Question

Question 2 Fringe Benefits Tax (FBT) Part A

(i) Eazy Accounting Limited is a chartered accountancy firm. One of its employees is migrating to Japan for personal reasons. As a going-away gift, the firm pays for the employee to have five free lessons to learn the Japanese language. Does the provision of free Japanese language lessons give rise to a fringe benefit? Explain with references to ITA 2007.

(ii) Modena Dresses Limited sells women’s clothing for special occasions. One of its employees, Shashi, is turning 40. The company gives her a cocktail dress as a birthday gift. Explain whether the provision of the cocktail dress gives rise to a fringe benefit and whether any exclusion applies.

(2marks)

Part B

SSS Ltd, which is GST registered, provides the following benefits to its employees for the year ended 31 March 2020.

• A motor vehicle with an ATV of $40,000 (GST Exclusive) was provided to Timothy for private use. During the year, the vehicle was not available for Timothy’s use for 5 days while it was being repaired and serviced. Timothy used the car for company business in 10 days. He contributed $1,200 towards the running costs of the vehicle during the year.

• On 1 April 2019, a loan of $50,000 at 2% interest was provided to Ramona a long-serving employee.

• Unclassified benefits of $20,000 (cost price) were provided to employees (retail value $30,000) during

  the year. The employees contributed $10,000.

  Required:

  Calculate the taxable value of the fringe benefits provided by SSS Ltd for the year ended 31 March 2020.

Answer 1

1. No, provision of free Japanese language lessons does not give rise to a fringe benefit because fringe benefits are those benefits that are provided to an employee by the employer on above the stated salaries for the performance of services. But in the given situation benefits provided to employees after leaving the job as a going away gift. It will not be considered a fringe benefit.

2. the birthday gifts qualify as de minimis fringe benefits and excluded from taxable fring benefits so in given situation,the provision of the cocktail dress will not gives rise to a fringe benefit

3. calculation of taxable fring benefits:

Motor car provided for personal use will not be considered as fring benefit.

Interest on loan = $1000

Unclasified benefits = $10000

Taxable fring benefits = $11000