REVENUE&LAW&!! ! !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

!

SOURCES'OF'TAXATION'LAW'!!

!Origins'of'Judicial'Tax'Law'Concepts'''

• Income!tax!is!imposed!on!a!taxpayer’s!“taxable!income”,!which!is!defined!as!a!person’s!assessable!income!minus!deductions.!!

• Assessable!income!was!defined!in!the!original!income!tax!laws!as!gross!income!while!deductions!were!allowed!for!expenses!other!than!capital!expenses.!!

• One!of!the!main!features!of!ordinary!income!is!its!identification!with!a!source!that!generates!the!income.!If!a!receipt!can!be!seen!to!be!a!product!of!labour!or!business!activity!or!the!use!or!exploitation!of!property,!it!will!acquire!an!income!character!under!the!judicial!tests.!!

• Basic!tests!to!determine!whether!receipts!constitute!ordinary!income!are!supported!by!two!supplementary!tests.!

o The!first!test!treats!a!receipt!as!income!if!it!has!certain!incomeDlike!characteristics,!namely!that!it!is!periodic!in!nature,!expected!by!the!recipient!and!applied!to!the!same!uses!as!other!types!of!income!might!be!applied!!

o Second!test!treats!a!receipt!as!income!if!it!is!received!as!compensation!for!lost!income!or!in!substitution!for!what!would!have!been!income!receipts.!!

!

Key$Points$$• The!main!tax!legislation!consists!of!two!assessment!Acts,!a!fringe!benefits!

tax!Act!and!a!goods!and!services!tax!Act.!$• Tax!legislation!is!interpreted!using!the!doctrine!of!precedent,!a!process!

not!used!in!interpretation!of!financial!accounting!standards!$• Tax!law!exam!problems!usually!involve!facts!that!might!attract!two!

alternative!characterisations!of!a!receipt!or!expense!and!a!good!answer!will!canvass!both!possibilities.!$

• Key!differences!between!tax!law!and!accounting!$o Not!all!receipts!are!recognised!for!tax!purposes!$o Income!tax!law!distinguishes!between!capital!and!revenue!

expenses!$o Income!tax!law!excludes!some!income!and!expenses!for!policy!

reasons!$o Income!tax!law!ignores!some!transactions!on!the!basis!of!antiD

avoidance!provisions!$o Timing!rules!differ$

Sources'of'Tax'Law''

• ITAA!1936!o Partnerships!and!trust!provisions!are!included!here.!!

• ITAA!1997!!o Simplification!program;!1936!Act!rewritten,!but!unfinished!!o Any!gain!brought!into!the!tax!system!via!the!Capital!Gains!Tax!will!

be!taxed!as!part!of!assessable!income!subject!to!this!Act.!!o Income!and!Deductions!provisions!are!included!here!

! Words,!but!not!meanings!were!changed!between!the!Acts.!Check!s1D3!of!the!1997!Act.!!

• Fringe'Benefits'Tax'Assessment'Act'1986'(Cth)!!o Fringe!Benefits!are!explicitly!excluded!from!the!income!tax.!!o This!Act!is!the!starting!point!for!any!problem!involving!a!benefit!to!

an!employee!other!than!salary!or!wages!and,!if!the!benefit!satisfies!the!definition!of!a!fringe!benefit!under!this!Act,it!is!not!necessary!to!consider!other!legislation,!!

! Income!tax!law!must!only!be!considered!if!the!problem!involves!a!cash!benefit!that!might!fall!within!the!broad!understanding!of!salary!or!wages.!

• Goods!and!Services!Tax!laws!!o In!most!cases,!a!business!paying!GST!on!its!purchases!will!be!

entitled!to!credit!for!the!tax!or!a!refund.!Because!the!GST!paid!on!acquisitions!will!be!returned!to!the!business,!it!is!not!considered!a!cost!of!doing!business.!!

o Income!tax!contains!a!provision!denying!a!deduction!of!GST!to!be!refunded!to!the!taxpayer.!!

• Capital!Gains!Tax!!o Capital!Gains!is!statutory!income!under!s6D10!!o !

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!!

The$Taxation$Formula!!

!Power$to$Tax$$$

• For!the!purposes!of!making!tax!laws,!taxation!is!generally!defined!as!a!“compulsory!exaction!of!money!by!a!public!authority!for!public!purposes,!enforceable!by!law,!and!is!not!a!payment!for!services!rendered”!(Matthews'v'Chicory'Marketing'Board'(1938))!!

• Also!said!that!tax!is!not!a!penalty!and!it!cannot!be!arbitrary!i.e.!a!tax!liability!must!be!capable!of!being!determined!in!accordance!with!specific!criteria!(MacCormick'v'FCT'(1984))!!

• S51(ii)!of!the!Constitution!specifies!that!tax!laws!cannot!discriminate!between!the!States!or!parts!of!States.!!

• S114!of!the!Constitution!prevents!the!Cth!Government!from!imposing!any!tax!on!property!of!any!kind!belonging!to!a!State.!!

• S55!Constitution:!Commonwealth!Parliament!must!ensure!that!the!laws!imposing!taxation!deal!only!with!the!imposition!of!taxation!and!deal!with!one!subject!of!taxation!only.!!

• For!each!type!of!tax!we!usually!have!a:!!o Imposition!Act;!which!imposes!the!liability!for!the!tax!!o Rates!Act;!which!specifies!the!applicable!rate!of!tax!!

Key$Points$$$

• Primary!aim!of!the!taxation!regime!is!to!provide!government!revenue!and!fund!government!expenditure,!although!the!tax!system!also!has!broader!socioDeconomic!purposes.!!

• Over!90%!of!total!Commonwealth!Government!revenue!is!sourced!from!tax!revenue,!primarily!income!tax!revenue!

• Section!51(ii)!of!the!Australian!Constitution!grants!the!Commonwealth!Parliament!the!power!to!“make!laws!with!respect!to!taxation”!!

• The!income!tax!system!also!serves!as!a!basis!for!the!collection!of!certain!other!amounts,!such!as!the!Medicare!levy!and!repayments!under!the!higher!education!government!assistance!programs.!!

• Section!3D5!of!ITAA!1997!provides!that!income!tax!is!payable!for!each!year!by!each!individual,!company!and!certain!other!entities!

• Taxpayers!are!required!to!calculate!their!income!tax!for!the!financial!year!according!to!the!formula:!Income!Tax!=!(Taxable!Income!x!Rate)!–!Tax!Offsets,!which!is!set!out!in!s4D10(3)!!

• Taxable!income!is!calculated!according!to!the!formula:!Taxable!Income!=!Assessable!Income!–!Deductions,!which!is!set!out!in!s4D15.!!!

o Assessment!Act;!which!sets!out!the!rules!for!working!out!what!is!subject!to!tax!or!how!to!calculate!the!tax!payable.!!

!Medicare$Levy$$$

• Imposed!under!the!Medicare'Levy'Act'1986!• Criteria!for!determining!the!Medicare!Levy!liability!contained!in!Pt!VIIB!of!

ITAA!1936!!• Basic'Levy'Payable'!

o Generally!calculated!at!a!flat!rate!on!taxable!income:!s251S(1)(a)!of!ITAA!1936!

! Applicable!rate!is!1.5%!until!30!June!2014!and!2%!from!1!July!2014.!!

• Relief'for'Low'Income'Earners'!o A!taxpayer!who!is!qualified!as!this!is!either!fully!or!partially!

exempted!from!the!levy!!o Individuals!with!taxable!income!equal!to!or!less!than!the!

“threshold!amount”!receive!a!full!exemption!from!the!levy!o Individuals!with!taxable!income!greater!than!the!“threshold!

amount”,!but!less!than!the!“phaseDin!limit”,!pay!the!levy!at!a!rate!of!10!cents!on!every!dollar!of!taxable!income!above!the!threshold!amount!

• Exemptions!are!included!under!ss251T!and!251U!of!ITAA!1936!!• Medicare'Levy'Surcharge!

o This!is!payable!by!taxpayers!whose!income!is!above!a!certain!threshold!and!do!not!have!private!health!cover.!!

o Taxpayers!must!calculate!their!income!for!surcharge!purposes!to!determine!whether!they!have!to!pay!the!surcharge.!Income!for!this!purpose!includes:!!

! Taxable!income!!! Exempt!foreign!employment!income!!! Reportable!fringe!benefits!amount!!! Total!net!investment!loss!!! Reportable!super!contributions.!!

o If!liable,!the!surcharge!is!calculated!as!follows:!! Taxable!income!(including!the!net!amount!on!which!family!

trust!distribution!tax!has!been!paid!and!total!reportable!fringe!benefits)!x!Surcharge!rate.!!

!Income$Tax$Burden$$

• S3D5!of!the!ITAA!1997!provides!that!income!tax!is!payable!for!each!year!by!each!individual!and!company!and!certain!other!entities.!!

• Companies!are!treated!as!separate!taxpayers!and!pay!income!tax.!However,!company!tax!is!in!effect!a!preDpayment!of!the!individual!income!tax!of!the!company’s!shareholders.!This!is!due!to!the!operation!of!a!credit!arrangement!known!as!the!dividend!imputation!system.!!

• Income'Tax'Formula'(s4M10(1)'of!ITAA!1997):!o Income!Tax!=!(Taxable!Income!x!Rate)!–!Tax!Offsets!!

• Tax!year!is!1!July!to!30!June!(s4D10(1),!s995D1)!

!!!

Income'from'Personal'Services'and'Employment*!! Income$from$Personal$

Services$and$Employment$$$

!

$Is$it$a$Fringe$Benefit?$$$

$Ordinary$Income$$(s6D5)$

$Return$to$Work$Payment$(s15D3)$

$Payments$upon$termination$of$employment$(Div$82D83)$

$Non$cash$benefits$and$other$allowances$(s15D2)$

!

!

Ordinary(Income(as(a(reward(for(services((!

• Receipts!earned!from!personal!services!and!employment!(“personal!exertion”)!may!be!assessable!as!either!ordinary!or!statutory!income.!!

• NonDcash!benefits!received!in!respect!of!employment!may!be!subject!to!the!Fringe!Benefits!Tax.!!

o If!this!is!the!case,!these!benefits!are!exempt!from!income!tax!for!the!employee!(s23L!of!ITAA!1936)!and!need!to!be!considered!in!relation!to!the!FBT.!!

• Amounts!earned!directly!or!indirectly!by!virtue!of!a!taxpayer’s!person!exertion!will!constitute!ordinary!income:!Moorhouse'v'Dooland'[1955]!

o To!identify!income!from!personal!exertion,!look!at!the!connection!that!the!receipt!as!with!the!taxpayer’s!personal!service.!Establishing!this!nexus!is!essential!to!determining!whether!the!receipt!is!ordinary!income!under!s6D5!of!ITAA!1997!

! Hayes'v'FCT'(1956)!96!CLR!47:!held!that!a!receipt!is!not!ordinary!income!If!it!is!not!a!product!of!employment!or!a!reward!for!services.!!!

Does%the%Receipt%show%a%Nexus%with%the%service?%%!

!!Two!step!approach!to!determine!whether!an!amount!is!ordinary!income!from!personal!exertion:!!

1. Identifying!the!activity!undertaken;!!2. Determining!whether!the!receipt!is!a!reward!for!performing!that!

particular!activity!!!NOTE:$This!can!also!be!established!in!the!negative,!by!asking!if!the!receipt!was!for!some!other!purpose!than!employment!or!provision!of!service:!FCT$v$Harris!!

• Once!the!nexus!is!established,!it!does!not!matter!whether!the!payment!is!made!before,!during!or!after!the!completion!of!the!task:!Hochstrasser$v$Mayes$[1960]$AC$376!

• Whether!the!benefit!is!provided!by!the!entity!for!which!the!task!was!performed,!or!by!an!unrelated!third!party!is!irrelevant,!it!is!still!ordinary!income:!Kelly$v$FCT$(1985)$16$ATR$478!

o If!payment!is!paid!from!a!third!party,!one!must!also!consider!whether!it!was!a!personal!gift:!Hayes$v$FCT$(1956)!

• It!is!irrelevant!whether!payments!were!made!regularly!or!in!a!lump!sum:!Brent$v$FCT$(1971)!125!CLR!418!!

!

Salary%Sacrifice%%!

• If!personal!services!income!is!never!derived,!it!will!never!be!assessable!(Ruling!TR!98/1).!Attempts!to!redirect!payment!to!family!members!will!be!unsuccessful.!(Ch!23!Div!85!of!ITAA!1997)!

• For!salary!sacrifice!arrangements!to!be!effective,!employment!income!must!be!diverted!before!it!is!earned.!By!doing!this!effectively,!it!is!not!assessable!to!the!employee!(Ruling!TR!2001/10)!

o This!requires!employees!to!negotiate!to!forgo!future!salary!or!wages!in!exchange!for!some!other!benefit,!such!as!increased!superannuation!payments!by!the!employer.!!

! However,!any!benefit!accruing!to!the!employee!under!salary!sacrifice!must!be!considered!by!employers!as!to!the!effect!on!the!liability!to!FBT.!

(!!

Wages$Clear!nexus!with!activity!

Ordinary!Income !$Nexus!is!Uncertain!

Gifts$No!Nexus!with!activity!No!Ordinary!Income$

Prizes,(voluntary(payments(and(unexpected(payments((!

• If!these!are!a!reward!for!service,!they!are!considered!ordinary!income!as!the!benefit!is!an!incidence!of!employment:!Laidler$v$Perry'!

o However,!if!the!payment!is!made!for!some!other!reason,!then!the!receipt!is!a!personal!gift!and!will!not!be!ordinary!income!as!there!is!no!connection!with!personal!exertion.!

• Depending!on!the!nature!of!the!payment,!it!may!still!be!regarded!as!ordinary!income:!FCT$v$Dixon$!

!

Tips((!

• This!is!assessable!income!as!although!they!are!made!voluntarily,!they!are!made!because!of!the!level!of!service!provided,!and!not!for!any!other!reason,!therefore!establishing!the!nexus!with!the!service,!making!it!ordinary!income:!Penn$v$Spiers$&$Pond$[1908]!1!KB!766!

!

Personal(Gifts(and(Voluntary(Payments((!

• A!gift!given!for!personal!qualities!is!not!regarded!as!ordinary!income!and!would!not!normally!be!assessable!to!the!recipient!as!it!is!not!received!as!a!reward!for!personal!services:!Hayes$v$FCT$(1956)!96!CLR!47!

o However,!a!voluntary!payment!as!a!reward!for!services!will!constitute!ordinary!income.!!

• When!distinguishing!between!a!non!assessable!gift!and!an!assessable!gift,!weight!is!given!towards!the!nature!of!the!receipt!in!the!hands!of!the!recipient,!rather!than!the!motive!of!the!giver:!Scott$v$FCT$!

o An!unsolicited!gift!therefore!doesn’t!become!ordinary!income!only!because!it!was!prompted!by!gratitude!for!some!service,!as!other!factors!must!also!be!considered:!Scott$v$FCT$!

• Factors$to$assist$in$deciding$whether$a$gift$is$assessable:!o Whether!the!gift!was!expected,!as!expected!gifts!are!more!likely!to!

be!ordinary!income:!Scott$v$FCT!o Whether!the!gift!consists!of!a!lump!sum!or!regular!payments.!If!it!

consists!of!regular!payments,!the!it!is!more!likely!to!be!ordinary!income:!$FCT$v$Blake!

o The!motive!of!the!donor.!If!the!donor!intends!the!gift!to!be!rewarded!for!services!the!gift!is!more!likely!to!be!ordinary!income:!Scott$v$FCT$!

o Whether!the!recipient!has!already!been!remunerated!for!their!services.!If!so,!this!makes!the!voluntary!payment!less!likely!to!be!ordinary!income:!Scott$v$FCT;$Hayes$v$FCT$!

o Whether!there!was!a!personal!relationship!between!the!donor!and!recipient.!The!existence!of!a!preDexisting!personal!relationship!will!make!the!voluntary!payment!less!likely!to!be!ordinary!income:!Scott$v$FCT;$Hayes$v$FCT$!

!

Prizes(and(Chance(Winnings((!

• This!is!not!ordinary!income,!unless!it!is!income!from!business:!Babka$v$FCT$!

• To!be!ordinary!income,!winnings!would!need!to!be!earned!as!a!result!of!business!activity!or!degree!of!personal!exertion,!or!skill!would!need!to!outweigh!the!element!of!chance:!Kelly$v$FCT$!

• Some$factors$used$to$make$the$distinction$between$nonDassessable$prizes$and$prizes$related$to$personal$exertion:!

o The!degree!of!professionalism!!o Whether!the!award!is!for!services!rather!than!for!personal!

qualities!o Whether!the!reward!is!paid!before!or!after!service;!and!!o Whether!the!reward!is!related!to!the!taxpayer’s!contract.!

NonBCash(Benefits(!

• General!definition!of!ordinary!income!identifies!a!prerequisite!of!ordinary!income!as!being!cash!or!convertible!to!cash,!meaning,!that!receipts!which!are!unconvertible!to!cash!are!not!ordinary!income:!Tennant$v$Smith$!

• Benefits!that!are!not!cash!or!not!convertible!to!cash!are!not!assessable!under!s6D5!of!ITAA!1997,!but!they!may!be!assessable!under!s15D2!or!subject!to!FBT.!!

• If!convertible!to!cash,!all!that!is!needed!is!a!nexus!to!personal!exertion!to!be!assessable.!!

!

Capital(Receipt(or(Personal(Exertion((!

• Capital!receipts!are!not!ordinary!receipts!under!general!principles!!• Where!a!payment!is!for!giving!up!a!capital!right,!then!the!payment!is!most!

likely!in!nature!and!not!ordinary!income.!However,!if!nothing!substantial!of!a!capital!nature!is!given!up!then,!it!is!necessary!to!consider!whether!the!payment!shows!a!nexus!with!any!service,!in!which!case!it!will!be!ordinary!income:!Brent$v$FCT$!

• In!the!case!of!restrain!of!trade,!there!may!be!a!distinction!between!the!treatment!of!valuable!rights!depending!on!whether!those!rights!are!relinquished!on!commencement,!during!or!at!the!ending!of!an!employment!contract:!Brent$v$FCT$!

!

Changes(to(Entitlements(!

• As!compensation!takes!the!form!of!what!it!replaces!in!that!compensation!for!the!loss!of!capital!right!will!be!a!capital!receipt,!payments!for!changes!to!entitlements!under!employment!and!service!contracts!may!give!rise!to!capital!receipts!for!the!giving!up!of!valuable!capital!rights!and!therefore!not!fall!into!the!category!of!ordinary!income:$Bennett$v$FCT$!

!

Receipts(for(entering(a(restrictive(covenant((!

• Characterising!receipts!from!entering!a!restrictive!covenant!as!capital!or!ordinary!income!will!depend!will!depend!on!whether!the!payment!is!connected!with!the!current!employment!agreement!or!whether!it!is!a!separate!agreement!to!give!up!valuable!rights.!!

o However,!where!the!restrictive!covenant!is!commonly!used!as!part!of!the!normal!employment!contract!it!will!be!ordinary!income!generally!viewed!as!a!payment!for!future!services:!Higgs$v$Olivier$!

• Payments!made!at!the!termination!of!a!service!agreement!that!restricts!the!activities!of!the!taxpayer!are!seen!as!capital!as!there!is!no!nexus!with!personal!exertion:!Higgs$v$Olivier;$Hepples$v$FCT!

• Capital!rights!may!arise!out!of!a!restrictive!covenant!agreed!to!at!the!time!of!entering!a!contract,!and!the!characterisation!of!these!receipts!are!based!on!whether!the!payments!are!for!rights!given!up!or!services!provided:!FCT$v$Woite;$Reuter$v$FCT$!

• Receipts!that!are!of!a!capital!nature!aren’t!assessable!under!s6D5!(1)!of!the!ITAA!1997,!but!may!be!statutory!under!other!provisions!such!as!the!CGT!provisions.!!

SignBon(Fees(!

• Where!a!sign!on!fee!is!a!normal!part!of!the!practices!of!attracting!sports!people!and!employees!into!a!new!contract,!the!payment!is!less!likely!to!be!capital!and!more!likely!to!be!ordinary!income!as!a!one!off!payment!for!future!services:!Pickford$v$FCT$!

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Section(15B2:(Statutory(Income(from(Services(and(Employment((!

• This!section!deems!certain!gains!arising!from!employment!and!services!to!be!assessable!as!statutory!income.!The!current!provision!has!a!contrary!intention,!which!means!that!if!a!gain!is!ordinary!income,!it!will!not!be!covered!by!s15D2,!unlike!its!predecessor.!!

• Application!of!s15D2!is!wider!than!ordinary!income!in!two!ways:!!o For!employment!and!service!gains!to!be!ordinary!income,!the!need!

to!be!cash!or!cash!convertible.!S15D2,!however,!covers!gains!that!are!cash,!cash!convertible!and!non!cash!convertible;!and!

o For!employment!and!service!and!service!gains!to!be!ordinary!income,!there!needs!to!be!a!nexus!between!the!gain!and!the!services!required.!For!these!gains!to!be!assessable!under!s15D2!there!must!also!be!a!nexus!between!the!gain!and!the!services.!However,!case!law!indicates!that!the!nexus!test!is!easier!to!satisfy!under!s15D2!than!it!is!for!ordinary!income:!Smith$v$FCT$!

• The!provision!potentially!only!applies!to!gains!from!employment!or!the!provision!of!services,!but!will!not!apply!to!gains!made!from!holding!property!or!from!business!operations!that!don’t!involve!the!supply!of!services:!FCT$v$Cooke$and$Sherden$!

!

1. First%Requirement%–%must%be%an%“allowance,%gratuity,%compensation,%benefit,%bonus%or%premium”%

!• This!isn’t!confined!to!receipts!that!the!taxpayer!is!entitled!to!receive,!but!

can!also!include!gifts!that!have!been!received!by!the!taxpayer!• This!will!be!satisfied!when!the!taxpayer!receives!something!from!an!

entity!to!which!they!have!not!directly!provided!a!service.!!• Although!allowances!will!generally!fulfil!the!three!requirements!of!s15D2,!

they!also!constitute!ordinary!income!in!which!case!it!is!assessable!under!s6D5,!rather!than!s15D2.!This!is!due!to!the!contraDintention!in!s15D2(3)(d)!removing!the!application!of!s15D2!if!the!amount!is!also!ordinary!income.!!

!

2. Second%Requirement%–%the%allowance,%benefit%etc%is%“provided%to%you”%i.e.%the%taxpayer%%

'

3. Third%Requirement%–%What%has%been%received%by%the%taxpayer%is%“in%respect%of,%or%for%or%in%relation%directly%or%indirectly%to,%any%employment%of%or%services%rendered%by%the%taxpayer”.%

!• Will!be!proved!where!there!is!sufficient!nexus!to!services!provided.!

!!!

Can(Compensation(receipts(be(assessable(under(s(15B2?((!

• Compensation!for!loss!of!salary!is!ordinary!income!and!compensation!paid!for!loss!of!the!actual!job!or!some!of!the!rights!related!to!that!job!Is!generally!capital:!!

• FCT$v$Inkster:$Receipt!of!compensation!payment!mandated!under!legislation!not!assessable!under!predecessor!of!s15D2!

• AAT$Case$772:$Receipt!of!compensation!payment!for!loss!of!fortnightly!rostered!day!off!assessable!under!predecessor!s15D2!

!

Section(15B2’s(relationship(with(other(tax(provisions((!

• Gains!which!are!fringe!benefits!will!not!be!assessable!as!ordinary!income!or!under!any!income!tax!provision!and!may!be!subject!to!FBT!(s23L(1)!of!ITAA!1936)!!

o NOTE:!Most!non!cash!benefits!from!employer!to!employee!are!fringe!benefits!!

• As!s15D2!only!applies!to!gains!that!are!not!ordinary!income!and!not!fringe!benefits,!there!is!limited!application.!Some!examples!of!its!application!are:!

o Receipts!of!non!cash!convertible!items!as!a!reward!for!volunteer!work.!Here,!gains!are!not!ordinary!income!as!they!are!not!cash!convertible!and!aren’t!fringe!benefits!as!they!aren’t!provided!by!an!employer!!

o Thid!party!payments!for!employment!or!services!that!aren’t!cash!convertible.!These!aren’t!assessable!as!ordinary!income!as!they!aren’t!cash!convertible.!They!aren’t!fringe!benefits!are!they!aren’t!provided!for!by!employer!to!employee!

o Third!party!payments!that!are!cash!or!cash!convertible!but!do!not!have!a!strong!enough!nexus!to!constitute!ordinary!income.!!

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Fringe'Benefits'Tax'!!

• This!is!imposed!on!the!employer:!s66!of!FBTAA!• Tax!year!for!FBT!is!April!1!to!March!31!!

!!

Is!there!a!Fringe!Benefit?!!

!Yes?!!

! !No?!

!Is!the!benefit!excluded!from!the!definition!of!“fringe!benefit”?!

!If!yes!to!left!"!

!Consider!whether!the!benefit!could!be!

assessable!income!to!the!employee!

!If!no,!

Identify!the!category!of!fringe!benefit!which!

applies!

!

!Does!an!exemption!apply!to!the!fringe!benefit?!

!If!yes,!is!the!fringe!

benefit!wholly!exempt?!

!If!yes,!the!fringe!benefit!is!an!exempt!fringe!

benefit!!

!If!no!to!above,!determine!the!taxable!value!of!the!

fringe!benefit!!

!!!

!Determine!if!there!is!a!reduction!in!taxable!

value!!

Determine!whether!the!fringe!benefit!is!a!type!1!or!2!fringe!benefit!

!!

Calculate!the!fringe!benefits!taxable!amount!

!Calculate!the!FBT!

liability!

Definition(of(a(Fringe(Benefit(s136(1)(of(FBTAA(!

• Fringe!benefit!exists!where:!o A!benefit;!o Provided!during!the!year!of!tax;!o By!an!employer,!associate!or!third!party!arranger;!o To!an!employee!or!an!associate!o In!respect!of!the!employment!of!the!employee!

• “Benefit”!includes!any!right,!privilege,!service!or!facility!provided!under!an!arrangement!in!relation!to!the!performance!of!work!

o The!scope!of!the!term!is!not!unlimited!e.g.!Slade$Bloodstock$v$SCT:$!the!repayment!of!a!loan!by!an!employer!to!an!employee!is!unlikely!to!constitute!a!benefit!

o Benefit!may!be!provided!where!a!prohibition!is!not!consistently!enforced:!s148!(3)!!

• “Provide”!includes!to!allow,!confer,!give,!grant!or!perform;!s148!(4)!states!that!a!benefit!that!is!received!or!obtained!by!an!employee!in!respect!of!employment!is!deemed!to!be!provided.!!

• The!“in!respect!of”!requirement!is!potentially!widened!by!s!148!(1)!of!the!FBTAA,!which!states!that!a!benefit!is!provided!in!respect!of!the!employment!of!the!employee!regardless!of!whether!the!benefit:!!

o Is!also!provided!in!respect!of!another!matter!or!thing!!o Relates!to!past,!current!or!future!employment!!o Is!surplus!to!the!needs!or!wants!of!the!recipient!o Is!also!provided!to!another!person!!o Is!offset!by!any!inconvenience!or!disadvantage!!o Is!provided!or!used!in!connection!with!the!employment!!o Is!in!the!nature!of!income;!and!!o Is!a!reward!for!services!rendered!or!to!be!rendered!by!the!

employee.!!! This!provision!was!found!in!Rulings!MT!2016!not!to!

broaden!the!scope!of!FBT!beyond!targeted!benefits,!with!its!operation!being!contentious.!The!essential!question!to!ask!is!whether!the!person!would!have!received!the!benefit!if!they!were!not!an!employee.!!

! Where!there!is!an!additional!family!relationship,!one!should!ask!whether!the!benefit!would!have!been!provided!in!the!ordinary!family!setting.!

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