Tax Implications of Gardening Business

This assignment delves into the tax implications of running a gardening business in Australia. It applies Taxation Ruling TR 97/11 to determine if the activity constitutes a business or a hobby, analyzing factors like profit motive, investment, and premises. The document further examines the application of GST and ITAA provisions on transactions within the business, including those involving barter systems.

Running head: TAXATION
Taxation
Name of the Student:
Name of the University:
Authors Note:

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Table of Contents
Answer 1..........................................................................................................................................2
Answer 2..........................................................................................................................................7
(a).................................................................................................................................................7
(b).................................................................................................................................................7
(c).................................................................................................................................................8
(d).................................................................................................................................................9
References:....................................................................................................................................10

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Answer 1
Provisions in relation to fringe benefits are provided through sections of The Fringe
Benefit tax Assessment Act 1986 (Cth) (FBTA). According to the legislation where the employer
provides an employee with additional benefits along with normal form of compensation such as
salary and wages they are known as fringe benefits (Kim, Longest and Lippmann 2015).
However the concept of fringe benefit does not arise when any person is given additional
benefits by another, the benefit will only be called a fringe benefit under the legislation and
would be subjected to its tax implications in case an employment relationship between the parties
is established. This means that the benefit has to be passed from the employer to the employee
(Braverman, Marsden and Sadiq 2015).. .
This case study is related to fringe benefits of a car and the provisions for this are given in
section 7 of the FBTA. According to the provisions of section 7 of the FBTA where the
employer has provided the employee with a Car and the is used by the employee for personal
work in addition to the purpose it has been provided for the employee would have the liability of
paying tax for the car as it would be considered as a fringe benefits. In addition where it is
expressly stated that the car has been provided to the employee for work other that official
purpose than even if the car is not used for personal work by the employee or any person
associated with them it would be taxed under fringe benefit provisions
Calculating the taxable value of fringe benefits (TVFB) can be by using two kinds of calculation
methods. The first of these methods is known as statutory formula methods and the other is
known as the operating cost method. The FBTA provides rules in relation to the use of these

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methods for calculation through its provisions. Section 9 of the legislation provides rule for the
statutory formula method and section 10A and 10B provides rules for the operating cost method.
In relation to the SFM the cost of the car needs to be considered and on the other hand in relation
to the OCM the operating cost is to be taken. The method which is gives a lower value is to be
utilized for finding out the fringe benefits for the car.
Case study facts
In the case study it is mentioned that Charlie who is working for Shiny Homes Pty Ltd
and therefore is an employee has received a four wheel drive sedan from them in addition to his
wages and salary. It can also be adjudged prima faice that the company has provided the car to
its employee for using it in a private manner in additional to working requirements. Therefore
applying the definition of fringe benefits as provided by the FBTA in the given situation it can be
stated that as there is a relationship of employment and the car has been provided additional to
basic compensation and used for private need it will be subjected to tax implications (Woellner
et al. 2016).
The calculation of tax applicable on the car as a fringe benefit can therefore be done by
applying the methods discussed above. An application of 20% statutory rate has to be done in
relation to the SF method to find out the taxable value of fringe benefits. The value is used as it
has been provided subsequent to the 2011 budget. Thus the base value of the car has to be
multiplied by the statutory rate to provide the taxable value of fringe benefits. Whether the car
has been used for private reasons or personal reason in not considered when determining the
taxable value of fringe benefits under the SF method. However the work needs to be segregated
proportionally in for determining the value under OC method.

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Operating cost Method
The deemed depreciation is determined by formula provided under section 11(1) of the
FBTA by the use of statutory rate of 25%.

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Statutory interest rate in the year 2016/17 is 5.65%. The deemed interest is analyzed
through the use of formula provided under section 11(2).
Upon the analysis of the calculation it can be evidently stated that the SF method provides a
lower value for Taxable Value of Fringe Benefits as compared to the OM method. The case
study also mentions that the employer had hired the car for a wedding and in this case the charge
is going to be considered under taxable value of fringe benefits. The provisions of section 39 of
the legislation provides that charges for car parking are to be analyzed if the parking is done in a
place which the employer owns however situation as provided in the case study is different
(Nijland and Dijst 2015).

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Answer 2
(a)
In the given situation it has been mentioned that a change of tree is desired by Allan and
Betty. In this respect the house which was located in London and have been sold and the house
which is located in central Victoria which has been purchased would not constitute a transaction
which can be taxed under the existing tax laws (Gale and Samwick 2014). It has also been
mentioned that Allan makes an income while working as Locum Doctor and Betty makes an
income while working as a part time accountant. Thus these incomes earned by them both is to
be asses under the rules of Income Tax Assessment Act 1997 (ITAA) for Income Tax.
Additionally the case study mention that due to high popularity of Allan, as token of appreciation
is receives foods and cakes form his old aged clients. As the value for these provides has been
provided as $36, such products will fall under the category of non commercial products which do
not have any tax implications. As shown in the case study a wine has been gifted to Allan and
therefore the wine according to the provisions of ITAA is liable to have tax implications as it is a
part of his income.

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(b)
The utilization of The Taxation Ruling TR 97/11 is to be done when the question is to
determine the nature of an activity is business or a mere hobby (Barkoczy 2017). The ruling sets
out certain indicators which support the process of determining the nature of an activity. The
indicators are as follows:
1. The purpose- where the nature of the activity is commercial it is to be deemed as a
business activity and non commercial activities are hobbies
2. Objective- where the objective of the business is profit making it is deemed as a business
activity and where the objective is non profit making it is a hobby
3. Relationship- where an employment relationship exists in the activity it is a business
activity where there is no such relationship it is a hobby
4. Investment- high level of investment makes the activity a business activity and a low
level of investment may suggest a hobby.
5. Premises- A business activity will not exists without a premises where as a hobby can
exists where it does not have a fixed premises
(c)
Although activities which are performed for a non business purpose cannot be charged
under tax implications in case the activity transforms into a business activity it will have tax
implications (Akins et al 2014). It has been mentioned that Allan and Betty carry out a
gardening activity. Through the application of the Taxation Ruling TR 97/11 it can be stated
that this activity is a business activity. This is because they are making a profit through the
activity which accounts to $500-600 monthly. Therefore the activity is going to be assessed
for income tax under the ITAA provisions.

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(d)
The provisions of GST and ITAA will be applicable in the country on transaction
indulged into through the barter system which are business in nature. Thus indulged into
through the barter system which are business in nature will be treated as same as other credit
and cash transaction for tax implication under ITAA and GST. In the same way the system
which has been established by Allan and Betty would also have tax implications under ITAA
and GST

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References:
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.
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.
Gale, W.G. and Samwick, A.A., 2014. Effects of income tax changes on economic growth.
Kim, P.H., Longest, K.C. and Lippmann, S., 2015. The tortoise versus the hare: Progress and
business viability differences between conventional and leisure-based founders. Journal of
Business Venturing, 30(2), pp.185-204.
Nijland, L. and Dijst, M., 2015. Commuting-related fringe benefits in the Netherlands:
Interrelationships and company, employee and location characteristics. Transportation Research
Part A: Policy and Practice, 77, pp.358-371.
Woellner, R., Barkoczy, S., Murphy, S., Evans, C. and Pinto, D., 2016. Australian Taxation Law
2016. OUP Catalogue.