Australian Tax Law and Policy Analysis

This assignment delves into the complexities of Australian tax law and its impact on various aspects of the economy. It examines key tax legislation, including fringe benefits taxes and corporate tax rates, and their influence on income distribution, economic growth, and taxpayer behavior. The analysis also explores recent trends in income inequality and the role of tax policy in addressing these issues. Additionally, it considers the challenges and opportunities presented by emerging technologies like Bitcoin within the Australian tax system.

Running head: TAXATION LAW
Taxation Law
Name of the Student
Name of the University
Author Note

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Table of Contents
Answer 1..........................................................................................................................................2
Answer 2..........................................................................................................................................6
Part (b).............................................................................................................................................7
Part C...............................................................................................................................................7
Part D...............................................................................................................................................8

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Answer 1
According to the Fringe Benefit Tax Assessment Act 1986, fringe benefits may be
defined as the benefits other than wages and salary that is paid to an employee. An employment
relationship must exist between the provider of benefits and the beneficiary for the application of
the fringe benefit provision. The application of this provision enables to measure the tax
liabilities of the employer and the employee regarding such fringe benefits. The fringe benefits
associated with cars are stipulated under section 7 of the Fringe Benefit Tax Assessment Act
1986. The section stipulates that if a car is provided to an employee, which the employer had
either owned or taken on lease, and the employee is allowed to use the car for private purpose,
the benefits of the car shall be liable for fringe benefits tax (Gitman, Juchau and Flanagan 2015).
However, the benefits of the car shall be considered for fringe benefits tax even if the employee
or his associates uses the car for private purpose or it has not been used by them for private
purpose despite being available to them for the same.
The taxable value of fringe car benefits can be measured either by using the statutory
formula method or by using the operating cost method. Section 9 of the Fringe Benefit Tax
Assessment Act 1986 stipulate provisions for calculating the taxable value of car fringe benefit
as per the statutory method. According to the statutory formula method, the taxable value of
fringe benefits will be calculated after considering the cost of the car (Cingano 2014). As per
section 10A and 10B of the FBTAA 1986, the taxable value of car fringe benefit can be
calculated using the operating cost method. In case of operating cost method, the operating cost
of the car is used to determine the taxable value of fringe benefits. The method that results in
lowest taxable value of fringe benefits should be used to determine the FBT. However, in order

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to use the operating cost method to determine the taxable value of fringe benefits, important
documents are necessary to be maintained.
Facts of the case
On the facts here, Charlie, an employee of Shiny Homes Pty Ltd was provided with a
four-wheel drive sedan that is defined as a car under the fringe benefits tax legislation to
determine the fringe benefits of the car. The facts clearly states that the company allowed its
employee to use the car for private purpose of the employee and the car was used by Charlie for
private purposes as well as for additional work purposes. Hence, the car that Shiny Homes Pty
Ltd provided to the employee, Charlie, shall be liable for determining fringe benefits tax.
As mentioned earlier, operating cost method and statutory formula method are the two
methods that can be used to calculate the taxable value of fringe benefits for determining FBT.
As per the statutory formula method, the taxable value of car fringe benefits can be determined
by calculating the statutory rate at 20 percent (Braverman, Marsden and Sadiq 2015). The
statutory rate of 20% is multiplied to the base value of the car in order to determine the taxable
value for fringe benefits. The extent to which the car provided by the employer is used for
private purpose is not taken into consideration while calculating the taxable value of fringe
benefits as per the statutory formula method (Balcerowicz and Rzońca 2015). On the other hand,
as per the operating cost method, the total operating cost of the car is proportionately divided
between the private and work purpose to determine the taxable value of fringe benefits.

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The deemed depreciation is calculated using the statutory rate of 25% by using the
formula provided under section 11(1).
The deemed interest is calculated is using the formula provided under section 11(2). The
statutory interest rate is 5.65% for the year 2016/17.
Since the taxable value of fringe benefits for the car produces, lower results when it is
calculated using the statutory formula method, the taxable value of fringe benefits of the car
provided to Charlie shall be considered to have been calculated using the statutory formula
method. Additionally, Shine Ltd has also hired the car for weeding; hence, the hire charge of the
car shall be taken into account while determining the taxable value of fringe benefit (Dabla-
Norris et al. 2015). Further, the honeymoon accommodation sponsored by the Shine Limited

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shall also be considered as a fringe benefits that to be included to determine the taxable value of
fringe benefit of the car. As per section 39A of the Fringe Benefit Tax Assessment Act 1986, car
parking fringe benefits shall arise if the car is parked at premises that the employer has either
leased or owned (Barkoczy 2017). On the facts here, since the car is parked in separate unit, it is
not liable for car fringe benefit.
Answer 2
Part (a)
Allan and Betty have decided to shift so the sale of their house in Melbourne and their
subsequent acquisition of a huge country house in Central Victoria shall not give rise to taxable
consequences. However, the income of Allan and Betty as part time locum doctor and part time
accountant shall be included while calculating income tax as per the income tax provisions of
the Income Tax Assessment Act 1997 (Burkhauser, Hahn and Wilkins 2015). As per the case
study, given that he is popular among his elderly clients, Allan receives loads of homemade food

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and cake from his patients as a token of appreciation, in addition to the fees that he receives as a
locum doctor.
Nevertheless, such homemade foods and cakes shall not result in any additional tax
consequences for Allan, as the products do not have any market value as commercial products
(Herault and Azpitarte 2015). Therefore, they shall not be included while calculating the income
tax as they are not considered as commercial products. However, the wine that Allan has
received from his clients has certain market value of $36 approximately. This may cause Allan to
have tax consequences, as the amount shall be included in the income of Allan while determining
his taxable income that may be used to establish his income tax liability under the Income Tax
Assessment Act, 1997. This is because the amount of wine is taxable as it is a commercial
product and has a market value as well. hence, it is included in the income of Allen while
assessing the income tax under the statute.
Part (b)
The Taxation Ruling TR 97/11 includes certain indicators that can be used to determine
whether an individual is engaged in the business (Akins, Chapman and Gordon 2014). Therefore,
this ruling may assist in differentiating business from hobbies in the following ways:
1. The purpose of the activity is considerable in determining whether an activity is a hobby
or business. Thus, if an activity has a substantial commercial purpose, it shall be
considered as business activity (Hodgson and Pearce 2015).
2. There is an existence of employment relationship in case of business activities unlike in
hobbies where the existence of an employment relationship is not mandatory.

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3. A business activity aims at earning profit unlike in hobbies where the activities do not
aim at earning profit (Akins, Chapman and Gordon 2014).
4. Unlike businesses where the existence of premises is mandatory, activities related to
hobbies do not require any premises, as it is not mandatory.
5. Business activities involve huge amount of capital unlike in hobbies where the
investment of huge capital is not necessary.
The court has defined the criteria that are necessary to differentiate hobbies from business
actives in Cooper Books Pty Ltd v Commissioner of Taxation of Commonwealth of Australia.
Part (c)
In the event, a client transforms his or her hobby into business for earning profits; the
income shall be included to determine tax (Burkhauser, Hahn and Wilkins 2015). This is because
when a hobby is transformed into a business but with the sole objective to earn profits, the
income that the client derives from such business transactions shall give rise to tax
consequences.
On the facts here, Betty and Allan transformed their hobby of gardening into business
activity and they even earned $500to $600 per month after the sale of marmalade. This implies
that the income that they derived from gardening is the income that has arise from the business
transactions. Therefore, such incomes shall give rise to tax consequences. Further, the barter
system initiated by Allan and Betty is also subjected to tax consequences under the Income Tax
Assessment Act, 1997 (ITAA).

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Part D
The provisions of GST and ITAA govern the barter system of the country if it amounts to
business transactions. The business transactions that include barter shall be treated equally along
with other credit and cash transactions for calculating income tax under the GST and ITAA
provisions (Gitman, Juchau and Flanagan 2015). Therefore, in the given case, the barter system
established by Betty and Allan in the area shall be considered as credit and cash transactions for
calculating the GST and income tax in the country. This is because the provisions of ITAA and
GST usually govern that barter system transactions that amounts to business transactions. Hence,
such transactions are subjected to equivalent treatment as any other credit or cash transactions.

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Reference list
Akins, B.W., Chapman, J.L. and Gordon, J.M., 2014. A whole new world: Income tax
considerations of the Bitcoin economy. Pitt. Tax Rev., 12, p.25.
Balcerowicz, L. and Rzońca, A., 2015. Puzzles of Economic Growth. World Bank Group.
Barkoczy, S., 2017. Core Tax Legislation and Study Guide. OUP Catalogue.
Braverman, D., Marsden, S. and Sadiq, K., 2015. Assessing Taxpayer Response to Legislative
Changes: A Case Study of In-House Fringe Benefits Rules. J. Austl. Tax'n, 17, p.1.
Burkhauser, R.V., Hahn, M.H. and Wilkins, R., 2015. Measuring top incomes using tax record
data: A cautionary tale from Australia. The Journal of Economic Inequality, 13(2), pp.181-205.
Cao, L., Hosking, A., Kouparitsas, M., Mullaly, D., Rimmer, X., Shi, Q., Stark, W. and Wende,
S., 2015. Understanding the economy-wide efficiency and incidence of major Australian
taxes. Treasury WP, 1.
Cingano, F., 2014. Trends in income inequality and its impact on economic growth.
Dabla-Norris, M.E., Kochhar, M.K., Suphaphiphat, M.N., Ricka, M.F. and Tsounta, E.,
2015. Causes and consequences of income inequality: a global perspective. International
Monetary Fund.
Gitman, L.J., Juchau, R. and Flanagan, J., 2015. Principles of managerial finance. Pearson
Higher Education AU.

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Herault, N. and Azpitarte, F., 2015. Recent Trends in Income Redistribution in Australia: Can
Changes in the Tax‐Benefit System Account for the Decline in Redistribution?. Economic
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Hodgson, H. and Pearce, P., 2015. TravelSmart or travel tax breaks: is the fringe benefits tax a
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