Austin, an Australian tax resident, runs small a business consultancy firm, Biz Consult Ltd (not registered for GST) in Bathurst. He employed Henry on 1 July 2014 with a salary of $80,000 per annum. On 1 July 2014 Biz Consult were prepared to provide a new car valued at $40,000 as a benefit to Henry’s wife, Emma. Emma had wanted a more luxurious car costing $50,000. Emma negotiated with the car dealer to get a trade in on her car for $10,000. With both the trade in and the $40.000 from
Biz Consult she was able to get the car that she wanted for $50,000.
Henry and Emma have unrestricted use of the car which is parked in Henry’s garage. During the entire month of December 2014, Henry and his family were at the Gold Coast for a holiday. During this holiday period Emma’s $50,000 car was parked in Austin’s garage. Nobody used the car while it was parked in the garage. The car travelled 40,000 km from the period 1 July to 31 March 2015. From Henry’s records 4,000 km were business related. Henry contributed for petrol and oil amounting to $500 per month (including December 2014). This contribution was declared by Biz Consult Ltd.
The following costs were also incurred on the purchase and in operating the car:
Stamp duty on registration
Delivery charges
Registration for 12 months
Insurance for 12 months
Repair and maintenance (from 1 July to 31 March 2015)
GPS installed on 3 July $1,500
$2,000
$600
$1,200
$500
$3,000
On 1 March 2013 Austin purchased a Toyota Prado at a cost of $70,000 (assuming there is no entitlement to GST input tax credit) Austin recorded the car travel in a log book and worked out that 80% of the car was used for business purpose.
He depreciated the car using the diminishing value method at 15% based on an effective life of 10 years. Austin disposed of the Toyota Prado on 30 April 2015 for $40,000.
During the year ended 30 June 2015 Austin received $2,000 fully franked dividends from Alpha Ltd. He received gross rental income of $20,800 and paid $800 for fire insurance, $1,000 for rates and $1,456 to the property manager. He is servicing a mortgage amounting to $450 per week on the property of which $400 is for interest and $50 is a principal repayment.
Required
1. Calculate Biz Consult Ltd’s FBT liability for the year ending 31 March 2015. What options are available to Austin to legally maximise the tax advantage arising from the car benefit offered to Henry.
2. Calculate Biz Consult Ltd’s assessable income for the year ending 30 June 2015.
You are required to cite the relevant legislation and case law