Question

Question 3
You must answer A and B
Mary works for Ace Ltd. She has the use of a company car for work purposes as her role
requires her to deliver products to customers. Mary enjoys driving the manual Toyota
Corolla and also drives it for private trips. Her employer is aware that she has sometimes
uses the car for private purposes.
In late March 2019 Mary was involved in a skiing accident and broke her arm in two
places. She was on sick leave for a while but was able to return to work on light duties on
15thMay. Mary could not drive as she didn’t have full use of her arm, and couldn’t change
the gears in the car. Mary started to use public transport to get to work. In August Mary’s
doctor said it was OK for Mary to drive again, but by then Mary was so used to travelling
on public transport and decided she did not wish to drive a car again.
Between 1stApril and 1stOctober the company car was parked in the garage at Mary’s
house. No one used it.
Required A:
Discuss whether Fringe Benefit Tax applies in the above circumstances.
In your response give reasons and refer to sections of legislation and cases, where
relevant
Click or tap here to enter text.
AND
Jan Peters is about to retire from her career as a working dog trainer. Jan trains border
collies at her farm in rural NSW, her dogs are trained to work with farmers in rounding up
sheep. In good years Jan usually has a turnover of around $50,000 from selling her
trained working dogs, but demand has slowed in recent years. Floods followed by
drought and bushfires destroyed valuable grazing land and most sheep graziers have
destocked their properties or lost many sheep in the natural disasters.
For the past two years Jan’s annual GST turnover from selling working dogs has been
less than $50,000.
As part of her plan to retire Jan holds a clearing sale at her farm. She sells all her farm
machinery, her dog training equipment, kennels and the last of her working dogs to
buyers who attend the clearing sale and receives a total of $100,000.
Jan is now concerned that she may need to register for GST.
Required B:
Discuss whether Jan is required to register for GST
In your response you must give reasons and refer to sections of legislation and cases,
where relevant
Click or tap here to enter text.

Answer 1

1.

FRINGE BENEFIT TAX (FBT) IS FUNDAMENTALLY A TAX THAT AN EMPLOYER HAS TO PAY IN LIEU OF THE BENEFITS THAT ARE GIVEN TO HIS/HER EMPLOYEES. IT WAS AN ATTEMPT TO COMPREHENSIVELY LEVY TAX ON THOSE BENEFITS, WHICH EVADED THE TAXMAN. THE LIST OF BENEFITS ENCOMPASSED A WIDE RANGE OF PRIVILEGES, SERVICES, FACILITIES OR AMENITIES WHICH WERE DIRECTLY OR INDIRECTLY GIVEN BY AN EMPLOYER TO CURRENT OR FORMER EMPLOYEES, BE IT SOMETHING SIMPLE LIKE TELEPHONE REIMBURSEMENTS, FREE OR CONCESSIONAL TICKETS ETC.

CERTAIN EXEMPTIONS WERE ALSO CLEARLY LAID OUT WITH REGARD TO WHAT CAME UNDER THE REALM OF FRINGE BENEFITS. FOR INSTANCE, EXPENDITURE ON FOOD AND BEVERAGES WHICH AN EMPLOYER GAVE TO HIS EMPLOYEES, FEE PAID FOR THE PARTICIPATION OF EMPLOYEES IN CONFERENCES OR ANY EXPENDITURE THAT THE COMPANY INCURRED IN THE PROCESS OF FULFILLING MANDATORY OBLIGATIONS, LAID DOWN BY THE GOVERNMENT, TOWARDS EMPLOYEES WAS LEFT OUT OF THIS SCHEME.

IN THIS CASE, IN LATE MARCH 2019 MARY WAS INVOLVED IN A SKIING ACCIDENT AND BROKE HER ARM IN TWO PLACES. SHE WAS ON SICK LEAVE FOR A WHILE BUT WAS ABLE TO RETURN TO WORK ON LIGHT DUTIES ON 15THMAY. BUT MARY COULD NOT DRIVE AS SHE DIDN’T HAVE FULL USE OF HER ARM, AND COULDN’T CHANGE THE GEARS IN THE CAR. MARY STARTED TO USE PUBLIC TRANSPORT TO GET TO WORK.

SO SHE IS NOT USING THE COMPANY’S ALLOWANCES NOW.

IN AUGUST MARY’S DOCTOR SAID IT WAS OK FOR MARY TO DRIVE AGAIN, BUT BY THEN MARY WAS SO USED TO TRAVELLING ON PUBLIC TRANSPORT AND DECIDED SHE DID NOT WISH TO DRIVE A CAR AGAIN.
BETWEEN 1STAPRIL AND 1STOCTOBER THE COMPANY CAR WAS PARKED IN THE GARAGE AT MARY’S HOUSE. NO ONE USED IT.

IN CASE OF MOTOR VEHICLE, AS DISTINCT FROM A TRAVEL ALLOWANCE, THE RIGHT OF USE OF A MOTOR VEHICLE OCCURS WHEN A MOTOR VEHICLE BELONGING TO THE EMPLOYER IS ALLOCATED TO AN EMPLOYEE TO USE EITHER FOR PRIVATE PURPOSES OR FOR PRIVATE AND BUSINESS PURPOSES. THIS IS AN EXAMPLE OF A FRINGE BENEFIT THAT IS NOT PAID IN CASH BUT HAS TAX CONSEQUENCES FOR THE EMPLOYEE IN THE SENSE THAT THE EMPLOYEE IS TAXED ON THE PRIVATE PORTION OF THE USE OF THE MOTOR VEHICLE. EMPLOYEE TAX IS THUS CALCULATED MONTHLY ON 80% OF THE CASH EQUIVALENT OF THE RIGHT OF USE, OR ON 20% THEREOF IF THE EMPLOYER IS CONVINCED THAT MORE THAN 80% OF THE DISTANCE TRAVELLED WAS FOR BUSINESS PURPOSES.

AN EMPLOYEE WHO HAS THE RIGHT OF USE OF A MOTOR VEHICLE IS ALSO ENTITLED, WHEN SUBMITTING HIS/HER INCOME TAX RETURN, TO CLAIM A DEDUCTION FOR BUSINESS KILOMETRES TRAVELLED DURING THE YEAR. THE DEDUCTION IS CALCULATED BY MULTIPLYING THE CASH EQUIVALENT OF THE BENEFIT WITH THE BUSINESS KILOMETRES AND DIVIDING BY THE TOTAL KILOMETRES. (FOR EXAMPLE: THE TAXABLE BENEFIT FOR THE YEAR AMOUNTED TO R50 000, BUSINESS KILOMETRES WERE 12 500 AND THE TOTAL KILOMETRES AMOUNTED TO 18 000. THUS THE DEDUCTION THAT MAY BE CLAIMED IS R34 722.22 [R50 000 X 12 500KM ÷ 18 000KM]).

2.

NOT NECESSCERY TO REGISTERGST.HERE IN GOOD YEARS JAN USUALLY HAS A TURNOVER OF AROUND $50,000 FROM SELLING HER TRAINED WORKING DOGS, BUT DEMAND HAS SLOWED IN RECENT YEARS. FLOODS FOLLOWED BY DROUGHT AND BUSHFIRES DESTROYED VALUABLE GRAZING LAND AND MOST SHEEP GRAZIERS HAVE DESTOCKED THEIR PROPERTIES OR LOST MANY SHEEP IN THE NATURAL DISASTERS. FOR THE PAST TWO YEARS JAN’S ANNUAL GST TURNOVER FROM SELLING WORKING DOGS HAS BEEN LESS THAN $50,000.

BECACUSE THE RULES ARE AS FOLLOWS:

YOU MUST REGISTER FOR GST IF:

· YOUR BUSINESS HAS A GST TURNOVER OF $75,000 OR MORE

· YOUR NON-PROFIT ORGANISATION HAS A GST TURNOVER OF $150,000 OR MORE

· YOU PROVIDE TAXI OR LIMOUSINE TRAVEL (INCLUDING RIDE-SOURCING SERVICES LIKE UBER, GOCATCH, DIDI OR OLA) REGARDLESS OF YOUR GST TURNOVER

· YOU WANT TO CLAIM FUEL TAX CREDITS FOR YOUR BUSINESS, REGARDLESS OF YOUR GST TURNOVER

IF YOU’RE A NON-RESIDENT THERE ARE SPECIAL RULES THAT MAY APPLY TO YOU.