Goods and Service Tax

Questions: 1. Alan is aReferencesn employee at ABC Pty Ltd (ABC). He has negotiated the following remuneration package with ABC: salary of $300,000; payment of Alan's mobile phone bill ($220 per month, including GST). Alan is under a two-year contract whereby he is required to pay a fixed sum each month for unlimited usage of his phone. Alan uses the phone for work-related purposes only; Payment of Alan's children's school fees ($20,000 per year). The school fees are GST free. ABC also provided Alan with the latest mobile phone handset, which cost $2,000 (including GST). At the end of the year ABC hosted a dinner at a local Thai restaurant for all 20 employees and their partners. The total cost of the dinner was $6,600 including GST. (a) Advise ABC of its FBT consequences arising out of the above information, including calculation of any FBT liability, for the year ending 31 March 2015. Assume that ABC would be entitled to input tax credits in relation to any GST-inclusive acquisitions. (b) How would your answer to (a) differ if ABC only had 5 employees? (c) How would your answer to (a) differ if clients of ABC also attended the end-of-year dinner? 2. Rubber Co manufactures tennis balls. On 1 January 2010, Rubber Co purchased a new machine for $1.1m (inclusive of GST) which it used to produce the tin cans in which its tennis balls were placed for sale to retailers. At the time of acquiring the machine , Rubber Co estimated that the machine would have an effective life of 10 years before it needed to be replaced. Subsequently, on 1 January 2014, as a result of new technology, a better quality machine became available and Rubber Co decided to sell the original machine for $330,000 (inclusive of GST) and purchase a new machine for $2.2m (inclusive of GST). Requirement: What are the tax consequences of these arrangements under Div 40ITAA97? Answers: (1). According to the GST act, a taxpayer is liable for the GST on the supplies made that is equal to an eleventh of the amount receives when they make taxable supplies. The amount of the liability on a taxable supply is not to be included in the assessable income of the taxpayer. However, a GST amount on the sales made regarding the depreciating assets are not inclusive as a part of the sales made (Ingles, 2001). All the creditable acquisitions according to the GST act are accompanied with input tax credits on the acquisition. The input tax credit amounts to an eleventh of the paid amount under the acquisition. In the process of determining the length of the creditable purpose for the people working the sum of the amount of the credit of the employer, the employees perspective is the relevant factor (Deeming, 2013). It is however noted that the tax credit that is obtained on a credible acquisition is not applicable in the deductions. Thus, the input tax credit on the acquisition of the d epreciating asset is as well not applicable. In this case the FTB would be calculated as; (a) (300,000+20000) = 32,000; taxable value 32,000*1.9608 = 63745.6 GST free (220*12) + 20000 + 6,600 = 29240; GST credit 29240*2.1463 = 627570812; gross taxable value 62757.812+63745.6 = 126503.412; total fringe benefits taxable amounts 126503.412*0.49 = 61986.67; total FTB payable (b) If ABC has five employees (300,000+20000) = 32,000; taxable value 32,000*1.9608 = 63745.6 GST free (220*12) + 20000 + 1650 = 24290; GST credit 24290*2.1463 = 52133.627; gross taxable value 52133.627+63745.6 = 115879.25; total fringe benefits taxable amounts 115879.25*0.49 = 56780.83; total FTB payable (C) if the clients to ABC were to attend the function, the GST credit would be higher then the experienced as the company would have to cater for their expense that would be inclusive of the GST. (2). The government of Australia has been seen to plan to bar the operations according to section 51AD to the arrangements that came before the 1st of July 2003. They came to be replaced by income tax assessment act as per division 250 that had proposed provisions to tax the proceeds of the lease and other arrangements where the assets by the tax preferred entities were used. Division 250 aims to deny the deductions of the capital allowance that are possibly to be claimed by a taxpayer in such cases where the entities of a tax payer lacked the predominance economic interest instead, the arrangements are to be regarded as a loan and taxed the same way as a financial case on an accrual basis (Apps Rees, 2010). According to the taxation laws in Australia, the general principal governing the income tax stands to be exclusive. It declares that for a person to be eligible to claim deductions for the expenses related to asset ownership, the owner has to prove that the asset is for the production of assessable income. The government thus notes that the arrangements as in the case have been put to practice to circumvent the principle (Kalb, Kew Scutella, 2005). In such arrangements, section 51AD is seen to stand out denying a taxpayer the capital deductions in the cases where they financed and purchased assets while they are using the non-recourse debt applying close to fifty percent of the buying price. The operations of the provision by this section appear to have been avoided by the arrangements not involving the non-recourse debt. Division 16D as well appears to be denying the taxpayers some capital allowance deductions in the cases as in the arrangements. In cases where thus division is app licable, section 51AD is net applicable and the opposite. References Apps, P, Rees, R 2010, 'Australian Family Tax Reform and the Targeting Fallacy',Australian Economic Review, vol. 43, no. 2, p. 153. Available from: 10.1111/j.1467-8462.2010.00590.x. [22 May 2016]. Deeming, C 2013, 'The Working Class and Welfare: Francis G. Castles on the Political Development of the Welfare State in Australia and New Zealand Thirty Years On',Social Policy Administration, 47, 6, p. 668, Publisher Provided Full Text Searching File, EBSCOhost, viewed 22 May 2016. Ingles, D 2001, 'Earned Income Tax Credits: Do They Have Any Role to Play in Australia?',Australian Economic Review, 34, 1, p. 14, Publisher Provided Full Text Searching File, EBSCOhost, viewed 22 May 2016. Kalb, G, Kew, H, Scutella, R 2005, 'Effects of the Australian New Tax System on Income Tax and Benefits with and without Labour Supply Responses',Australian Economic Review, 38, 2, p. 137, Publisher Provided Full Text Searching File, EBSCOhost, viewed 22 May 2016.