Australian Taxation Practical Introduction -Myassignmenthelp.Com

Question: Discuss About The Australian Taxation Practical Introduction? Answer: Introducation Fringe benefits have been defined by Brownlee (2016) as an added advantage given by the employer which comes along with the money wage and salary gained by the employees as the compensation for their services. A few typical examples of a fringe benefit are a car provided to the employee or additional health care cost of the employee borne by the employer. A fringe benefit tax results out of a fringe benefit. This tax is calculated separate to income tax for a period of 1st April to 31st March. The provisions of the Fringe benefits Tax assessment Act 1986 provide rules to determine the Taxable value of fringe benefits. Any benefit which is additional to the basic salary of the employee provided by the employer is to be considered as a fringe benefit as also discussed by the judge in the case of John Holland Group Pty Ltd Anor v. Commissioner of Taxation [2015] FCAFC 82. The FBTAA through sub-section 7(1) set out provisions towards a car fringe benefit. According to the section a car is considered as fringe benefit if it is given by the employer and is held by the employee for a private use purpose or if the purpose for which the car has been given is a private use purpose. It is irrelevant whether the car is put to private use by the employee or any person associated with them (Morgan Mortimer and Pinto 2013). The FBTAA through section 9 sets out provisions for calculating the taxable value of fringe benefit of the car by a process which is called statutory formula method. Under this process the cars cost is required for the calculation. No consideration is provided under the process to the public or private use of the car by the employee or his associates. The FBTAA through sub-section 10A and 10B sets out provisions for calculating the taxable value of fringe benefit of the car under a process called the operating cost method. The cars operating cost is required for calculation of tax under this process. Contrary to the statutory method the private and public use of the car is separately considered for calculation under this method (Oestreich and Keane 2016). The statutory rate is used for the purpose of multiplication with the cost of the car to derive the fringe benefit tax. The present statutory rate subsequent to the budget of 2011 for all cars is 20%. The FBTAA through subsection 11(1) states that to calculate the deemed depreciation a rate of 25% needs to be applied. Subsection 11(2) states that to calculate the deemed interest a statutory rate of 5.65% need to be applied. The methods yielding the lower value is used for the purpose of tax computation (Finkelstein 2014). Application of relevant law In the given situation it has been stated that Charlie works as an employee of shiny homes Pty Ltd. The employer provided the employee with 4 wheel drive sedan valued at $70,000 on 1st September. This means that the car is a fringe benefit. Thus the computation of fringe benefit tax is to be done under statutory and operating cost method. It can been seen in the situation that the formula which provides a lower value of fringe benefit tax is the statutory formula and as per the above discussed legal provisions this method has to be considered for taxable value of car fringe benefit. It has been provided in the case study that Charlie had parked the car his garage in the evening and subsequently in a private parking. Thus under FBTAA section 39 A as the parking is not done in a place owned by the employer it is not liable for car parking fringe benefit tax. However the employer is liable to pay tax in relation to the accommodation provided to the employee for honeymoon purpose. In the case study it has been provided that Allan and Betty want to change their house and thus they have sold their Melbourne home and bought a large house in central Victoria. As there is no profit involved in this case there is no chance of any income tax implications (Schenk 2016). Bettys income as a part time accountant and Allans income as a locum doctor is liable under section 6.5 of the Income Tax Assessment Act 1997 to be considered for tax calculation (Pyrmont 2014). The popularity with Allan has among is client makes him receive scones and cakes as a token of appreciation addition to his fee. However as these items do not have market value they are not considered for income tax assessment. However as the wine which Allan has received is worth $360 it is liable to be assessed for income tax under ITAA 1997. According to Pope (2016) a hobby is a leisure or pastime activity which is carried out in a spare time for pleasure or recreation. However a business activity is as a whole commercial in nature and has the intention of making profit. There are certain indicators which have been provided by taxation rulingTR 79/11 used to differentiate between a hobby and a business. These are as follows Whether the purpose or character of the activity is significantly commercial Whether there is more than just intention to indulge in the business by the person Whether the purpose of the purpose is to make profit and there is a prospect of profit in the activity Whether there is regularity and repetition involved in the activity Whether the activity is similar to a hobby or a business activity Whether the activity is planned and organization so that it can make money Whether the activity is described better as a hobby These provisions had been discussed by the court in the case of Vartuli v. Chief Commissioner of State Revenue (NSW) [2015] NSWCA 372 where the court held that any activity for the purpose of making profit is a business. As per Jones v Federal Commissioner of Taxation - [1963] HCA 17 when a hobby turns into a business the profit derived from it are considered under Income tax assessment. It has been provided in the situation that the hobby of Betty of making Marmalade has turned into a business as she now has the intention of making profit. In addition the activity is subjected to repetition and recurrence. Thus the profit made by her would be assessed for the purpose of computing income tax under ITAA 1997. According to the Australian Taxation office, Trade exchanges and Barter System is subjected to same GST and tax implications which are imposed on any other regular credit or cash transactions. These provisions are also discussed through the case of Sterling Guardian Pty Ltd v Commissioner of Taxation - [2006] FCAFC 12. Thus the barter system which has been entered upon by Betty and Allan is subjected to have the same implications as any credit or cash transaction under GST and ITAA. References Brownlee, W.E., 2016.Federal Taxation in Australia. Cambridge University Press. Finkelstein, M., 2014. Cases on Federal Taxation (Book Review). Fringe Benefit Tax Assessment Act 1986 (Cth) Income Tax Assessment Act 1997 (Cth) John Holland Group Pty Ltd Anor v. Commissioner of Taxation [2015] FCAFC 82. Jones v Federal Commissioner of Taxation - [1963] HCA 17 Morgan, A., Mortimer, C. and Pinto, D. 2013.A practical introduction to Australian taxation law. North Ryde [N.S.W.]: CCH Australia Oestreich, N. and Keane, M., 2016. ACCTG 503 Federal Taxation of Individuals. Pope, T.R., 2016.Pearson's Federal Taxation: 2017 Comprehensive. Prentice Hall. Pyrmont, 2014 NSW Australian Taxation Law Cases. Thomson Reuters. Schenk, D.H., 2016.Federal Taxation of S Corporations. Law Journal Press. Sterling Guardian Pty Ltd v Commissioner of Taxation - [2006] FCAFC 12. Woellner, R., Barkoczy, S., Murphy, S., Evans, C. and Pinto, D. 2014 (n.d.).Australian taxation law.