Question

You are the junior accountant at CBW Bank. You have been asked to assist with the 30 June 2020 tax work: i) The Bank provided loans totaling $5,000,000 in mortgage loans, equally to 10 of its staff during the year. These loans were interest only repayments and were made at arm’s length, at an interest rate of 5.37%. ii) Due to a staff restructuring at the bank, 3 of the staff who took mortgage loans were made redundant on 30 November 2019. Due to financial hardship on these 3 staff, the Bank waived the interest on the loans for a period of one year. iii) The bank paid the mobile phone bills for these 10 staff during the current tax year. The monthly bill per staff member was $69. iv) Within these staff was the bank manager. As part of the bank manager’s contract, she was provided with a BMW luxury motor vehicle for her work travel. The contract for the provision of the car was entered into on 1 January 2019. The bank manager is permitted to take the car home at the end of the day and there is no restriction on her use of the car for non-work purposes. The car was originally acquired by the bank on 1 January 2018. The cost of the car was $90,000. Other details regarding the car are as follows: Petrol and oil $6,000 Registration $2,000 Insurance $1,800 Repairs and Maintenance $1,000 Speeding fine $600 The manager is required to contribute $100 per month. The car traveled 50,000 km for the year FBT year. Of these, 30,000 km related to business travel.

Required:

1) Calculate FBT liability for the loans. Show all workings.

2) Calculate FBT liability for the mobile phone. Show all workings.

3) Calculate FBT liability for the car. Show all workings.

4) What is the total FBT liability the bank manager needs to remit to the ATO. Give a brief reason why you stated your answer.

Answer 1

1. The Bank has provided the $ 5,000,000 loan to 10 employes equally at arms length price. Out of the 10 emplyoees, 3 are unable to pay interest for the year and the company has waived off their interest. The FBT liability will be made on only 3 employees interest whose interest is waived off. The FBT liability on loan are:

The interest waived by Bank is belonging from period 30th November 2019 to 30th November 2020.

The period cover upto 30th june 2020 is only 7 months.

The interest amount cover under FTB is = 5,000,000 *3/10 *5.37% * 7/12 = $ 46,987.5

2. The Mobile bills has been paid by the Bank of all the 10 emplyoees. Monthly bill paid is $ 69/- per staff.

The FBT liability on mobile phones = 10staff *$ 69*12 months = $8280

3. The Bank has provided the car to the Bank manager for the personal and for the business purpose. The FBT liabilty forms only those part which has been used specifically for the personal personal. the car has been named of the company therefore the cost of the car doesnot form part of FBT liability. Car registartion charges and even Insurance charges doesnot form part of FBT Liability since these are the mandatory expenses and has no direct link to official use or personal use. Rest of the expense will be decided through km used for personal use or official use.

the expenses which come under FBT liability in case of car are:-

Petrol expenses = 6,000 * 20,000km /50,000km = $2400

Repair & maintainance exp= 1,000 * 20,000km /50,000km = $400

Speeding Fine = 600 (Personal expense. not related to office use) = $600

Total FBT Liability of car :- ($3400)

less :- Contribution received from Manager (100*12)    = -1,200

Net FBT Liability of car :- = $2,200

4. the contribution received from the bank manager is $ 100 per month. The total contribution received from the Bank manager is $ 1,200 ($100*12).