John is employed as a marketing manager by River Ltd (‘River’), a computer wholesaler. He joined River on 1 April 2020. He receives an annual salary of $125,000 plus the following benefits: 

- John was provided with a new company car, which was purchased by River on 31 March 2020. The price of the car is $45,000 (GST-inclusive). The car was garaged at John’s home each night. John did not keep the required logbook. 

- John is expected to entertain clients. River paid him an entertainment allowance of $8,000 per annum.

John owns an investment portfolio. During the 2020/2021 tax year, he received distributions of income from some of the portfolio investments. He also received cash proceeds from the sale of some portions of the investment portfolio. 

The following distributions of income were received as the cash dividends from the Australian resident public companies within the portfolio: 

Date	Company	Amount  $
10 October 2020	Fully franked dividend from CBA	9,000
9 October 2020	Unfranked dividend from BHP	6,400
15 January 2021	Fully franked dividend from NAB	4,000
20 March 2021	Partially franked distribution from WOW (Franked to 40%)	8,000

 

During the year, John sold a portion of his investment portfolio. Details of the assets that he disposed of are as follows: 

- 500 APT shares (purchased on 10 October 1996 for $10 each), sold on 3 August 2020 for $8.50 each. Brokerage was $350 on purchase and $250 on sale;

- Painting A (purchased on 15 August 1982 for $2,200), sold on 15 December 2020 for $150,000;

- Painting B (purchased on 20 September 2000 for $1,200), sold on 20 January 2021 for $600;

- An investment apartment in Chatswood (acquired on 1 December 2010 for $600,000), sold on 15 May 2021 for $800,000. John had paid $38,000 in stamp duty, $2,000 for a valuation service and $1,200 fees to a lawyer on acquisition of the property. Interest on a loan to purchase the apartment was $1,800 per month for the six years loan. 

 - 10,000 AZM shares (received from his grandfather’ estate), sold on 1 June 2021 for $75 each. His grandfather purchased these shares on 15 May 1980 for $1.50 each and they had a market value of $25 each at the time his grandfather’s death on 15 June 2015. Brokage was $9,000 on the sale of the shares. 

Required: 

a) Advise John on the tax consequences (if any) arising from these transactions. Please show all workings citing relevant authorities.                   

b) Advise River on the amount of FBT it is required to pay on each of the benefits provided to John.                                  

c) Calculate River’s FBT liability arising from the provision of these benefits. (You must show workings). 

d) What are the income tax consequence for River from its remuneration arrangements with John? 

e) What is John’s reportable fringe benefit amount for the year 2020/2021?                                                                                                                  

Answer rating: 100% (QA)

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