Question

Question 1

Perisher Pty Ltd (Perisher) is a Ski equipment manufacturer that operates around Mt Hotham in Victoria. On 1 May 2019, Perisher provided Nikita (one of its employees) with a car as Nikita does a lot of travelling for work purposes. However, Nikita’s usage of the car is not restricted to work only. Perisher purchased the car on that date for $44,000 (including GST) plus $2,000 (including GST) dealer delivery charges. For the period of 1 May 2019 to 31 March 2020, Nikita travelled 12,000 kilometres in the car and incurred expenses of $770 on minor repairs that have been reimbursed by Perisher. The car was not used for 10 days when Nikita was interstate and was parked at the airport and for another five days when the car was scheduled for annual repairs.

Calculate the Fringe Benefits Tax Liability for Perisher, please have a look at the matrix below on how to answer the question

Identification of material facts (issues) regarding fringe benefits provided to Nikita.

Identification and analysis of legal issues / legal question and relevant taxation law in regards to fringe benefits (e.g. FBTAA 1986).

Thorough application of tax law (e.g. ITAA 1936 and ITAA 1997) to material facts in Perisher’s case.

Accurate conclusion of the FBT calculation. Correct information and taxation law have been used and properly cited. A detailed analysis has been performed.

Answer 1

Answer:

Information provided in question:

value of car - $ 44000+$2000 =$46000

car provided to nikita for period 01 may2019 to 31.march2020

Kms travelled by nikita 12000 Km

expenses incurred 770

car un used for 15 days

As question doesnot specify any thing about percent of usuage of car for personal and professional , so we take an assumption that car is 80% used for office work and 20% for personal.

So calculate Fringe benefit tax as per Cent per mile rule as per publication 15-B for 2020 FBT is Calculated 57.5 cent per mile . so as per my assumption 20% is used for personal purpose =12000Km*20%=2400 mile.

So FBT = 2400*57.5=138000/100 = $1380 Taxable in hand of Perisher Pty Ltd.

Legal Issues in FBTAA 1986

Issue 1

Question 1

Will the company obtain an income tax deduction, pursuant to section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997), in respect of the irretrievable cash contributions made by it or any of the subsidiary members of its tax consolidated group to the Trustee of the Employee Share Trust (EST) to fund the subscription for or acquisition of shares on-market by the EST?

Answer

Yes. To the extent payments made by the company to the Trustee of the EST are used to acquire its shares for its employees or employees of any of the subsidiary members of its tax consolidated group, they are deductible pursuant to section 8-1 of the ITAA 1997, subject to section 139DB of the Income Tax Assessment Act 1936 (ITAA 1936) - see Issue 3, below.

Issue 2

Question 1

Will the company obtain income tax deductions, pursuant to sections 8-1 or 25-5 of the ITAA 1997, in respect of costs incurred in relation to the implementation and on-going administration of the EST?

Answer

Yes. The costs incurred by the company in implementing and administering its employee share scheme will be deductible under section 8-1 ITAA 1997.

Issue 3

Question 1

When are the irretrievable cash contributions made by the company or any subsidiary member of its tax consolidated group to the Trustee of the EST to fund the subscription for or acquisition of shares on market by the EST deductible to the company?

Answer

Pursuant to section 139DB of the ITAA 1936, a deduction is allowable at the time the rights are acquired by participating employees and only to the extent of that amount of money provided to acquire shares to satisfy the obligations to the rights acquired.

Issue 4

Question 1

If the EST satisfies the relevant employee share plan obligations by subscribing for new shares in the company, will the subscription proceeds be included in the assessable income of the company under section 6-5 or 20-20 of the ITAA 1997 or trigger a capital gains tax (CGT) event under Division 104 of the ITAA 1997?

Answer

No. The subscription proceeds will not be included in the assessable income of the company.

Issue 5

Question 1

Will the Commissioner make a determination that Part IVA of the ITAA 1936 applies to any aspect of the arrangement(s) described in that part of the application explaining the scheme to deny, in part or in full, any deduction claimed by the company in respect of the irretrievable cash contributions made by it or any of its subsidiary members to the Trustee of the EST to fund the subscription for or acquisition of shares on-market by the EST?

Answer

Provided that the company's employee share plans, as implemented, are materially identical to its employee share plans described in the ruling, it is considered that Part IVA of the ITAA 1936 would not apply.

Issue 6

Question 1

Is the provision of options, performance rights and/or shares to employees of the company or any other subsidiary member of its tax consolidated group under the employee share plans a fringe benefit within the meaning of subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA 1986)?

Answer

No. The granting of these options, performance rights and/or shares to employees of the taxpayer company or any other subsidiary member of its tax consolidated group under the employee share plans will not be subject to fringe benefit tax because they are specifically excluded from the definition of fringe benefit according to paragraph (ha) of subsection 136(1) of the FBTAA 1986.

Issue 7

Question 1

Will the irretrievable cash contributions made by the taxpayer company or any of its subsidiary members to the Trustee of the EST to fund the subscription for or acquisition of its shares on market be a fringe benefit within the meaning of subsection 136(1) of the FBTAA 1986?

Answer

No. As the sole purpose of the Trustee of the EST is to provide the company's shares to participants in the employee share plans, the exclusion in paragraph 136(1)(hb) of the FBTAA 1986 will apply.

Issue 8

Question 1

Will the Commissioner seek to apply section 67 of the FBTAA 1986 to any of the company's employee share plans or the EST arrangement?

Answer

Provided that the company's employee share plans or the EST arrangement, as implemented, are materially identical to those described in the ruling, it is considered that section 67 of the FBTAA 1986 would not apply.

Relevant facts and circumstances

The company applied for a private ruling on the way in which the taxation law applied to the various employee equity plans of its tax consolidated group.

The company and its subsidiaries provide services in Australia and overseas.

The company established the EST to facilitate the provision of its shares to its Australian employees.

An entity unrelated to the company was appointed Trustee of the EST and the previous trustee was retired.

The application states in the covering letter that one aspect of the company's success is its ability to attract and retain high quality employees and this entailed a competitive and equitable remuneration policy including employee equity (share) plans.

The employee share plans broadly operate as follows:

Plan 1

At the employer's discretion to extend the invitation to apply for a number of options specified in the invitation. On exercise of options, the Trustee of the EST will acquire the shares on behalf of each employee, either on market, via a new share issue or allocate shares already acquired by the Trustee to the relevant participant. Such shares will rank equally with all other shares in the company.

Plan 2

The company's remuneration committee undertook a detailed review of the remuneration arrangement for its Chief Executive Officer and Managing Director (CEO) and Finance Director to ensure their remuneration was in line with current best practice and that it was appropriate to retain their services and provide incentives linked to the company's performance.

The remuneration committee and the company's Board determined an incentive plan under which shares and options may be issued to the CEO and Finance Director.

The company or a subsidiary member of its tax consolidated group, will contribute the necessary funds to the EST so that the Trustee of the EST, can acquire the relevant amount of shares on behalf of the CEO and Finance Director, on market, via a new share issue, or by allocating shares already acquired by the Trustee, in satisfaction of the exercise of any options by the CEO or Finance Director. Such shares will rank equally with all other shares in the company.

Plan 3

Plan 3 was implemented by the company. It was established to assist in the reward, retention and motivation of employees, and to align the economic interests of eligible employees with those of shareholders by providing an opportunity for eligible employees to earn significant rewards by potentially acquiring an equity interest in the company, based on creating shareholder value.