Taxation Debt Waiver Benefits

Question: Describe about the Taxation for Debt Waiver Benefits. Answer: Case study 2: Fringe Benefits Tax (a) Calculating and providing the consequences that might be faced by Periwinkles from Fringe benefit tax: Periwinkle Pty. Ltd for the period ending on 31st March,2016 GST Free GST Inclusive Particulars Amount Amount Car Benefit 6,059.02 Sale at Special Rate 650 Interest on Loan 22,250 Total of GST Inclusive/Free Benefits 22,900 6,059.02 B A Gross-up Rate 1.9608 2.1463 D C Gross-up Value 44,902.32 13,004.47 F=B X D E = A x C Total Taxable Fringe Benefit 57,906.79 G = E + F Fringe Benefit Tax Rate 49% J Fringe Benefit Tax Liability 28,374.33 K = G x J Table 1: Showing the fringe benefit tax paid by Periwinkles (Source: as created by the author) Table 1 mainly helps in depicting the overall fringe benefit tax that needs to be paid by Periwinkles. The overall tax is mainly calculated based on GST inclusive and free, which in turn helped in depicting the actual fringe benefit tax of the company. In addition, around $28,374.33 is calculated as the fringe benefit tax that might be paid by the company. Hodgson and Pearce (2015) stated that ATO rule mainly help in reducing the unethical measures used by companies to reduce their tax pay. Calculating the Fringe Benefit Tax for loan Particulars Amount Details Loan to Employee $500,000 A Benchmark Interest Rate 5.95% B Actual Interest Rate 4.45% C Taxable Value Interest on Loan $22,250 D = (AXC) Table 2: Showing calculation of fringe benefit tax for loan (Source: as created by the author) With the help of table 2, the overall calculation of FBT generated from loan can be effectively depicted. In addition, 5.95% is taken as the benchmark interest rate for calculating the fringe benefit, which is around $22,250. Nijland and Dijst (2015) mentioned that depicted rules of ATO mainly help in reducing the loopholes, which mighty help companies to take unethical decisions. Calculating the Fringe Benefit generated from car Particulars Amount Details Total Kms. Travelled during the FBT year 10,000 A No. of Days in the FBT year 366 B No. of Days of Travel 336 C Annualised Kilometres 10,892.857 (A x B/C) Statutory Rate as per Annualised Km. 20.00% E Cost Base $33,000 F No. of Days available for Private Use 336 C No. of days in FBT Year 366 B Taxable Value $6,059.02 (FxExC)/B Table 3: Showing calculation of fringe benefit tax for car (Source: as created by the author) Table 3 mainly helps in depicting the FBT that is generated from the car, which is around $6,059.02. In addition, the FBT is mainly calculated on the usage conducted by Emma on yearly basis. Soled and Thomas (2016) mentioned that FBT is mainly used in charging tax on the benefits that is being provided by the company to their employees. In addition, Emma only used the car for 336 days and thus the FBT is calculated on usage days. Calculating the Fringe Benefit generated from discount Particulars Amount Details Market Price of the Bathtub 2,600 A Special Price for the Employee 1,300 B Taxable Value of the Bathtub 1,950 C=A x 75% Taxable Value of Benefit 650 C - B Table 4: Showing calculation of fringe benefit tax for discount (Source: as created by the author) Table 4 mainly helps in depicting the FBT from discounts provided to Emma by her employer Periwinkles. In addition, the taxable value is mainly derived by deducting the price paid by Emma from 75% of the actual bathtub. The value is mainly estimated as $650, which is chargeable as FBT to Periwinkles. Vail (2016) mentioned that ATO to reduce the unethical practises mainly provide relevant rules, which help in identifying the adequate FBT of companies. (b) Stating the impact on the Fringe benefit tax of Periwinkles if Emma purchased the shares: The overall FBT of Periwinkles might reduce if the income is generated from shares, which is now being purchased by Emma. This direct income from investment is not chargeable as FBT and provides Periwinkles with a deduction in their tax pay. Furthermore, as per the rules of ATO income generated from shares are solely paid by the holder under capital, gain or income tax. Woellner et al. (2016) argued that some companies use unethical measures to reduce their tax by using the identified loopholes in accounting. In addition, Emma will solely pay tax on income generated from shares and no addition will be conducted on FBT of Periwinkles. Reference: Ato.gov.au. (2016).Property fringe benefits | Australian Taxation Office. Available from: https://www.ato.gov.au/General/Fringe-benefits-tax-(fbt)/In-detail/Employers-guide/Property-fringe-benefits/?page=4#Goods_manufactured_or_produced_by_the_provider [Accessed on 21 Sep. 2016]. Ato.gov.au. (2016).How to calculate your FBT | Australian Taxation Office. Available from:https://www.ato.gov.au/General/fringe-benefits-tax-(fbt)/how-to-calculate-your-fbt/ [Accessed on 21 Sep. 2016]. Ato.gov.au. (2016).Loan and debt waiver fringe benefits | Australian Taxation Office. Available from: https://www.ato.gov.au/General/Fringe-benefits-tax-(fbt)/In-detail/Employers-guide/Loan-and-debt-waiver-fringe benefits/?page=8#8_8_Reduction_in_taxable_value_where_interest_would_have_been_deductible_to_employee [Accessed on 21 Sep. 2016]. Woellner, R., Barkoczy, S., Murphy, S., Evans, C. and Pinto, D., 2016.Australian Taxation Law 2016. Oxford University Press. Soled, J.A. and Thomas, K.D., 2016. [91WashLRev0761] Revisiting the Taxation of Fringe Benefits. Vail, S.J., 2016. Slapping the Hand at the Dinner Table: A Practical Tax Solution to Employer-Provided Meal Benefits.U. Ill. L. Rev., p.689. Nijland, L. and Dijst, M., 2015. Commuting-related fringe benefits in the Netherlands: Interrelationships and company, employee and location characteristics.Transportation Research Part A: Policy and Practice,77, pp.358-371. Hodgson, H. and Pearce, P., 2015. TravelSmart or travel tax free breaks: Is the fringe benefits tax a barrier to active commuting in Australia?.