Expense Payment Fringe Benefit and Taxable Value Calculation

For the purpose of income tax under “section 995-1, ITAA 1997” the definition of partnership comprises of including the receipts made from the joint incomes of the property, service contracts and business agreements (Tondani 2016). Conferring to the “section 995-1”, partnership is better understood as the conducting of business activities as the partners or getting the ordinary income and the statutory income together. To determine the partnership net income reference should be made to the “section 90, ITAA 1936”. The net earnings of partnership is in respect of the assessable income that is computed where the partnership was the resident taxpayer after deducting the permissible deductions (Fairfield and Jorratt De Luis 2016).

The assessable income is held liable for taxation since it is added to the taxable income. Mentioning “section 6-5, ITAA 1997” ordinary income includes the income made from the ordinary concepts (Parker 2018). In “Scott v CT (1935)” the court stated that income based on the ordinary concepts requires the characterization that whether the gain has the character of income and are in adherence with the ordinary concepts.

A taxpayer is permitted under “section 8-1, ITAA 1997” to claim for deduction from their taxable income any losses or outgoings that is necessarily occurred while carrying out the business with the intent of producing taxable income or occurred in producing or gaining the chargeable earnings (Grace 2018). However, under the “sect (8-1 (2))”, no deduction is permitted to the taxpayer for the loss or expenses if it satisfies any of the negative limbs. In other words, a deduction is not allowed under the negative limbs for the expenses that are capital, private or domestic in nature.

As per the “sect 25-10” allowable deduction is permitted for the repairs conducted on the premises or the depreciating assets that is mainly used for generating income (Stevenson et al. 2017). According to the “ATO TR 97/23” the item under repair should be used for producing income for the purpose of repairs to be allowed as deductible under the “section 25-10”. This includes the repairs carried out in the course of business or made to the rental property (Chen, Qi and Schlagenhauf 2018). There is some maintenance work that are treated as repair under “sect 25-10”. This includes the painting done on the business buildings to remedy the present worsening and prohibit the future deterioration.

On the other hand, if the replacement done is the part of the assets is allowed as deductible repairs. The court in “Samuel Jones & Co (Devondale) Ltd v IRC” held the replacement of chimney of a factory with the similar dimensions formed the inseparable portion of the overall asset (Braithwaite and Reinhart 2019). As per the ATO, if any business assets that is bought for $20,000 or below can be claimed as immediate deduction.

Housing Benefit and Taxable Value Calculation

Daniel and Olivia are carrying on the business as partners within the meaning of “section 995-1, ITAA 1997” and during the year of 2017 the made receipts from the partnership. The receipts included the business sales in the form of cash payment and also included the receipt of payment from the debtors. Mentioning “section 6-5, ITAA 1997”, the cash receipts and payments from debtor’s amounts to ordinary income which is made the partners from the ordinary concepts. Citing “Scott v CT (1935)” the business receipts had the character of income and are in adherence with the ordinary concepts.

Daniel and Olivia reported certain partnership expenses such as council rates, electricity bill, car expenses, union fees, loan repayment etc. These expenses were necessarily occurred while carrying on the partnership business and hence will be allowed as deductible expenses under the general provision of “sect 8-1, ITAA 1997”.

The partners also reported certain drawings of cash and goods for their private purpose. The drawings made by Daniel and Olivia satisfies the negative limbs of “section (8-1 (2))” and non-deductible because they are private in nature.

The repairs and maintenance in the form of shop painting will be allowable deductions under “section 25-10”. The painting on the business premises was done to remedy the present worsening and prohibit the future deterioration. Similarly, referring to “Samuel Jones & Co (Devondale) Ltd v IRC” the replacement of refrigerator motor constitutes deductible repairs under “section 25-10” (Kess, Grimaldi and Revels 2017). The business also installed the air-condition for $1,200. The cost of air condition is below $20,000 of the ATO stated rules for claiming immediate deduction. Referring to “section 90, ITAA 1936” the net income of partnership less allowable deductions is computed below;

Under “section 90, ITAA 1997” the partnership net income derived as $2,373 following the deduction of the allowable expenses made during the course of partnership. 

The existing subject concerning the case is related to the fringe benefit tax liability of the employer for the fringe benefit provided in relation to the payment of expenses under “section 20, FBTAA 1986”. The issue is also revolving around determining the fringe benefit tax consequences for the housing benefit provided to the employee by the employer under the “section 25, FBTAA 1986”.

As it has been explained under the “FBTAA 1986”, a fringe benefit is viewed as a benefit provided to the employee during the part of employment (Visser 2017). This “FBTAA 1986” states that benefit is given to someone because they are employed as the employee. The employee here can be either former or future employee as well. The “FBTAA 1986” clarifies the fringe benefit as the payment that is made to the employee however it is not regarded as the salary or wages. Under the “FBTAA 1986” the taxable value of the fringe benefit is paid by the employer.  

Partnership Income Tax, Deductions, and Repairs

The expense payment fringe benefit under “section 20, FBTAA 1986” implies the payment of expenses by the employer in discharge of the recipient obligations either whole or in part to the amount to the third party that is occurred by the recipient. In addition to this, “section 23 of the FBTAA 1986” is related with the taxable value of the expenditure payment fringe benefit (Henry, Plesko and Utke 2018). Subjected to the “section 23, FBTAA 1986” the taxable value of the expense payment fringe benefit is related to the year in which the benefit is provided. In other words, the employer would be liable for the chargeable value of the expense payment fringe benefit made during the year of taxation.

Conferring to the “section 25 of the FBTAA 1986” the housing benefits is subsistence for whole or part of the year of tax is the right of housing provided by the provider (employer) to the recipient (employee) would be taken into account as the benefit given by the employer to the recipient in relation to the taxation year.

The determination of the market value of the housing right is given under the “section 27 of the FBTAA 1986” (Easton 2015). As per the “sect 27 (1), FBTAA 1986” the chargeable value of the market rental value represents the rights of using the accommodation which is further reduced by the rental payments that is contributed by the employee.

The case study opens up with the information that the John worked as the executive in the printing company. The employer here as the salary package paid the private school fess of his child. The cost of school fees was $15,000. Following the payment of the school fees it resulted in the expense payment fringe benefit under “section 20, FBTAA 1986” for the employer of John. This implies the payment of expenses by the employer was in discharge of the John responsibilities for the whole amount to the third party that is occurred by the recipient in this case.

Subjected to the “section 23, FBTAA 1986” the taxable value of the expense payment fringe benefit is related to the year in which the school fees were paid by the John’s employer. John’s employer would be liable for the chargeable value of the expense payment fringe benefit made during the year of taxation.

In the second part of the case it is noticed that the John by his employer was provided with the housing facilities in Sydney all through the FBT year. As the part of John’s obligation he should pay $100 as a rent every week whereas the market value Sydney housing was $800 every week. Conferring to the “section 25 of the FBTAA 1986”, providing John with an accommodation gave rise to right of housing made during the year of taxation. The employer under the “section 25, FBTAA 1986” will be liable for the housing fringe benefit (Shields and North-Samardzic 2015). However, under the “sect 27 (1), FBTAA 1986”, the taxable amount of the fringe benefit will be the market value of the housing accommodation provided by the employer here to the recipient. The employer here can reduce the taxable value of the fringe benefit by reducing any rental contributions made by John all through the FBT year.

Conclusion:   

The employer here has provided John with the fringe benefit as the part of employment. The employer will be liable for fringe benefit tax under “section 23 of the FBTAA 1986” and “section 27 (1), FBTAA 1986” less the rental contributions made by John during the FBT year.

References:

Braithwaite, V. and Reinhart, M., 2019. The Taxpayers’ Charter: Does the Australian Tax Office comply and who benefits?.

Chen, D., Qi, S. and Schlagenhauf, D., 2018. Corporate income tax, legal form of organization, and employment. American Economic Journal: Macroeconomics, 10(4), pp.270-304.

Easton, B., 2015. Distibution of pre-tax top personal incomes. Policy Quarterly, 11(1).

Fairfield, T. and Jorratt De Luis, M., 2016. Top Income Shares, Business Profits, and Effective Tax Rates in Contemporary C hile. Review of Income and Wealth, 62, pp.S120-S144.

Grace, K., 2018. The impact of personal income tax rates on the employment decisions of small businesses. Journal of Entrepreneurship and Public Policy, 7(1), pp.74-104.

Henry, E., Plesko, G.A. and Utke, S., 2018. Tax Policy and Organizational Form: Assessing the Effects of the Tax Cuts and Jobs Act.

Kess, S., Grimaldi, J.R. and Revels, J.A., 2017. Financial, Legal, and Tax Concerns about Long-Term Care. The CPA Journal, 87(5), p.64.

Parker, H., 2018. Instead of the Dole: An enquiry into integration of the tax and benefit systems. Routledge.

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

Stevenson, M., Ledda, D., Pineda, V., Smith, M. and Kluth, S., 2017. CAPITA–Treasury’s microsimulation model of personal income tax and transfers. Treasury Working Paper), Canberra.

Tondani, D., 2016. Complexity of Personal Income Tax Design: An Index of Measurement. Journal of Public Finance and Public Choice, 27(2-2009), p.137.

Visser, A., 2017. Tax and employee transport. Tax Breaks Newsletter, 2017(376), pp.8-8.