Reference no: EM13323254

Part 1: Case study

Periwinkle Pty Ltd (Periwinkle) is a bathtub  manufacturer which sells bathtubs  directly to the public. On 1 May 2013, Periwinkle provided one of its employees, Emma, with a car as Emma does a lot of travelling for work purposes. However, Emma's usage of the car is not  restricted  to  work only. Periwinkle purchased  the  car  on  that  date  for  $33,000 (including GST).

For the period 1 May 2013 to 31 March 2014, Emma travelled 10,000 kilometres in the car and  incurred  expenses  of $550 (including GST)  on minor  repairs  that  have  been reimbursed  by Periwinkle. The car was not used for 10 days when Emma was interstate and  the  car was parked  at  the  airport  and  for another  five days when  the  car was scheduled for annual repairs.

On 1 September 2013, Periwinkle provided Emma with a loan of $500,000 at an interest rate of 4.45%. Emma used $450,000 of the loan to purchase a holiday home and lent the remaining $50,000 to her husband  (interest  free) to purchase shares in Telstra. Interest on  a  loan  to  purchase  private  assets  is not  deductible  while interest   on  a  loan  to purchase income-producing assets is deductible.

During the year, Emma purchased a bathtub  manufactured by Periwinkle for $1300. The bathtub  only cost Periwinkle $700 to manufacture and is sold to the general public for $2,600.

(a)  Advise Periwinkle of its FBT  consequences arising out  of the  above  information, including calculation of any FBT liability, for the  year ending 31 March 2014. You may assume  that  Periwinkle would be entitled  to input tax credits  in relation  to any GST- inclusive acquisitions.

(b)  How would your answer  to (a) differ if Emma used  the  $50,000 to purchase  the shares herself, instead of lending it to her husband?

Part 2: Question

An extract of the asset register of Alpha Pty Ltd ('Alpha') for the 2012-13 income year is as follows:

Asset	Cost	Opening Adjustable Value	Method	Effective Life	Decline in Value for This Period	Closing Adjustable Value
Desktop Computer	1,350	1,350	Diminishing Value	3 years	450	900
Furniture	5,000	3,000	Prime Cost	10 years	500	2,500
Filing Cabinets	1,200	1,080	Prime Cost	10 years	120	960

All depreciable  assets are for 100% business use and Alpha uses a low-value pool for all eligible assets.  The closing value of the  low-value pool at  30 June 2013 was $5,300. Alpha purchased a printer on 5 June 2014 for $700.

Advise Alpha of the income tax consequences arising out of the above information  for the 2013-14 income year.