Question

Kate is employed as marketing manager for a clothing retailer and during the 2019/20 FBT year she receives the following:
(1) a phone allowance of $100 per month to cover the estimated cost of using her mobile phone to make business calls
(2) reimbursement of the costs she incurs in attending a training course in Melbourne, where the purpose of the training course is to develop her skills as a marketing manager
(3) payment of taxi trips from work to home on three occasions when she is required to work late
(4) the right to take from the shop, for her personal use, clothing that has a market value of $5,000 – the employer paid $2,800 to acquire the clothing for sale in the shop, and
(5) child care for her two young children at a child-care centre on her employer’s business premises.

These benefits are not provided to Kate under a salary sacrifice arrangement. Explain the income tax consequences for Kate from these transactions and the FBT consequences for her employer.

Answer 1

The FBT consequences for her employer:

1. No FBT consequence as it's not reimbursement of expense. Allowance is paid to Kate for using her personal mobile phone to make business calls. Withholding applies to this allowance and it must be included in the payment summary.
2. This is an expense payment fringe benefit for self-education. The taxable value of the fringe benefit is the amount employer pays. This value can be reduced by the otherwise deductible rule if the expenses are work-related. As these expenses are work-related, the taxable value will be reduced by the amount deductible as self-education expenses by Kate in her return if these are not reimbursed by her employer.
3. Payment of Taxi trips is exempted from FBT if it is a single trip beginning or ending at the employee's place of work. As this condition is fulfilled,  FBT is exempt from it.
4. This comes under FBT. The taxable value of this in-house expense benefit is 75% of an arm's length transaction. A market price or arm's length transaction is $5,000, the taxable value of the fringe benefit will be 75% of $5,000($3,750).
5. As the child-care center is located on the business premises of the employer, benefit from the property is exempt from FBT. A Property provided and consumed on the employer's premises is exempt.

The Income Tax consequences for Kate:

Kate will have a reportable fringe benefits amount as her total taxable value of fringe benefits exceeding $2,000. Her employer calculates her reportable fringe benefits amount by multiplying the taxable value of the fringe benefits by the lower gross-up rate. The resulted amount reflects the gross salary that would have to earn to purchase the benefit from after-tax income.

She is not required to include this amount in her total income or pay income tax on it. But this is used to determine her eligibility or liability for certain specified items.

Consequences of Income Tax on Kate:

1. Will add up to her gross salary amount and she can claim a deduction for business call expenses
2. Not added to her income. If no reimbursement, she can claim for a deduction for self-education expenses
3. No effect on her income.
4. No effect on her income
5. No effect on her income.