Question 1

Leanne is an employee of her family company. She is one of 5 employees of the company which operates a chiropractic clinic. Four of the employees are qualified chiropractors and the remaining staff member is the Practice Manager. Peter also works in the practice. He generally works 2 days a week in the practice but also works in other practices and sees his own patients. Most of his patients are those who see him at the other practices and at home and usually come to him at their convenience and do not mind where they see him as all the venues are within 5 kilometres of each other.

The practice provides each staff member, including Peter, with an individual consulting room which is fully furnished with a desk, chair, computer and printer. The practice has its own kitchen. Tea, coffee, biscuits and milk are provided. They cost $1,400 during the year. A fridge is also provided for staff to use. The fridge had cost $1,000 two years ago.

The practice offers each staff member an interest-free loan of $10,000 if it is spent on study related to chiropractic issues or $5,000 for other purposes. The loans must be repaid with 3 years. Leanne as the only signatory to the account has withdrawn $10,000 per year for the last 5 years but in the current year has withdrawn the surplus cash in the business bank account to fund extensive home renovations. This is far in excess of what she has withdrawn previously and totalled $250,000.

Leanne and Carla, the Practice Manager, are both provided with a motor vehicle. Leanne travels to visit 2 local old age homes where she treats the residents. Carla travels to the bank, the Post Office and the local stationery business. She also travels to various medical suppliers to purchase medical items used in the practice. It is estimated that she travels 35% on work-related matters. Carla also lives in a self-contained flat at the top of the medical premises. Similar accommodation in the area is available for rent at $500 per week. Leanne prefers to have someone live on the premises so she allows Carla to live there for $200 per week.

The business buys Leanne a car on 1 July of the current year for $120,000. Stamp duty was $7,800 and dealer delivery costs were $3,000. Annual registration was $1,500 and annual insurance was $1,800. Petrol totalled $4,000 until 31 March of the current FBT year. The car travelled 20,000 kilometres during the FBT year even though she had been away on holiday for 21 days during that time. A log book showed that the business use was 28%.

The business provided a car for Carla. It had been bought 6 years previously for $38,000. Carla paid $3,000 for fuel during the year.

One of the employees was re-imbursement for work-related travel of $1,300.

The mother-in-law of one of the male chiropractors preferred to be treated by a female chiropractor and Carla treated her to 5 free treatments. They would have cost $1,000 if she had paid full price for them.

Steven, one of the employees, was available to work after hours. The practice paid for his mobile phone so that he could take after hours phone calls and also ensure that any other necessary arrangements could be made. He was able to show that his work-related use totalled 45% of the total telephone use. Total bills for this phone were $980.

Required:

Discuss what benefits have been provided to employees. You should state which Division applies to each benefit, the type of benefit and calculate, where possible the amount of the benefit and the FBT payable.

You must discuss whether or not you think Peter is an employee or an independent contractor. Support your argument with legislation, case law and rulings.

You must discuss in detail the interest-free loan that Leanne took from the business in the current year.

 

Question 2

Rudderless Ltd is a mining support business. It provides staff to a number of different mining companies, catering to 2 mine sites and also maintains the residential accommodation and facilities at 5 mine sites. This involves the cleaning, furnishing and maintenance of these sites. Each site has tables, chairs, recreational equipment and bedroom furniture which Rudderless must provide. The business has also taken over the management of a local caravan park to provide accommodation for mining staff. It is in a well-known tourist area but is used 99% of the time for accommodating mining staff. It is in a remote area.

Three Perth staff members take their families to the caravan park in the July school holidays. The market value of this totalled $3,000 but the staff were allowed to use this free of charge.

The caravan park is in a remote area and it is necessary for the business to provide accommodation to the park manager and the cleaning and maintenance staff. Its market value is $1,000 per week but no charge is made to these staff as an incentive to entice people to work in this area.

Three staff membersof the upper levels of management have come to Australia on short-term visas from the Belgian office. Each staff member receives a Living Away From Home Allowance of $1,500 per week which represents $500 for food with the remainder for accommodation.These staff members live and work in Perth.

The Perth-based Managing Director has obtained the following benefits:

• A flat-screen smart television set. This was not the set usually provided on-site but the Purchasing Manager was able to obtain this from the usual TV supplier. Its cost to the public was $5,600 but the company was able to buy it for $3,400.
• Catering for her 50^th birthday party. The chef from one of the mining sites was flown to Perth to oversee the catering. All food, hired furniture and drinks were obtained at cost from the business’ suppliers. The cost of the party was $48,000.
• Parking under the building in which the company operates. The company pays the building owners $18,000 per annum for this parking. It is secured and undercover. There are a number of commercial parking areas within one kilometre of the building with prices ranging from $12 to $16 per day.

 

The business incurs significant entertainment expenditure. This is summarised below:

 

On-site entertainment. This is provided at the mine sites to staff. It includes hiring musicians and comedians for entertainment in the bar and a sports co-ordinator who organises group sporting, fitness and social activities for staff at the mine sites.                                                                       $80,000

Registers show that this is 80% for staff

 

Meals while travelling                                                                      $230,000

Registers show that this is 100% for staff

 

General entertainment in Perth                                                      $135,000

Registers show that this is 50% for staff

 

Non-meal entertainment                                                                 $140,000

Registers show that this is 60% for staff

Required:

Identify each fringe benefit provided to staff members. For each benefit:

• Write a paragraph or two discussing in detail why the benefit is a fringe benefit and identifying which division will tax the benefit; and

 

• Calculate the taxable value and the FBT payable.

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