Fringe Benefits Tax for Minor Benefits

Taxation Ruling 2007/12 deals with the provision of Fringe benefits tax relating to minor benefits. In accordance with the section, the notional amount relating to the taxable value of benefit which is exempt is less than $300. Further, certain benefits which are specifically excluded from section 58 P comprised expense payment benefits. As voucher relating to a gym membership is an expense payment benefit thus the same will be taxed in accordance with fringe benefits taxation provision and will be included in wages of the employee.

The amount which has been received regarding as non-refundable voucher will be included in assessable income as a fringe benefit. The membership of gym is considered as a recreational activity and is a part of the expense payment fringe benefit, the same will be included in assessable income of Clara (Australian taxation office. Rental properties, 2016). However, no tax will be paid on same as it has been already paid by the employer. The same will be assessed under section 15-2 of ITAA 97, which deals with gratuities and benefits received as an employee.

Clara cannot claim $1000 or part thereof gym fees as in accordance with ATO provisions one can claim a tax deduction on gym membership fees only in case he proves that it is necessarily required for his or her learning activities. In the present scenario, as Clara is an academic teacher; she won’t be able to claim a deduction as the same are not necessarily required for teaching tax and law to undergraduate and postgraduate students.

The value of morning tea, statue and voucher are not ordinary or statutory income; thus the same is not assessed under 6-5 or 6-10 of Income Tax Assessment Act 1997. The same is a non-assessable windfall gain.

It was held in case of Kelly v. FC that as a prize was incident to employment and normal incident to an employee. The case related to a footballer who received a cash reward for being best and fairest player. In the present case also as the award is being provided for good teaching; thus the voucher which has been rewarded will not be classified as statutory income or ordinary income. Hence Clara will not be able to claim deduction relating to purchased book nor will he include prize as assessable income.

A union fee is a deductible expenditure as per general deductions which have been specified in section 8-1 of ITAA 97. Further, it has been specified in the section that assessed is able to claim deductions relating to work while performing the operation as an employee in case an expense is incurred, i.e.:

Taxability of Gym Membership

A bill for which employee is liable and required to pay.

In case the bill is not received, but payment is required to be paid.

These expenses comprise:

• Clothing expense
• Education expenses
• Union expenses
• Tools and equipment expense

Union expense is part of above expenses; Clara will be able to claim deduction under section 8-1 of ITAA 97 regarding payment of union fees of $ 750 in the income year.

Deduction of travel cost:

In accordance with provisions specified by Australian taxation office; the expenses which have been done in for travel can be claimed only if the same is directly related to work as an employee. It comprises:

• Public transport comprising air travel
• Meal, accommodation and related expenses

In case the expense which is made is above $300 than evidence relating to same is required to be maintained by the employee. In the present scenario, the expenses relating to the conference which comprise airfare $750, registration cost of conference NZ $ 595; meal and accommodation $ 550; other travelling expenses $ NZ 78 as are relating to the job of teaching the same will be deductible to the extent paid by her. However, the expense paid while she stayed at her sister will not be deductible for taxation purposes.

Income tax law of Australia specifies common law or ordinary meaning of royalty which comprises the below-specified characteristics:

• Payment in return to exercise a beneficial privilege.
• The amount is paid to the amount who own right.
• Consideration can be reasonably ascertained.
• Consideration is paid while exercising right.

In the present case, Clara has received payment for joining rival University in case she leaves her current job. Thus, as the amount paid is a kind of payment relating to exercising privilege right and is in accordance with characteristics required for the ordinary purpose the same will taxed as ordinary income under section 6-5 ITAA 97.

There are no CGT consequences as the receipt of $10000 by Clara is in accordance with the common or statutory meaning of royalty. Thus, the same will be assessed as ordinary income.

In accordance with Australian Taxation provisions, a general deduction relating to management and maintenance of house along with interest can be claimed against current year’s income. Thus the amount of interest $15000 can be claimed as deductible expenditure. Further, the amount which has been paid for the computer, i.e. $2950 can be claimed in the form of depreciation as the same is used mainly for academic purpose. Clara can claim depreciation in accordance with the straight-line method or written down value method, i.e. in accordance with the use of the asset.

Presently, no statutory law or provision exists which provides that return which is provided by solar panel electricity generation in assessable income; the same cannot be specified as statutory income under section 6-10 of ITAA97. However, further it has been specified that as usual categories such as wages, other income relating to royalty or income property or combination of both, etc. amounts to ordinary income; thus the amount received as rePosit arrangement will be treated as ordinary income.

Tax Treatment of Union Fees and Travel Expenses

The interest expenditure of $ 2100 relating to interest on $30000 for solar energy package is the whole deductible. The whole amount can be claimed as a tax deduction. However, an assumption has been made it is a secured loan; thus the interest paid on the secured loan is tax –deductible.  

Saving of any expenditure cannot be treated as income. Thus, $2500 which has been saved by Clare relating to electricity expenses will not be treated as income. Moreover, no deduction can be claimed for same as the amount has not been expended.

The intention of Clara is correct that she had no intention of making profits; thus she can appeal that as no specific statutory provision exists for this income thus the same cannot be treated as ordinary income. Moreover, in UK subsection 782 (A) of Income Tax-specific that no tax liability arises in case of income arising to an individual from the sale of electricity generated in case it is applied for domestic premises of an individual. In the present case as Clara has also applied for domestic premises; thus the receipt of $450 should also be not taxable.

In accordance with private ruling provided to taxpayer by ATO which specifies credit or payments; both are not to be specified as assessable income. The reason behind the same is that householder in not operating business and the arrangement is also of domestic nature. The main difference is that if credit is not availed within twelve month than the same will be of no use after specified time.

In some cases payments are received and in some cases credit is provided. However, credit is provided with some time limit such as a period of twelve month. In case credit expires than no payment or return is being made by electricity department.

In accordance with Australian Taxation provisions relating to capital gain tax, in case a capital asset is sold such as real estate or shares than assessee is required to report regarding capital gain or loss in income tax return and required to pay tax accordingly. As in present scenario capital asset is sold by Clara, thus the CG implication will be applied at the date of sale.

Usually, main residence i.e. the place where you live (home) is exempt from capital gain tax. Further for availing the exemption you are require to provide proof that you are living on it as no exemption is available on a vacant land.

The main residence exemption is available in following cases:

• In case the property is used as main residence as soon as one has practically settled.
• In case a new house is purchase before selling old house; than both the houses can be treated as main residence up to six months.
• After expiry of six months, one month is required to be chosen.

In present case capital gain taxation provisions will be applied; however if Clara is able to prove that it is her main residence than she will not be required to pay any taxes.

References

Books and Journals

Barkoczy, S., 2016. Foundations of Taxation Law 2016. OUP Catalogue.

Shields, J. and North-Samardzic, A., 2015. 10 Employee benefits. Managing Employee Performance & Reward: Concepts, Practices, Strategies, p.218.

Woellner, R., Barkoczy, S., Murphy, S., Evans, C. and Pinto, D., 2011. Australian Taxation Law Select: legislation and commentary. CCH Australia.

Online

Australian taxation office. 2016. [Online]. Available through <https://www.ato.gov.au/General/Property/Residential-rental-properties/Expenses-deductible-immediately—management,-maintenance,-interest/>. [Accessed on 27^th September 2017].

Australian taxation office. Amounts not included as income. 2016. [Online]. Available through < https://www.ato.gov.au/Individuals/Income-and-deductions/Income-you-must-declare/Amounts-not-included-as-income/>. [Accessed on 27^th September 2017].

Australian taxation office. Claiming deductions 2017. 2017. [Online]. Available through < https://www.ato.gov.au/Individuals/Tax-Return/2017/Tax-return/Deduction-questions-D1-D10/Claiming-deductions-2017/?=redirected>. [Accessed on 27^th September 2017].

Australian taxation office. Other income. 2017. [Online]. Available through < https://www.ato.gov.au/Individuals/Tax-Return/2017/Tax-return/Deduction-questions-D1-D10/Claiming-deductions-2017/?=redirected>. [Accessed on 27^th September 2017].

Australian taxation office. Rental properties. 2016. [Online]. Available through < https://www.ato.gov.au/law/view/view.htm?docid=SAV/RENTAL/00001&PiT=99991231235958#FTINTEREST/>. [Accessed on 27^th September 2017].

Legal cases

Federal Commissioner of Taxation v Cooling (1990) FCR 42

Kelly v. FC of T (1985) 80 FLR 155