LSSU593 Advanced Taxation Law

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LSSU593 Advanced Taxation Law

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LSSU593 Advanced Taxation Law

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Course Code: LSSU593
University: University Of New England

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Country: Australia

Question:

Upon completion of this unit, students will be able to:

demonstrate an advanced understanding and mastery of the legislation and procedures necessary for tax compliance, particularly relating to Fringe Benefits, Goods and Services, Small Business Entities, and Financial Transactions; tax avoidance and evasion; and tax administration;
use cognitive, technical and creative skills to employ the skills of legal research techniques including identifying primary sources, critical analysis, reasoning and argument to communicate independent opinions on legal issues relevant to taxation law; and
produce clear and coherent written communications that are based upon analysis, synthesis, and the application of professional judgement, as well as reflection and evaluation of the relevant law, to competently and confidently explain and quantify the income tax consequences of complex factual problems.

This unit requires 150 hours of study over this unit. The amount of time that each individual will spend on a topic area will vary depending on pre-existing knowledge and skills. Study requires a high degree of skill in time management. You should ensure that you develop a study plan that allows for known contingencies and also adds in a buffer for the unexpected, but it is recommended that you complete the suggested readings and topic activities in the weeks they are scheduled.
The learning activities that are detailed in your topic notes provide the opportunity for you to review and/or apply the skills and knowledge that are being developed throughout this unit.
Please remember to view the Moodle unit site for other learning resources that the unit coordinator may add.
You should do the reading prescribed for the topics. Online students can access recorded lectures via Moodle and can raise questions via the online discussion board. Online students are encouraged to:

Form study groups in order to discuss issues and argue opposing stances;
Answer the weekly tutorial or review questions outlined in this study guide. Model tutorial answers will not be posted as the tutorial questions have been drafted to facilitate reflection and as such, once the relevant issues are identified, there is no right or wrong answer, only good, better and best arguments; and
Attend Adobe Connect sessions, should there be sufficient interest from students (the time will advertised on Moodle).

There is no specific allocation of marks to individual criteria. The mark awarded reflects the overall quality of the written assignment taking into account all criteria. Content demonstrates:

Identification of issues;
Knowledge of the relevant legislation and relevant case law; and
Application of the relevant legislation and case law to the facts of the question. Structure demonstrates:
Clearly laid out actions with logical progression through the various elements; and
Careful organisation (e.g. use of headings). Expression, style and presentation demonstrates:
Recognition of nature of audience;
Recognition of purpose of assessment i.e. to assess your ability to analyse and apply the relevant law to a given set of facts;
Written in plain English, in a style which is clear, fluent and concise; and
Careful proofreading.

Answer:

Introduction:
Fringe benefit tax could be defined as the taxable amount that the employers pay to the government authorities for the benefits in relation to the services provided by the staffs. This tax has been imposed with an objective to assure that the employer of an organisation does not use this system for evading tax. The benefits that the employers provide are not included in the wages and salaries of the staffs. More precisely, these benefits are considered as non-cash benefits provided to the staffs. The employers have the option to provide these benefits directly or indirectly to their staffs. In Australia, the fringe benefit tax has been on the upper scale, which is 49%. For instance, some of the fringe benefits include insurance coverage of the staffs, educational assistance, cars provided for official use and loans offered to the staffs at lower rates compared to the market rates. However, there are certain items, which are exempted from fringe benefits tax. This paper would shed light on the fringe benefits tax exemptions and concessions in the context of the Australian business organisations.
Fringe benefits tax exemptions and concessions:
There are a number of benefits, which are exempt from fringe benefits tax (FBT). The following are the major fringe benefits tax exemptions in accordance with FBTAA 1986:
Work-related portable electronic device exemption:
FBT exemption could be applied in case of portable electronic device related to work for the employees. From 1st April 2016, FBT exemption is applicable in case of the following:

Numerous work-related portable electronic devices that are provided to the staffs by their employer, if the size of the business is small despite the devices have similar functions
A single work-related device in each FBT year, except when the item is replaceable for all other business organisations

The above aspects are applicable in case of portable electronic devices mainly for usage in the employment of the staffs and they are provided to the staffs after 31st March 2016 in accordance with “Section 58X of FBTAA 1986”. However, the business needs to be small-scale for a minimum one income period, which begins or finishes in the pertinent FBT year. A portable electronic device is a system, which could be portable easily, small and light and have the ability of operating in the absence of external power supply. These devices could be in the form of calculators, mobile phones, portable printers, computers and laptops, personal digital assistants and navigation receivers. For example, an employer providing a laptop to one of the staffs on 15th April 2015 and a mobile phone on 27th February 2016 for work purpose could claim FBT deduction for a single device. The reason is that both devices have identical functions and the employer might have to incur FBT on one device.  
Other work-related items exemption:
There are other work-related items, which are exempt from FBT, even though there are a number of limitations. According to “Subsections 3 and 4 of Section 58X (2) of FBTAA 1986”, these items include protective clothing, computer software, tools of trade and briefcases. However, this exemption is applicable to those items, which are used primarily in the employment of the staffs and a single item in each FBT year that are identical, unless the items are deemed to be replaceable.
Minor benefits exemption:
A minor benefit could be defined as a benefit, which has a value of lower than $300. It is not exempt from FBT, if it would not be reasonable for treating the same in the form of fringe benefit. This is discussed briefly as follows:

The benefits are provided not on a regular basis and frequently
The taxable value associated with the minor benefits and other identical benefits; in case, they are treated a fringe benefits, is low
The probable overall taxable value associated with the minor benefit and its other related benefits are low. In this context, it is noteworthy to mention that the related benefits are those provided in combination with the minor benefits like electricity and telephone benefits, which are provided as portion of an accommodation package.
It is critical to compute the taxable value associated with the benefit and any related benefits
The benefit is given due to contingency like unexpected overtime

Car fringe benefits exemption:
A car fringe benefit mainly takes place at the time a car, owned or leased by an employer, is made present for private use by any staff, as per “Section 7(1) of FBTAA 1986”. However, there are certain exemptions associated with car fringe benefits. The first exemption is associated with panel vans, taxis, utilities and other non-passenger vehicles, according to “Section 8 of FBTAA 1986”. The house-to-work journeys as well as incidental private usage of work-related vehicles do not jeopardise such exemptions. Hence, an employee could drive a Ute to house and work every day and the Ute would be exempted from the provided FBT. This is because the Ute is used for private reasons on infrequent, irregular or minor basis like visiting rubbish collection sites only some times in a year. In addition, the unregistered cars that are not used in business operations are exempted from fringe benefits tax as well. Despite the fact that there are no specific exempt in the category of car parking fringe benefit, there are certain miscellaneous exemptions, which are applicable in this case. In summary, the most pertinent exemptions are identified as the following:

Staffs working in charitable, religious, public education institutions and non-profit scientific organisations in accordance with “Section 58G of FBTAA 1986”
The staffs of small business organisations, in which the car of an staff is not parked at a commercial parking station, as per “Section 58GA of FBTAA 1986” and in order to ensure eligibility, the employer could not be a government body or a public organisation
The employer needs to be a small business organisation in the previous year
The statutory and ordinary income of the employer for the year prior to the start of the FBT period needs to be less than $10 million
The staffs having disabled person’s parking permit are eligible as well in accordance with “Regulation 3A Fringe Benefits Tax Regulations 1992”

Expense payment fringe benefits exemption:
This category contains certain specific exemptions, which are to be discussed in this section. According to “Section 20A of FBTAA 1986”, the benefits covered on the part of “no-private-use declaration” fall under this exemption. This is a yearly declaration on the part of an employer, which takes into account expense payment fringe benefits for the FBT period and it cites that the policy of the employer is to only reimburse or pay expenses associated with work. Moreover, “Section 21 of FBTAA 1986” states that accommodation expense payment benefits are exempted from fringe benefits as well. This exemption could be availed, in which the staffs fulfil the “living-way-from-home allowance” needs associated with maintaining an Australian house for a year or less. This takes into consideration the needs associated with “drive-in-drive-out” or “fly-in-fly-out” employees. Finally, in accordance with “Section 22 of FBTAA 1986”, car expense reimbursements per kilometre are exempted from fringe benefits as well.
Loan fringe benefits exemption:
In compliance with “Section 17 of FBTAA 1986”, various loan benefits are exempted from FBT, in which the employer:

Is in the business to lend money like banks and it undertakes variable or fixed rate loans to the staffs on similar terms as loans made to the public
Provides short-term advances for covering expenses associated with employment, which is generally six months
Provides temporary advances for covering security deposits up to one year

For instance, it is assumed that ABC Accountants has lent an amount of $100,000 at an interest rate of 2% per year on 1st July 2018 to one of its staffs. The taxable amount of the fringe loan benefits is provided as $2,740. In this case, the staff is assumed to be a director of the ABC Accountants and the individual uses the loan for undertaking an educational course. The director is engaged in the management consulting practice of the organisation and the content of the course is pertinent directly to work.
ABC Accountants could invoke the otherwise deductible rule, as mentioned in “Section 19 of FBTAA 1986”, by analysing a hypothetical question. By assuming that the loan has been interest-bearing, it is necessary to identify whether the director would be entitled to income tax deduction, if the individual is needed to incur loan interest. By reviewing this from the perspective of the staff, in accordance with “Section 8-1 of ITAA 1997”, self-education expenses are eligible for deduction, if the study would result in income hike for the employee from existing income-earning activities. For example, in the case of “FCT v Hatchett; TR 98/9”, a primary school teacher has incurred expenses in gaining a teacher certification as well as arts degree in university. The expenses related to self-education are not deductible under “Section 8-1 of ITAA 1997”, as they are expensed in placing the taxpayer in a position for gaining assessable income.
The limit of $250 on the amount, which could be claimed for self-education expenses, as per “Section 82A of ITAA 1936” is not taken into consideration at the time of applying the otherwise deductible rule, in accordance with “Section 19(1)(ba) of FBTAA 1986”. In relation to the hypothetical question, the director would be entitled to complete deduction. Now, it is assumed that ABC Accountants collects a declaration from the director when it lodges the yearly FBT return. In this situation, the taxable amount related to loan fringe benefit would be minimised completely by 100%, in accordance with the otherwise deductible rule. The outcome is that there would be no taxable amount and FBT would be exempted on the loan fringe benefit.  
Property fringe benefits:
According to “Section 40 of FBTAA 1986”, when an employer offers an employee with property fee or at a discount, there might be creation of a property fringe benefit. For instance, the case of “Caelli Constructions v FCT” is associated with the payments to a staff redundancy fund. These have been identified in the form of property fringe benefits incurred for employment; since they were incurred as per the industrial agreement and they are dependent on the staff salary.  This has assisted in clarifying the case of “Essenbourne v FCT”, in which the payments to a staff benefit fund have been identified to have no association with employment and thus, they have not been fringe benefits. However, according to “Sections 58 PA and 58PB of FBTAA 1986”, various payments to approved staff entitlement funds are identified as exempt benefits.
According to “Section 41 of FBTAA 1986”, exempt benefit occurs when all property constituting of drink or good is provided to or consumed by the existing staffs on working hours at the premises of the employers. However, the existing staffs do not take into consideration any associate such as spouse. The food or drink within the working hours includes working lunch, stationery, morning tea and office supplies. However, “Subsection 41(2) of Section 136(1) of FBTAA 1986” states that the exemption is not applicable; in case, food and drink are provided within a packaging agreement.
For instance, XYZ Corporation offers different kinds of food and drinks to the existing staffs at different functions, which are held on business premises. When food and drinks are provided to the staffs, they imply providing property to the staffs. When the property has been consumed on the business premises, the organisation would be able to apply the FBT exemption, in compliance with “Section 41 of FBTAA 1986”.
In addition, there are certain concessions associated with fringe benefits tax and they are demonstrated briefly as follows:
In-house benefits:
As per “Section 62 of FBTAA 1986”, there would be concession of $1,000 per staff in each FBT period in relation to the overall taxation amount of applicable in-house residual fringe benefits, airline transport fringe benefits and in-house property fringe benefits offered to a specific staff. However, in accordance with “Section 32(2) of FBTAA 1986”, it is not possible to access this concession; in case, the benefit is provided in accordance with a salary package.
Reduction concession and deferral concession:
Along with this, there are three concessions, which could be availed by the staffs, in which the ESS interest has been acquired on or after 1st July 2015 and they include reduction concession for start-ups and other cases and deferral concession. For reduction concession of start-ups, the assessable amount of discount is minimised to zero. For reduction concession of other cases, the assessable amount of discount is minimised by $1,000. For deferral concession, the consideration of the amount of discount in assessable income has been deferred until the prior of the prescribed events. For instance, a staff would incorporate the amount of discount in relation to a right in assessable income at the time it is exercised. This is set out in the following table:

Particulars

Reduction concession- start ups

Reduction concession- other cases

Deferral concession

Concession

According to “Section 83A-33 of FBTAA 1986”, the assessable amount of discount is nil

According to “Sections 83A-35(1) and (2)”, there would be minimisation of $1,000 in the assessable discount

There could be deferral in assessable discount, whichever time takes place at the earliest:
1. When there is no real risk of a staff losing the rights or shares and any sale restrictions have been lifted in accordance with “Sections 83A-115(4) and 83A-120(4)”
2. At the time a staff ceases employment, as per “Sections 83A-115(5) and 83A-120(5)”
3. After 15 years, when the staff purchased the rights or shares in compliance with “Sections 83A-115(6) and 83A-120(6)”
4. In case of rights and not shares, at the time a staff exercises the same and after this, when there is no risk of losing the shares and the sale restrictions are lifted, as per “Section 83A-120(7)”
The assessable discount is identical to the market value of the rights or share at the deferred taxing point of ESS, which is minimised by the interest cost base, in accordance with “Section 83A-110(1)”

Conclusion:
Based on the above discussion, it has been analysed that fringe benefit exemptions are applicable in case of certain items. These items mainly car parking fringe benefits, loan fringe benefits, property fringe benefits and others. Some of the fringe benefits include insurance coverage of the staffs, educational assistance, cars provided for official use and loans offered to the staffs at lower rates compared to the market rates. On the other hand, certain concessions in relation to FBT have been identified. These concessions primarily include reduction concession for start-ups, reduction concession for other cases and deferral concession. Therefore, it could be inferred that these items are exempted from fringe benefits tax, which are to be considered by the business organisations in calculating fringe benefits.
References:
Balbiano Di Colcavagno, Federico, “The Benefits Of Tax Diversity” [2016] SSRN Electronic Journal
Barkoczy, Stephen, Core Tax Legislation & Study Guide 2014 (CCH Australia Limited, 2014)
Barkoczy, Stephen, Core Tax Legislation And Study Guide (OUP Catalogue, 2016)
Biswas, Bashker, Bashker Biswas and Bashker Biswas, Employee Benefits Design And Compensation (Pearson Education / FTPress Delivers, 2014)
Boadway, Robin and Katherine Cuff, “Tax Treatment Of Bequests When Donor Benefits Are Discounted” (2015) 22(4) International Tax and Public Finance
Braverman, Daniel, Marsden Stephen and Sadiq Kerrie, “Assessing Taxpayer Response To Legislative Changes: A Case Study Of In-House Fringe Benefits Rules” (2015) 17(3) J. Austl. Tax’n
Deutsch, Robert L et al, Australian Tax Handbook (Thomson Reuters Australia, 2014)
FBT Exemptions And Concessions (2018) Ato.gov.au
FBT For Small Business (2018) Ato.gov.au
FBT For Small Business (2018) Ato.gov.au
FBT For Small Business (2018) Ato.gov.au
Foster, Dan, “Executive Share Incentives At The Crossroads: Fringe Benefits” (2016) 2016(371) Tax Breaks Newsletter
Fringe Benefits Tax Assessment Act 1986 (2018) Legislation.gov.au
Hodgson, Helen and Prafula Pearce, “Travelsmart Or Travel Tax Breaks: Is The Fringe Benefits Tax A Barrier To Active Commuting In Australia? 1.” (2015) 13(3) eJournal of Tax Research
Kenny, Paul and Paul Kenny, Lexisnexis Concise Tax Legislation 2015 (LexisNexis Butterworths, 2015)
“Value Of Fringe Benefits Nears $20,000” (2017) 33(7) Board & Administrator for Administrators Only
Warren, Nancy, Fringe Benefits (Harlequin Temptation, 2014)

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