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ConTax Newsletter February 2013

Tax affects everyone. It's part of government, business and everyday life. That's why experienced and expertly trained tax professionals are always in demand and well rewarded for their expertise. A career in tax could see you working for one of the "big four", a small to medium sized accounting or legal firm, a corporation, for government or running your own business.

Wherever you find yourself, you'll be:

  • solving complex problems
  • performing technical calculations
  • applying changing legislation
  • tackling strategic planning issues
  • developing information management systems and
  • leading teams in developing creative ways to solve client problems.

Tax is a career on the rise

Stuart Glasgow, Director of Taxation, MGI Melbourne

How did I get into tax?

As you head into the final years of your degree, you start to wonder what you will do when you finish and how will I get a job in tax!

Whilst completing my Bachelor of Business (Accounting) I found the tax subjects at university to be extremely interesting. I was lucky enough to follow this up with a graduate position in business services, but with a strong emphasis on tax. MGI Melbourne is a tax-focused firm which gave me the opportunity to be exposed to complex tax issues from an early stage in my career. Over the years, my interest in tax increased, and in 2011, I was appointed Director of MGI Melbourne's specialist tax division.

One of the things that I remember when going to various university careers fairs was how impressive the larger firms looked who had large marketing budgets! I chose not to apply for positions at the larger firms, instead approaching middle tier firms. I was looking for, and found, a firm where I was working in a smaller team and having more direct client contact than my friends who were working at larger firms.

What does my role entail?

My role as Director of Taxation is an adviser to medium to large family and private businesses in the transport, manufacturing, finance, retail and property industries, with a particular focus on structuring and transaction support. I am also responsible for the delivery of tax training to all staff at MGI Melbourne.

Most memorable career moments

My most memorable career moments are seeing a proposal you put to a client being fully implemented. There is nothing more satisfying than being able to deliver an outcome that meets the needs of your clients.

One of the most satisfying jobs I have worked on was the sale of a large family business, which involved taxation advice on the sale, a restructure, assistance with due diligence, contract review and negotiation. Working on this transaction involved using not only technical but also interpersonal and business acumen skills that I have gained from my broad based experience obtained whilst working at MGI Melbourne.

The client relationships and friendships that I have developed through my career make it all worthwhile.

Advice to those entering the profession

My advice to anyone entering the tax profession is to get as much broad general experience as possible before specialising. This will allow you to identify all of the issues that are relevant (including those other than tax) to your client. This enables you to provide tailored solutions for your clients which are practical, relevant and accurate.

Feature Article - Superannuation - pensions and death

Contributed by Thalia Kalaboukas, CTA, Special Counsel, Bernie O'Sullivan Lawyers

Abstract

Important changes to Australia's superannuation laws in 2007 included the removal of the compulsory cashing of benefits for superannuation fund members at age 65. This made superannuation funds capable of storing wealth for longer than was previously allowed. This and related factors mean that superannuation advisers must not neglect pension planning and superannuation estate planning. This article is intended to help advisers understand pensions, and details the various taxation and superannuation estate planning issues that their pension clients may face. The article discusses when to commence a pension, the various types of available pensions, when and how to commute, and pension strategies after a review of the tax treatment of superannuation benefits. Case studies are provided illustrating the principles discussed. An Appendix describes the features of the various pensions and commutation conditions in more detail.

Click here to read this article in full.

Sample Exam Questions

Practice Question

Smith and Salt Pty Ltd is a company that manufactures and distributes confectionary throughout Australia. Smith and Salt is registered for GST.

On 1 July 2011, the company purchased a new car for Jennifer Flipper at a cost of $55,000 including GST. A further $2,000 in stamp duty was paid when the car was purchased.

Jennifer is a sales representative for Smith and Salt and as a result maintained a log book showing a business percentage of 75%. Jennifer went on holidays in December 2011 and was away for two weeks. She left the car and the keys at the office during that period.

For the FBT year ended 31 March 2012, running costs of the car included repairs of 1,250, registration of $600, insurance of $1,200 and petrol of $3,300. (All running costs noted are GST inclusive prices, where GST is applicable). Jennifer paid $1,000 towards her petrol costs for the year.

At 31 March 2012, the odometer reading on Jennifer's car was 22,000 kilometres.

Simon Hughes is a production manager at Smith and Salt and owns his own car, which cost $44,000 including GST. Each fortnight he receives $100 as a reimbursement for driving to and from one of the company's suppliers to collect raw materials required for manufacture. He estimates he drives 70 kilometres a week for work related purposes. On 2 January 2012, Simon was given a laptop computer that cost $2,200 including GST. The laptop allows Simon to remotely log in to the office when he is at home and Simon only uses the laptop for work purposes.

Required:

a) Calculate the lowest amount of fringe benefits tax payable for Smith and Salt for the FBT year ended 31 March 2012. Show all workings in your answer.

b) How would your answer change if the laptop computer was given to Simon’s daughter to use for school homework ?

Suggested Solution

For a car fringe benefit to apply, the car must be "held" by the employer, or by an associate of the employer (or by the third party with whom the employer or associate makes an arrangement for the car to be provided (s.7(1)(b)).)

In this case the car provided to Jennifer, would be subject to FBT as a benefit provided to her in respect of employment, while the motor vehicle expense reimbursements paid to Simon would not be subject to FBT as a car fringe benefit given it is Simon's own motor vehicle. As the facts of the case study indicate a reimbursement of costs for using his own car for work related purposes, the payment would be treated as a motor vehicle allowance rather than as a fringe benefit.

Jennifer's Car

For Jennifer's car, as she has maintained a log book, the two methods of calculation for car fringe benefits - "Operating cost basis" and the "Statutory formula" should be calculated. Once each method is calculated, the lower taxable value can be used to calculate the fringe benefits tax payable.

1. Statutory Formula

As the car was acquired after 10 May 2011, the new rule applying to motor vehicles will apply.

A phase in period applies from 10 May 2011 to 31 April 2014 when the rates will be fixed at 20%.

ConTax image 201302

Calculations

  • Cost of the car for FBT purposes = $55,000
  • Days owned in the FBT year - 1 July 2011 - 31 March 2012 - 275 days
  • Days not available for Private use - 14 days (while on holidays - as the car and keys was left with her employer)
  • Employee contribution - $1,000
  • Km's travelled - 22,000, but needs to be grossed up for a full FBT year
    • 22,000 * (366/275) or (22,000/(275/366)) = 29,280
    • Therefore under the new statutory formulas for the year ended 31 March 2012, the statutory rate would be 14%

55,000 * 14% * (261/366) - 1,000 = $4,491

(**Note: 2012 is a leap year so 366 has been used)

(Note: For FBT purposes, the GST inclusive cost of the car is used, while stamp duty is specifically excluded from the cost of the car.)

Operating Cost Basis

For the operating cost method, you need to remember to include a deemed depreciation and a deemed interest calculation to the operating expenses for the vehicle as follows:

Deemed Depreciation - use the WDV value of the car at the start of the FBT year (or the date of acquisition) multiplied by 200%/8 year useful life (25%) multiplied by the days owned in the period

  • Therefore - $55,000 * 25% * (275/366) = $10,331

Deemed Interest - use the WDV of the car multiplied by the statutory interest rate multiplied by the days owned in the period

  • Therefore - $55,000 * 7.8% * (275/366) = $3,223
  • Operating expenses = (1,250 + 600+ 1,200 + 3,300) = $6,350
  • Total expenses = $6,350 + 10,331 + 3,223 = $19,904

As a 75% logbook has been maintained, the benefit provided is $19,904 * 25% = $4,976

Less the employee contribution of $1,000 - taxable value = $3,976

Therefore the FBT payable on the motor vehicle provided to Jennifer should be calculated on the operating cost basis ($3,976, which is lower than $4,491)

  • Gross taxable value is $3,976 * 2.0647 (as it is a type 1 gross up) = $8,210
  • FBT payable = $8,210 * 46.5% = $3,818

Motor vehicle expenses

For Simon, as noted above the motor vehicle reimbursements would not be subject to FBT as they would be considered a car allowance.

(Note: As Simon owns his own vehicle he would be able to offset his motor vehicle expenses against the reimbursement received from Smith and Salt).

Laptop

Under s.58X, the laptop provided to Simon is exempt from FBT as it is primarily used for work related purposes.

b) If the laptop was given to Simon's daughter for school homework, the laptop would become subject to FBT as the laptop is no longer used for work purposes.

Therefore the FBT payable on the laptop would be:

$2,200 * 2.0647 * 46.5% = $2,112

CTA1 Foundations: Enrolments Close 5 March 2013

Hands on tax training to get you job ready

CTA1 Foundations (previously known as the Certificate in Foundation Tax) now allows you to nominate to complete the Course in Basic GST/BAS Taxation Principles as an elective unit.

This means you will not only gain a working knowledge of tax compliance, and the key principles and processes of working in a firm, as well as putting you on the path to tax agent registration, but also acquire a detailed understanding of BAS tasks and the payroll system while meeting the Tax Practitioner's Board education requirements for registering as a BAS agent.

Make yourself an asset to you firm by enrolling in CTA1 Foundations today.

3 reasons to study CTA1 Foundations

1. Achieve your employment goals with access to industry resources and experts.
2. Increase workplace productivity by undertaking everyday tax compliance tasks.
3. Gain confidence with using key business systems and terminology.

Read what our graduates have to say about CTA1 Foundations.

Recent Tax Cases of Interest

Special offers from our Business Alliance Partners

The Tax Institute has negotiated special rates on your behalf with our Business Alliance Partners. Some of these include companies such as CCH Australia, HSBC, Thomson Reuters, Thrifty and Wine Direct.

To access these special deals and more, please visit our website and have your member log in details handy.

Feedback

We welcome your feedback about ConTax and the receipt of proposed content contributions (ie. articles) for future editions. Click here to contact ConTax.