Question 1 (10 Marks)
Alan is an 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?
Question 2 (10 marks)
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?