1. James Martin is one of the shareholders/directors of a resident private company.

   (a) On 1 August 2020 he received a low interest loan of $120,000 from the company at an interest rate of 2%. On the same day, he used $40,000 to purchase shares in the company. The shares are ordinary shares on which dividends will be paid. The remaining $80,000 was used to finance the construction of a second bathroom to his Coogee residence. During the FBT year, James paid all interest amounts owing on the loan as and when they became due but does not repay any of the principal sum.

(b) On 28 March 2021 James paid his home telephone account of $900 (GST inclusive) for the three months to 15 March 2021. Forty per cent of the cost of the telephone bill was work related. On 31 March 2021 the company reimbursed James $900.

(c) During the same period (i.e. the three months to the 15 March 2021) he used the company’s telephone to make international calls to his family who were on a safari holiday in Africa. The total value of the charges by the telephone company in respect of these calls amounted to $840.

Advise James and his employer of the tax consequences of these transactions.

Use Aus tax system into account.

Answer rating: 100% (QA)

AIn the case where company give concessional loan to the employee the... View the full answer