Question 1:
(1) the $120,000 for tree removal and soil preparation would be incurred in
commencement of a business due to preparation of another profit venture.
Peter’s intention with the event of the tree removal and soil preparation was
to enable the progression of planting cherry trees, hazelnut trees and
seedlings as after the Black Summer Bushfires he intended to grow
hazelnuts and cherries because he believed that they would provide greater
yield in comparison to apples due to the current market, in which can be
identified as a profit seeking venture. The case of Softwood Pulp and Paper
Ltd v FCT (1976) 7 ATR 101 cannot be applied to this case due to Peter
employing a full-time manager, agreeing with the s6-5 of the ITAA 1997.
Therefore, the incurring expense of $120,00 can be considered as a
deductible expense compiled with the intention and commencement of a
business, in which can be claimed as a tax deduction in the year incurred.
(2) The $5,000,000 sale price for Lot A can be deemed as ordinary income
under s6-5 of the ITAA 1997 due to Peter selling the land in which was
prepared for profit seeking venture, he still had sold it to GDPL which, he
then subdivided into 2 Lots where Lot A in which was contracted had
earned him a sale of $5,000,000 whilst Lot B can be used for the farm and
cottage, in which the sale would be classified as ordinary income and may
be taxed for income purposes in the year of the sale.
Question 2:
Issue:
Advise the FBT (Fringe Benefit Tax) Liability for TPL (Truffles Pty Ltd) onto
Jane, Director, and part owner, for the current FBT year.
Law:
Under FBTAA 1986 (Fringe Benefit Tax Assessment Act 1986) s66(1), tax is
imposed on the provision of fringe benefits not the receipt of them, as such the
compilation of expenses can be regarded as deductibles under FBTAA 1986 s7(1),
s7 (3c), s58(P), s37AA, and s9 as well as ITAA 1997 (Income Tax Assessment Act
1997) s25-5. The FBT can be calculated by the taxable charge of the fringe
benefits in which can be subdivided from the FBTAA 1986 given the discrepancies
of exemptions and differing rulings that can configure the FBT calculation.
With correlations to cases of Re J & G Knowles (2000) 45 ATR 1101, that the loan
given to directors would be exempt due to them being ‘the ultimate owners of the
business’, the case of Federal Commissioner of Taxation v Payne [2001] HCA 3;
202 CLR 93 where the taxpayer had incurred all expenses from their personal
account and were then reimbursed making the expenses ‘otherwise deductible’, as
for the case of the entertainment benefit could not be found.
Application:
With the implementation of the FBTAA 1986, the application towards TPL and
Jane can be categorised by:
1) Car Fringe Benefits (Car Expenses)
2) Minor Benefits (Phone Holder and Discounted Truffles)
3) Loan (Exempt, not calculated/needed for FBT liability)
1)Car Fringe Benefits
In the case of Jane , with the provision of a car worth $60,000 from TPL to Jane
for work purposes, she also constitutes a logbook to record all receipts and events
that occurred, involving personal usage of the vehicle in which under FBTAA
1986 section 7-aii, ‘is taken to be available for the private use of the employee or
an associate of the employee’, in which invigorates the presence of an FBT. With
the usage of 40,000kms, 32,000kms for business purposes.
The expenses incurred on the vehicle would be deemed to be an FBT liability as
the reimbursement of the costs paid by Jane herself can relate to the case of
Federal Commissioner of Taxation v Payne [2001] HCA 3; 202 CLR 93 where the
taxpayer had incurred all expenses from their personal account and held receipts
within a logbook for reimbursement, making it otherwise deductible amounting to
$4,650.
The taxable value of the car fringe benefit can be calculated by FBTAA 1986 s7:
= (0.2 x $60,000 x 334/365) - $4,650 (all expenses incurred)
= $6,330.82 x (32,000/40,000) {business kms/total kms}
= $5064.66
2)Minor Benefits
Jane purchased 200g of truffles at $200 during the FBT year, which is equivalent
to $100 per 100g. Since the retail value of the truffles is $300 per 100g, the value
of the benefit provided is less than $300 and can be considered a minor benefit.
Therefore, the truffles provided by TPL to Jane for preparing meals at home would
be exempt from FBT as a minor benefit. As well as the provision of the phone
holder costing $100 as it is not progressively a necessity or affects any aspects of
employment/personal use.
3)Loan exempt
The $500,000 loan would be exempt due to the profit-making venture that Jane had
made by investing into the stock market, enforcing the concept of income tax
deduction.
Conclusion:
Therefore, TPL has a total FBT liability of $5,064.66 based on the car fringe
benefit provided to Jane, as per the provisions of the FBTAA 1986 and relevant
case law.