Gassy Pty Ltd pays Andy $80 000 per annum in cash,plus a car that cost $50 000 a year.The company income tax rate is 30% and the average personal income tax rate is 45%.There are no other taxes (ignore Fringe Benefits Tax for the purposes of this calculation).Personal income tax is not paid on non-cash benefits.The after-tax cost of employing Andy for the year and the after-tax benefits received by Andy are,respectively:

Question

Quizplus · Accepted Answer

First, we need to calculate the pre-tax cost of the car benefit:
$50,000 x (1 - 30%) = $35,000

The total pre-tax cost of employing Andy for the year is:
$80,000 + $35,000 = $115,000

The company pays the income tax, so the after-tax cost of employing Andy is:
$115,000 x (1 - 30%) = $80,500

For Andy, the after-tax benefit of the car is simply the pre-tax value of the car benefit:
$35,000

His after-tax cash remuneration is:
$80,000 x (1 - 45%) = $44,000

Therefore, the total after-tax benefits received by Andy for the year are:
$35,000 + $44,000 = $79,000

The closest answer choice is C, which gives a slightly higher after-tax cost of employing Andy but the correct after-tax benefits received by him.

Gassy Pty Ltd Pays Andy $80 000 Per Annum in Cash,plus