Purchase cost||$ 1,200,000.00|
|given Stamp Duty||$ 52,000.00|
|Fees||$ 3,200.00||$ 1,255,200.00|
|Less:||COST incurred for equipment’s|
|Given Roof||$ 35,000.00|
|Given Door||$ 900.00||$ 35,900.00|
|Total capital gin|
|Total sales proceed||$ 4,000.00|
|Less:||Cost of acquisition||$ 1,680.00|
Premium health benefits provided by Dominic for all workers = $55000.
Hence the complete sum of the marginal gain provided by the Dominic ,by add the value of in all three part (A+B+C) equal the value is $10000, $6500, $55000 = Doller 71600 it is also contribution by Dominic to it’s all worker. In order to represent the gross compensation workers you will have to receive at the highest marginal tax rate (including Medicare tax) to purchase the benefits after giving the tax. There are two separate gross-up thresholds for determining taxable sums for the fringe benefits:
FBR rate when the Goods and service tax, input is needed the value is $47%, Rate increase where GST input can be reported 2.0802, so that the total gross up value is computed by the formula is = Total amount benefit of A,B,C ($71600) * grossing up rate can be claimed is 2.0802 =$148942.
Absolute fringe benefit payable for the year ended 31 March 2019 by Mr Dominic =total grossed up value $148,942 * the rate when FBR input is needed that is 47% so the amount computed is = $70002.