Further to the recent correspondence and discussion over telephone, please find below the memorandum of advice regarding the numerous matters as requested.
To provide advice to Upbeat Pty Ltd and Warren regarding the tax consequences of numerous transactions reported. This memorandum of advice does not consider the tax consequences which would follow given that there is any surplus of assets in the company either through dividends, loan or by other type of distribution payment.
The memorandum of advice is based on relevant facts and assumptions. If the taxpayers find any of the facts or advice not accordance of their understanding, they can immediately contact because this will have necessary impact on the advice given.
The memorandum provides a summarised opinion in respect of matters that is outlined above. The memorandum has attached comprehensive conversation of numerous matters regarding the advice for taxpayer’s examination.
Warren is paid an annual salary of $100,000 on monthly basis. As mentioned within “sec 6, ITAA 1936”, income that is made from “personal exertion” or income that is derived from individual means represents those incomes such as salaries, wages, commissions, fees, bonuses, allowances etc. received by a person when he or she works as an employee or in relation to providing any services (Woellner et al. 2016). Usually, receipts that is received by taxpayer from “personal exertion” is treated as ordinary earnings within “sec 6-5 ITAA 1997”.
There should always be an adequate relation amongst the receipt and the provision relating to services such as the reward, product or any ordinary incident of service provisions rendered by a taxpayer. Accordingly, in a very well-known case of “Dean v FCT (1997)” the instance regarding remuneration from employment was dealt (Sadiq 2020). The sum given to key employees as retention payment to be employed for more than 12 months afterward the buyout was held as income.
Likewise, in the current circumstances of Warren, the annual remuneration of $100,000 payable to him on monthly basis must be viewed as “personal exertion income” within “sec 6, ITAA 1997”. The receipt of salary represents ordinary incident of service provisions rendered by Warren and has exhibited necessary relation with his income producing activities. Citing the example of “Dean v FCT (1997)” in case of Warren, the salary will be considered as remuneration received from employment it is chargeable as ordinary earnings within “sec 6-5, ITAA 1997”.
Reimbursement are normally considered as payment that is given to a worker regarding the actual expense that has been incurred already and the employer might be considered as the subject of fringe benefit tax (Kenny and Devos 2018). On finding that reimbursement is already covered by FBT, the amount is not treated as assessable income to the employee and the employee is not permitted to claim a deduction regarding the expenditure incurred.
Reimbursement do not amount to any salary and wages. As found in “Roads and Traffic Authority of New South Wales v FCT (1993)”, a reimbursement is considered as payment that is given for actual expenses incurred (Barkoczy 2022). Under the “sec 20 of FBTAA 1986” an “expense payment fringe benefit” happens when the employer pay for any expenditures or reimburses the expenses that is incurred by another person.
Warren reports reimbursement of all the medical expenditures for himself and his family on producing receipts. Under the “sec 20 of FBTAA 1986”, the reimbursement of medical expenditure amounts to an “expense payment fringe benefit” for Upbeat Pty Ltd (Morgan and Castelyn 2018). The employer of Upbeat Pty Ltd is accountable for FBT. While for Warren, the reimbursement of medical expense is already covered under the FBT. With regard to “sec 23L ITAA 1936” the benefit will be considered as non-assessable income to Warren and he is not permitted to claim any tax deduction for the expense.