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

Solution:

1) Computation of FBT liability on Mortgage Loans as on 30th June,2020

Particulars	Loans to employees	Normal Interest	Subsidised Interest	Difference is Taxable Value as FBT
Amount in $	at 8% (Assumption)	at 5.37%	Amount in $
Mortgage Loan to 10 employees	5,000,000	400,000	268,500	131,500
Total Interest subsidy of 10 employees				131,500
Add: Waiver of Interest of 3employees
for the period of 7 months (i.e., from Dec,19 to June,20)		(26850/12*7)*3		46,987.5
Total FBT provided to employees on Mortgage loans				178,487.5

Taxable Value =$178487.50

Fringe Benefit Tax @ 47% on the above= 178487.50 X 47%=$83,889.125

FBT liabiltiy = $83,889.125

Note: It is assumed that normal interest rate as 8% since it is not given in the problem as well as it is given that loan given on arm's length price.

2) Computation of FBT liability on Mobile phone bills as on 30th June,2020 -

Particulars	Mobile Charges per month	No. of employees	No. of months	Total
			Amount in $
Mobile bill per Employee	69	10	12	8280
Total FBT liability on Mobile charges on Bank				8280

Note: if the mobile is used for office/bank's purpose 100% then mobile  bill is totally exempted fromFBT. As there is no mention of usage in the problem it is assumed that partially used for personal usage.

Taxable Value =$8280

Fringe Benefit Tax @ 47% on the above= 8280 X 47%=$3,891.60

FBT liabiltiy = $3,891.60