Barter System and Taxation Implications

This assignment delves into the tax consequences associated with barter system transactions in Australia. It examines how these transactions are treated under Australian income tax law (ITAA 1997) and Goods and Services Tax (GST) legislation (GSTR 1999). The analysis draws upon taxation rulings, particularly IT 2668, and a landmark case, FC of T. v. Cooke & Sherden 1980, to illustrate the application of these tax laws in barter scenarios.

Running head: TAXATION LAW
Taxation Law
Name of the Student
Name of the University
Authors Note
Course ID

1TAXATION LAW
Table of Contents
Answer to requirement 1:...........................................................................................................2
Answer to question 1..................................................................................................................2
Ascertainment of the Car FBT:..................................................................................................2
Answer to requirement 2:...........................................................................................................5
Answer to A:..............................................................................................................................5
Answer to B:..............................................................................................................................6
Answer to C:..............................................................................................................................7
Answer to D:..............................................................................................................................8
Reference List:...........................................................................................................................9

2TAXATION LAW
Answer to requirement 1:
Answer to question 1
As discussed in the “Subsection 136 (1) under Fringe Benefit Tax Assessment Act
1986” the use of the vehicle for an individual person will be considered as the personal use of
that particular if the person is not relating the use of vehicle to his employment income (Jones
2017). This case study is highlighting this fact that Charlie is an employee of Shiny Homes
and also does his duties as an agent of real estate.
Shiny Homes is known for the execution of work culture related to landscaping along
with the employment within it. This organization has provided one car to Charlie. This is
identified in the “section 7 of the FBTAA 1986” that one employee who is provided with a
car from his company should be falling under the fringe benefit tax.
Ascertainment of the Car FBT:
The car that Charlie got from Shiny Homes has travelled 80,000 km. Now, in this
total distance Charlie has used the car for his personal usages in 30,000 km and rest 50,000
km has been used for the business purposes. So under “sub-section 136 (1)”, the utility of the
car that is not used for the assessable income will be considered as the employees own
personal expenses (Richards 2014). Consequently, “para 3 of the FBTAA 1986” states that
the expense that is occurred due to the business usages must be logged into the log book to
find out the actual cost incurred for the business usages which will be helpful to calculate the
fringe benefit of the car using operating method.
Now there is consequently a statutory method for determining the fringe benefit tax of
the car. So in consideration with the “section 10A and Section 10 B of the FBTAA 1986”
states that the assessable amount for fringe benefit calculated by the operating cost method

3TAXATION LAW
(Athanasiou 2014). Statutory formula method is taken from the “Section 9 of the
Miscellaneous Taxation Ruling 2027” for highlighting the value of fringe benefit for the car.
According to the Statutory method 20% of the fringe benefit of a car is considered as the
levied for an individual tax payer. The taxable value for the car fringe benefit made from the
statutory method by relating the original expenditure provided by the employee along with
the employer for number of days the car was made available for the personal usages of
employee (Wolfman, Schenk and Ring 2015).
This is identified from the case study that there is different kind of administrative cost
those involved for running the car for the personal usages of the employee. These
administrative costs will be considered as well as calculated while calculating the taxable
amount of fringe benefit tax. The below tabular format is showing the fringe tax benefits
calculated for Charlie in Shine Homes;
On the other hand, the below tabular format is showing the ascertainment of the fringe
benefit under the operating cost method;

4TAXATION LAW
The computation that is highlighted in the above table shows the evidences of the
assessable values for fringe benefit tax of the car. The taxable value for the fringe benefit
which is generated from the statutory formula is identified as lower in comparison with the
operating cost method (Sackman et al. 2016). Since, this is identified that the value of the
fringe benefit tax is less in operating cost in comparison with the statutory method, and then
the assessable income should be considered for the statutory method.
After this discussion in this case study this is also found that Shiny Homes has also
incurred that the expenditure for the car is also considered for Charlie as he has used the car
for the wedding purpose. Therefore, the taxable value of fringe benefit should be considering
the hire charges that have been paid by the employer to Charlie while determining the taxable
income. In addition to this, cost of accommodations for Charlie’s honeymoon was also paid
by Shine Homes. Therefore, this amount will also be included into the calculation of the
fringe benefit tax amount.

5TAXATION LAW
Additionally, a deemed interest at the statutory rate of 5.65% and deemed
depreciation is computed below.
On the other hand, “Section 39A of the FBTAA 1986” highlights an important
consideration that relates the facilities of car parking which is provided to the employees
(Saad 2014). The criteria is given as follows;
1. The car should be owned or leased and this should be controlled by the employee
2. The personal usages of the car should be minimal by the employee for travelling
for a minimum that is once in a day
3. The car parking should be done within the boundary of parking area that is leased
or owned by the employer
The fringe benefit tax for Charlie is tabulated as follows;

6TAXATION LAW
This can be concluded that the above case study shows that Charlie will be liable for
fringe benefit tax which is considered under “FBTAA 1986”. Subsequently, the usages of the
car from the end of Charlie will be included into the fringe benefit along with the other
benefits seen from the end of employer during the course of his employment.
Answer to requirement 2:
Answer to A:
The case study opens with the income tax consequences arising out of the receipt of
wine by Alan from his customers. Alan is a practicing locum doctor with his wife betty
working as the part time accountant. Alan is widely known among his patients in the town
and often gets from his customer’s products that are homemade such as cakes and scones
along with the fee that he charges from his customers. In the later part it is noticed that Alan
treated the dog from the snake bite due to the non-availability of the vet and being impressed
from this he was presented with the wine that had the market value of $360.
According to the Australian taxation office, receipt of income under “section 6-5 of
the ITAA 1997” that is directly related to the business or profession would result in tax
consequences (Graetz and Warren 2016). The receipt of homemade cakes and scones does

7TAXATION LAW
not has any commercial value and the same would not be regarded for income tax
assessment. However, the receipt of wine with the market value of $360 would be liable for
taxation since it has the market value. Similarly, the receipt of fees by Alan from his patients
would be considered for assessment under “section 6-5 of the ITAA 1997”.
Answer to B:
According to the “Taxation ruling of TR 97/11” Hobby is regarded as different from
business since hobby is generally undertaken for recreational purpose while business possess
the intention of making profit (Davis et al. 2015). In compliance with the “taxation ruling of
TR 97/11” it act as the guide in deciding whether the taxpayer is performing the activity of
primary production with the intention of making profit or for only recreational purpose
(Woellner et al. 2017). The below listed factors are vital in determining whether the taxpayer
is carrying on the business or hobby or business;
i. Business usually has the purpose of significant commercial intention while hobby
on the other hand does not have intention of undertaking the commercial activity
ii. Business activities are generally performed with the intention of making profit
while hobby hardly has any motivation of making profit
iii. An individual taxpayer usually holds the objective of indulging in the business
activities while hobby does not have the intention of indulging in the commercial
activities
iv. Whether the person does not have objective of carrying on the business in the
similar process whereas hobby is performed in an ad hoc means (Bevacqua 2015).
v. The business activities are usually planned and it is executed in a commercial
manner whereas hobby is not planned and it is not carried on as a business.

8TAXATION LAW
According to the verdict that has been passed in the case of “Evans v Federal
Commissioner of Taxation (1989) 20 ATR” the federal court of law has stated whether or
not the hobby constitutes a recreational activity (Lang 2014). The amount of revenue or
income that is derived from the activities of hobby will not be considered income whereas the
activities that are repetitive or having the intention of profit would be considered as business
activities.
Answer to C:
As defined under the “taxation ruling of TR 97/11” it is transacting with the taxpayer
that are conducting the activities of primary productions. Similarly, under the “section 6 (1)
of the ITAA 1997” an individual carrying on the business of cultivation on land would be
regarded as carrying on the activities of primary production (Miller and Oats 2016). On
conducting the primary activities of production the court of law has asserted its by stating
whether or not the individual taxpayer is carrying on the business for profit or have indulged
for recreational purpose.
The evidence presented from situation of Betty and Alan it is found that Betty makes
marmalade which soon became very known among her neighbours. In the later stages she
considered opening a stall in the Newtown Market. On every second Sunday she set up her
stall and the excess amount is sold by Alan to the supplier on constant basis. An assertion can
be bought forward in respect of the present situation of Alan and Betty that the activities
possessed the business characteristics with repetitive nature. Citing the reference of “Martin
v. Federal Commissioner of Taxation (1953)” the judgement of the court asserted that there
is not a singular factor which would offer a conclusive evidence (Davison, Monotti and
Wiseman 2015). The activities of Alan and Betty had coinciding indicators of commercial
nature that carried the objective of making profit with business intentions.

9TAXATION LAW
Answer to D:
As it has been stated under the “Subsection 25 (1) of the ITAA 1936” a taxpayer
deriving income from the barter system is liable for income tax consequences. The instances
provided under the “taxation ruling of IT 2668” states that transactions of barter system and
business exchange will be having both the income tax liabilities and GST. This is because the
transactions of barter system are treated in a similar manner to that of the transactions in cash
or credit. Similarly, the situations of Alan and Betty, the extent of value received under the
barter system is reliant on the nature of amount received by the recipients.
With reference to the verdict of the federal commissioner in the case of “FC of T. v.
Cooke & Sherden 1980” value received in the form of cash or kind by Allan and Betty under
the barter system would have both the tax and GST consequences under the “ITAA 1997 and
GSTR 1999” (Mihaylov et al. 2015). The reason for tax consequences is that the transactions
from the barter system is holding the identical value of cash or credit transactions.

10TAXATION LAW
Reference List:
Athanasiou, A., 2014. Get together (right now)-Ordinary income and Div 7A?. Taxation in
Australia, 49(5), p.279.
Bevacqua, J., 2015. ATO accountability and taxpayer fairness: An assessment of the proposal
to split the Australian taxation office. UNSWLJ, 38, p.995.
Davis, A.K., Guenther, D.A., Krull, L.K. and Williams, B.M., 2015. Do socially responsible
firms pay more taxes?. The Accounting Review, 91(1), pp.47-68.
Davison, M., Monotti, A. and Wiseman, L., 2015. Australian intellectual property law.
Cambridge University Press.
Graetz, M.J. and Warren, A.C., 2016. Integration of corporate and shareholder taxes.
Jones, D., 2017. Tax and accounting income-Worlds apart?. Taxation in Australia, 52(1),
p.14.
Lang, M., 2014. Introduction to the law of double taxation conventions. Linde Verlag GmbH.
Mihaylov, G., Tretola, J., Yawson, A. and Zurbruegg, R., 2015. Tax compliance behaviour in
Australian self-managed superannuation funds.
Miller, A. and Oats, L., 2016. Principles of international taxation. Bloomsbury Publishing.
Richards, R., 2014. Taxation: Employee share schemes. Law Society Journal: the official
journal of the Law Society of New South Wales, 52(3), p.40.
Saad, N., 2014. Tax knowledge, tax complexity and tax compliance: Taxpayers’
view. Procedia-Social and Behavioral Sciences, 109, pp.1069-1075.
Sackman, J., Van Brunt, R., Rohan, P.J. and Reskin, M., 2016. Tax Issues in Condemnation
Cases (Vol. 7). Nichols on Eminent Domain.

11TAXATION LAW
Woellner, R., Barkoczy, S., Murphy, S., Evans, C. and Pinto, D., 2016. Australian Taxation
Law 2016. OUP Catalogue.
Wolfman, B., Schenk, D.H. and Ring, D.M., 2015. Ethical Problems in Federal Tax
Practice. Wolters Kluwer Law & Business.