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Taxation Theory Practice and Law

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Table of Contents-

Question 1-

Issue-

Daniel and Olivia Smith operate a mixed business called Brekkie and Lunch and OZ Bottle Shop at 50 York Street Sydney. They visit you in order to prepare their 2017 partnership tax return. During your first meeting they provide you with their cash receipts and cash payments journals, their business bank statements and a file contain all their business invoices and receipts relating to the transactions in their book.

From the information supplied, prepare the working papers and determine the net income for the partnership for the year ended 30 June 2017.

Rule-

Cash Sales

Amount ($)

Cash Sales=

150170

Paid directly to creditors

31155

Private Use

5600

Total Cash Sales

186925

 

Credit Sales

Amount ($)

Closing Debtors

3010

Debtors Cash Payment

32800

Opening Debtors

-3925

Total Credit sales

31885

Private Use

3200

 

Cost Of Goods Sold

Amount ($)

Opening Stock

9120

Cash Purchase

31155

Credit Purchase

128678

Differences in balance of creditors

510

Closing Stock

-9750

Total Cost of Goods Sold

159713

 

Properties used for Business

Amount ($)

Electricity Bill

1176

Mobile Bills

633.6

Council rates

310.2

Business Insurance

1250

Union Fees

284

Accounting Charges

595

Repair Expenses

1490

Loan Repayment

5500

 

Smaller Business Pool Assets

 

Restaurant Freezer

1480

Restaurant Refrigerator

3580

Shop Fitting Structure

2965

kitchen Electrical Appliances

754

Car Van

1395

Car SUVs

6210

Opening Pool Balance

16384

Depreciation

4915.2

New Assets

 

New assets acquired

5200

Depreciation

780

Total Depreciation Charged

5695.2

 

Particulars

Amount ($)

Amount ($)

Income

   

Sales- Cash

186925

 

Sales- Credit

31885

 

Goods taken from stock

3200

 

Cost of goods sold

-159713

 

Total Income

 

62297

Less: Deduction

   

Motor Vehicle running expenses

2364

 

Power

1176

 

Rates

310

 

Insurance

1250

 

Telephone

634

 

Union Fees

284

 

Account Charges

595

 

Repairs and Maintenance

290

 

Interest On loans

5500

 

Depreciation

5695

 

Total Expenses

 

18098

Net Income of Partnership Firm

 

44199

"In the books of and Lunch and OZ Bottle Shop; Trading and Profit and loss account"

Application-

In the trading profit and loss account the earned profit and loss are enlisted. It helps to assume the net profit and loss of the company. In the profit and loss account two types of entities are enlisted. One entity is manufacturing and the other one is non-manufacturing entity.

The main importance of profit and loss account is that it helps to determine all the income and expenses occurred in the company. The capability of the company can be determined by the profit and loss statement. It shows the revenue, cutting costs, cost of goods sold, selling and administrative costs etc.

The profit and loss statement is different than the other financial statements of the company. Profit and loss statement helps to understand the profitability of the company and the balance sheet provides a general overview of the financial situation of the company.

Conclusion-

From the above profit and loss statement it can be seen that the net profit of the company after the deductions of all the taxes is 44199. It has also displayed all the details of income and expenses of the company.

Question 2-

Issue-

John is a senior executive with a printing company. As part of his remuneration package his employer pays for his child’s school fees at a private school costing $15,000. His employer also provides him with accommodation in a Sydney apartment throughout the FBT year.

John must pay $100 of rent per week for the apartment. The market value rent for the apartment is $800 per week. This is the issue that has been found out from the problem that is provided. The issue of that came out from the question is of the remuneration structure where the employer is paying John the employee for his child’s school fees and along with that the rent of the flat that john stays with a weekly rent of $700.

The fringe benefit tax is a very vital thing that is charged on the benefits that are received by the employees and along with that those have to be non monetary benefits. These benefits are provided to only those employees that do not have high incomes and are not entitled to any other benefits that are received by the other employees of the organisation.

This is the main issue regarding the problems of the case of John and his employer. This needs to be checked and a proper structure needs to be made with the help of proper rules. These are the things that can be seen from the problem

Rule-

The full term of FBT is Fringe Benefit Tax. This tax is charged on the Fringe benefits provided to the employees of the organisation. No matter who pays the bills of the benefits but the tax is deducted from the employers of the organisation (Butler and Calcott, 2018). Fringe benefits are such benefits that are given to the employees of the organisation to keep them happy. These benefits are received by employees those have very less salary.

This is a very good initiative that is undertaken by the employers so that the employees stay with the organisation with loyalty. The fringe benefits are generally non monetary benefits that are given to the employees of the organisation to keep them happy and enthusiastic (Cooper, 2016). The rule states that the fringe benefits are only entitled to the employees who have less salary and as well as who are not entitled to any kind of other benefits.

The other rule of the fringe benefit tax is that the tax needs to be paid by the employer no matter who provides the benefits. This is very much necessary to know as because if the employees had to pay the taxes then there would have been a lot of problems in the management regarding the employees. It can be seen from the rule that there are two main things that needs to be followed by the employers as a rule.

The first rule of the fringe benefit tax is that the fringe benefits will only be received by the employees that do not get enough salary for a living. Other than that no one is entitled to the benefit. The other rule of the fringe benefit tax is that the employer needs to pay the tax on the benefits received by the employees of the organisation.

If any of the two do not match then the employees are not entitled to any kind of benefits and along with that the employer cannot give those employees these benefits if the above two criteria do not match for an employee. This will stop the management from doing any kind of fraud activities that might occur if this rule was not present.

Application-

There are some elements that are out from the taxes of the fringe benefits.

These are as follows:

  1. The employees’ wages and the salaries
  2. Houses present in the remote area
  3. Allowances provided to the employees who stay out of their houses
  4. Employees’ superannuation

From the above question it can be seen that the employer of John pays the school fees of his child which is $ 15, 000. The other thing that is paid by the employer is the rent of the apartment where the employer pays $700 per week and John pays $100 per week (Hodgson and Pearce, 2015).  

From the above issue and the rules that are present, it can be seen that the employer pays $15, 000 as the school fees of child of John and along with that the employer also pays $700 per week for the flat rent that John stays.

The calculations of the fringe benefit tax are as follows:

Remuneration Package

Amount ($)

School Fees

15000

Market Value of Apartment

800

Self-Payment by John

100

   

a. School Fees (GST Free)

 

Gross Up Rate

1.8868

Taxable value of fringe benefit

28302

FBT for the year

13301.94

   

b. 2017/18

 

Market value of apartment

41600

Self Payment

5200

Taxable value

36400

Grossed up taxable value

68679.52

FBT for the year

32279.37

Total FBT

45581.31

Conclusion-

These are the fringe benefits that are received by John. The tax is paid by the employer at 47% which includes Fringe benefit tax of 45% and Medicare Levy of 2%. These are the things that can be advised to the employer of John. Hence, it can be seen that the amount increases a lot which is not payable by the employees of the organisation. So, the rule of the fringe benefit tax is very much applicable on the benefits received by the employees of the organisation.

This is very much vital for the management to decide whom to give the benefit and whom not to give. As all these counts to the income tax of the employees and as well as the employers of the organisation. Thus, it can be said that the issue is solved according to the rules and the application is done properly by the organisation and the employers. All the facilities given to the employees of the organisation are according to the rules and the regulations of the organisation and according to the rules of the fringe benefit tax given by the employers of the organisation.

References-

Butler, C. and Calcott, P., 2018. Optimal fringe benefit taxes: the implications of business use. International Tax and Public Finance25(3), pp.654-672.

Cooper, R., 2016. How to tax cellphones in the workplace: fringe benefits. Tax Breaks Newsletter2016(369), pp.4-6.

Hodgson, H. and Pearce, P., 2015. TravelSmart or travel tax breaks: is the fringe benefits tax a barrier to active commuting in Australia? 1. eJournal of Tax Research13(3), p.819.

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