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ACC30005 Lecture Notes - Lecture 4: Fringe Benefits Tax, Ordinary Income, Indirect Tax

98 views2 pages
ochreduck413
6 Mar 2019
School
Swinburne, SUT
Department
ACC
Course
ACC30005
Professor
Rob G

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Document Summary

Employees forego (or sacrifice) part of their salary for non-salary benefits: e. g. remuneration by employer providing property, the non-cash component was often not declared in employee tax returns. Non-cash non-convertible benefits are not ordinary income, but should have been assessable under s. 15-2 for employment and services. Fringe benefits are non-assessable non-exempt income for the employee, s. 23l(1) itaa36: does not go in employee"s tax return. Fbt year is 1 april to 31 march: so the employer can work out their fbt liability before claiming tax deductions for employee costs in their 30 june tax return. Fringe benefit definitions: the value of the fringe benefit is called the taxable value". Tv is the cost (or notional cost) to the employer of the benefit: the tax base is the grossed-up" taxable value, called the taxable amount", the fbt rate is 47% Fbt rate is applied to the taxable amount i. e. apply the gross-up first.

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Related Questions

Based on following text in your own words, list anddefine the four categories of employment income,providing an example (other than regular pay) foreach category.

Employment Income

An individual working for an employer receives compensation orpay, known as remuneration, for the services they perform. Where anemployee-employer relationship exists, remuneration is referred toas employment income. Employment income can be categorized intoearnings, allowances, benefits and taxable expensereimbursements.

Earnings

Earnings are dollar amounts the employer pays an employee forthe work they perform. Earnings can be paid as:
· a salary
· a rate for each hour worked
· a rate per piece of goods produced or picked
· a disability payment for time off work due to illness
· a payment for vacation time
· a premium payment for overtime hours worked
· a premium payment for hours worked on shift

Deciding which types of earnings are paid and how they arecalculated is primarily a decision made by the employer. Earningsare pensionable, insurable and taxable, and therefore subject toall statutory deductions.

Allowances

Allowances are additional dollar amounts paid to employees forthe use, or anticipated use, of their personal property forbusiness purposes. Allowances can also be provided to employees tocover the cost of personal living expenses associated withemployment. The most common types of allowances cover the costsincurred by the employee for car, meals, uniforms, safety shoes orother particular types of clothing for business reasons. Undercertain conditions, allowances are not considered employment incomeand therefore are not subject to statutory withholdings.

Benefits

Benefits are dollar values attributed to something the employerhas either provided to an employee or paid for on an employee’sbehalf. Usually, when an employer provides an employee withsomething (for example, a company-leased automobile is given to theemployee for both business and personal use) or pays for somethingon an employee’s behalf (for example, group term life insurancepremiums), it results in a benefit to the employee. There arecertain situations where benefits are not included in employmentincome and therefore are not subject to statutory withholdings.

Expense Reimbursements

Similar to allowances, expense reimbursements are also dollaramounts paid to employees to cover expenses that they incur whileperforming their job. For the most part, expense reimbursementsgenerally fall outside of payroll because they are business-relatedand therefore not employment income to employees. These expensesare claimed on an expense report, supported by receipts, andusually submitted directly to the accounting department forreimbursement. As such, they are not considered in the calculationof an employee’s pay. Some organizations choose to reimburseexpenses through payroll in which case they are not subject to anystatutory deductions; they will, however, affect the net pay. Anyreimbursements made to an employee for personal living expenses areconsidered taxable to the employee, included in income and subjectto statutory withholdings.

Please build the answer in your own words based on flowing textfrom studding book (provide the example):

text from book:

Group Term Life Insurance Plans.

Many employers offer group term life insurance as part of theiremployee benefit package. Life insurance coverage is normallycalculated as a multiple of the employee’s annual salary, roundedup to the nearest thousand ($1,000.00). The premiums paid by theemployer for coverage under a group term life insurance policy areconsidered a taxable benefit to the employee. If the employershares the premium cost with the employee, for example, theemployer pays half and the employee pays half, then the taxablebenefit would only be the portion of the premiums the employerpays, or 50%. Group term life insurance taxable benefitcalculations are based on the premium rates and sales taxes theemployer pays and the amount of coverage provided. Premium ratesare expressed per $1,000.00 of coverage on a monthly basis. Thetaxable benefit must be calculated on a pay period basis forinclusion in the employee’s taxable income.

The following formula calculates the employee’s monthly taxablebenefit:

Coverage amount = Annual salary x coverage multiplier Roundcoverage amount up to nearest $1,000.00 Monthly taxable benefit =Coverage amount x premium rate $1,000.00 To ensure that the benefitis included in the employee’s income as it is earned or enjoyed,the monthly benefit must be annualized and then prorated on a payperiod basis, as follows: Pay period taxable benefit = Monthlytaxable benefit x 12 Pay period frequency

"Example: Rhonda Gold’s life insurance coverage, through heremployer’s group plan is two times her annual salary of $30,300.00.Her employer pays the insurer 100% of the cost of her lifeinsurance coverage at a premium rate of $1.00 per $1,000.00 ofcoverage per month. Rhonda is paid on a weekly basis; her taxablebenefit is calculated as follows: Coverage amount = Annual salary xcoverage multiplier Round coverage amount up to nearest $1,000.00 =($30,300 x 2) = $60,600.00 = $61,000.00 (rounded) Monthly taxablebenefit = coverage amount x premium rate $1,000.00 = $61,000 x$1.00 $1,000.00 = $61.00"

Group Sickness and Accident Insurance Plans.

These are group plans that provide employees with income for aperiod of time, should the employee be away from work for reasonsof sickness or accident. A group plan is generally one thatprovides coverage to a class or association of employees. There canalso be multiple plans for a group of employees, for example, oneplan for clerical staff and one for management staff. The types ofsickness and accident insurance plans considered in this categoryinclude:

? short term disability plans (wage loss replacement, weeklyindemnity)

? long term disability plans

? accident insurance plans (accidental death anddismemberment)

If an employer pays the premiums for group short-term orlong-term disability plans there is no taxable benefit implicationfor the employee, however employer-paid accidental death anddismemberment (AD&D) premiums are considered a non-cash taxablebenefit. As a result, employer-paid AD&D premiums, plus the 8%RST (Manitoba and Ontario), the 9% tax on insurance premiums(Québec) and the 6% PST (Saskatchewan) as applicable, areconsidered pensionable for C/QPP contributions and taxable forfederal and provincial income taxes. Employer-paid premiums for anon-group plan are considered a non-cash taxable benefit in alljurisdictions. A non-group plan is one that generally does notcover a group or association of employees. For example, if theorganization pays the premiums for a long-term disability plan foronly the president of the organization, this would be considered anon-cash taxable benefit to the president. When the benefit istaxable it is also pensionable for C/QPP contributions; however, asit is a non-cash benefit, it is not insurable, and no EI or QPIPpremiums are deducted. GST and HST are not included in the value ofthis type of benefit, but the provinces of Manitoba, Ontario,Québec and Saskatchewan assess sales tax on AD&D insurancepremiums.

Question : Your organization, located in Manitoba,will be enhancing the group benefits plan offered to employees intwo months by adding accidental death and dismemberment (AD&D)coverage and vision care coverage. The organization will pay 50% ofthe cost of the AD&D premiums and 50% of the cost of the visioncare premiums, with the employees paying the other 50% of eachpremium. The Manager of Finance, Laura Bruce, has requested thatyou, as the Payroll Supervisor, prepare a communication for theemployees, explaining how these new benefits will impact their netpay.

(200 – 350 words)

A company's had fixed interest expense of $3,300, its incomebefore interest expense and income taxes is $16,200, and its netincome is $6,600. The company's times interest earned ratioequals:

2.45.

0.50.

4.91.

2.00.

0.20.

A company's income before interest expense and income taxes is$225,000 and its interest expense is $75,000. Its times interestearned ratio is:

2.67

0.99

3.00

0.33

1.68

A company's fixed interest expense is $9,000, its income beforeinterest expense and income taxes is $38,250. Its net income is$11,850. The company's times interest earned ratio equals:

0.235.

0.76.

3.23.

4.25.

0.31.

An employee earned $43,600 during the year working for anemployer when the maximum limit for Social Security was $117,000.The FICA tax rate for Social Security is 6.2% and the FICA tax ratefor Medicare is 1.45%. The employee's annual FICA taxes amountis:

$632.20.

$2,703.20.

$6,670.80.

$6,670.80.

$3,335.40.

An employee earned $5,300 working for an employer in the currentyear. The current rate for FICA Social Security is 6.2% payable onearnings up to $117,000 maximum per year and the rate for FICAMedicare 1.45%. The employer's total FICA payroll tax for thisemployee is:

$405.45.

Zero, since the FICA tax is a deduction from an employee's pay,and not an employer tax.

$76.85.

$328.60.

$810.90.

An employee earned $62,400 during the year working for anemployer. The FICA tax rate for Social Security is 6.2% and theFICA tax rate for Medicare is 1.45%. The current FUTA tax rate is0.6%, and the SUTA tax rate is 5.4%. Both unemployment taxes areapplied to the first $7,000 of an employee's pay. What is theamount of total unemployment taxes the employee mustpay?

$101.50

$56.00

$378.00

$434.00

$0.00

Employees earn vacation pay at the rate of one day per month.During the month of July, 16 employees qualify for one vacation dayeach. Their average daily wage is $91 per day. What is the amountof vacation benefit expense to be recorded for the month ofJuly?

$16.0

$14,560.0

$1,456.0

$91.0

$145.6

A company estimates that warranty expense will be 4% of sales.The company's sales for the current period are $233,000. Thecurrent period's entry to record the warranty expense is:

Debit Warranty Expense $9320 credit Sales $9320.

Debit Warranty Expense $9320 credit Estimated Warranty Liability$9320.

Debit Estimated Warranty Liability $9320 credit Warranty Expense$7400.

Debit Estimated Warranty Liability $9320 credit Cash $9320.

No entry is recorded until the items are returned for warrantyrepairs.

A company has a selling price of $2,050 each for its printers.Each printer has a 2 year warranty that covers replacement ofdefective parts. It is estimated that 3% of all printers sold willbe returned under the warranty at an average cost of $155 each.During November, the company sold 35,000 printers, and 450 printerswere serviced under the warranty at a total cost of $60,000. Thebalance in the Estimated Warranty Liability account at November 1was $31,500. What is the company's warranty expense for the monthof November?

$69,750

$60,000

$81,375

$162,750

$28,500

An employee earns $6,500 per month working for an employer. TheFICA tax rate for Social Security is 6.2% and the FICA tax rate forMedicare is 1.45%. The current FUTA tax rate is 0.8%, and the SUTAtax rate is 5.4%. Both unemployment taxes are applied to the first$7,000 of an employee's pay. The employee has $222 in federalincome taxes withheld. The employee has voluntary deductions forhealth insurance of $190 and contributes $95 to a retirement planeach month. What is the amount of net pay for the employee for themonth of January? (Round your intermediate calculations totwo decimal places.)

$5,495.75

$5,590.00

$5,144.75

$5,092.75

$5,443.75