Assessing Taxpayer Response to Fringe Benefit Rule Changes

This assignment, titled 'Assessing Taxpayer Response to Fringe Benefit Rule Changes', requires an analysis of how taxpayers responded to legislative alterations in the area of in-house fringe benefits. The case study focuses on a specific rule change and its impact on taxpayers' behavior. The goal is to understand how these changes influenced tax management practices, compliance costs, and potential avoidance strategies.

TAXATION LAW AND PRACTICE

TABLE OF CONTENTS
PART A.........................................................................................................................................................3
Primary sources of commonwealth parliament.......................................................................................3
Tax law primary source............................................................................................................................3
Taxation ruling TR 98/17..........................................................................................................................3
Measurements of Medicare levy.............................................................................................................4
Commonwealth and legislations..............................................................................................................4
Specific deductions by ITAA 97 25-45......................................................................................................4
Case law and the significance of high court.............................................................................................5
Stock on hand and their valuation...........................................................................................................5
Tax to be paid for $45000 earning...........................................................................................................6
PAYG collections......................................................................................................................................6
PART B.........................................................................................................................................................6
PART C.........................................................................................................................................................8
PART D.......................................................................................................................................................11
REFERENCES..............................................................................................................................................14

PART A
Primary sources of commonwealth parliament
The constitution of the commonwealth taxation is under section 51 of
the parliament ATO. It includes all the power and legislation of these law but
without residual powers of commonwealth. Federation from 1901 the laws
have began to granting the powers to various states of Australia (Porter,
Allen & Thompson, 2014). The power to make laws and rules had been
described in the section 39-51 which facilitates the laws with all the legal
rules and regulations to be followed. The financial power and interest trade
laws are described in various sections of commonwealth law and ATO is in
under ITCP (s51(1)) that provide necessary information regarding trade and
commerce in states and several foreign nations.
Tax law primary source
Public laws, internal revenue and income tax treaties are the various
codes of federal laws which are highly authorised and the primary sources of
taxation. The treasury regulation can be known by the IRS which made
various rules and regulation. This facilitate the support to codes and includes
various taxation or revenue rulings, treasury decisions made by the taxation
authority (Tran-Nam, Evans & Lignier, 2014). The taxation related rule and
decisions are to be made with the help of technical advices, revenue
procedures and private latter.
Internal revenue service: this is the primary source of implicating
the taxes over the revenue retain by an individual. This authority is consists
of all the rules and regulation which are being mentioned as in Tax rulings,
various sections and acts.
Taxation ruling TR 98/17
Taxation rulings helps the ATO in deciding the various laws, rules and
regulations imposed over several acts and they provide rights and authority
to such taxation acts. Rulings fixed by federal legislation can be described
under s6(i) of income tax assessment act 1936 and ITAA 1997. TR98/17 of
3

the acts provides information about the taxation policies to be followed for
residential in Australia which can be described as several different
individuals who residence in Australia such as Migrants from this nation,
people come from different country for work and employment purpose,
students residents in Australia come from different nation for gaining the
education or enrolled in any college or university (Magnusson, 2014). It also
includes tourists who came in Australia for temporary visit or stay.
Measurements of Medicare levy
Medicare levy is a rebate that has been charged by the Australian
government over assessable income gain by the individuals which in context
with facilitating or providing the benefits health and care security to such
individuals (Apps, Long & Rees, 2014). It can be calculated by adding 2% of
the taxable earning by persons. If an individual has gain the insurance cover
from the medical unit of registered hospital of Australia than he will not be
liable add any surcharge over his income. Medicare levy can be assign to
those who are residents in Australia, non residents are not facilitated with it.
Commonwealth and legislations
As per the Competition and consumer act 2010 of ITAA 1997 has
facilitates many rules and regulation to deal with the case in which a
company is misleading or deducting cost of the fine charged by the
government which can be described under various parts of the section such
as XI Application of ACL as commonwealth law, IV Anti-competitive practice
etc. are the parts which provides the necessary informations regarding this
context.
However, in accordance with the division 26 of ITAA 1997 it describes
that there will be allowances were facilitated over such specific amounts and
some of them will never be deductible (26 (5-100)).
Specific deductions by ITAA 97 25-45
ITAA 97 has many laws and rules that will facilitate the individual in
claiming the exemption or deductions over the income and expenditures
made by him. As per section 25-45 the laws has facilitated the deduction for
4

losses occurred by theft or robbery to a person or a business (Hattingh, Low
& Forrester, 2013). This helps in exempting the amount that has occurred
the losses in assessment year by theft, deflation, stealing, embezzlement,
larceny and misappropriation etc. these all are the losses which can be
deductible under the these section.
Case law and the significance of high court
Deduction must be allowed as on repair and maintenance of newly
acquired or purchased building was discussed under the case of W Thomas &
Co Pty Ltd V. Federal Commission 1995. these can be go with rulings of
capital nature expenditures over maintenance and repair of the old building,
reconstructing the premises can be the issue as in section 25-10 of Income
tax assessment act 1997, renewal and repairing of the building which was
not in commercial use before acquisition (Mitchell & et. al., 2016).
Stock on hand and their valuation
Valuation of the closing inventory for the tax purpose can be made by
using cost pricing, market selling value or replacement method. Increase in
the value of inventory in hand results in higher assessable income whereas
decrease in the same is considered as an allowable deduction.
Valuation of the stock in hand must be calculated by the tax
practitioner by the three methods that are presented here as under:
Cost pricing method: The method consists of fixing the cots over the
product that will help to measure and bring the product to its recent position.
These consists of the prices or costs of various insurance, freight, delivery
charges , custom duties and the excise duties.
Market sales value method: value can be measured under this
method is that the market value or the selling price of product must meet
the priced planned by the managers and the taxes are to be paid by tax
payer on the gains he had due to selling of products (Hattingh, Low &
Forrester, 2013).
5

Replacement value method: The replacement cost can be fixed on
the basis of identified product exist in market which will be on the last day of
income year, as it will help in measuring the cost of replacing the product.
Tax to be paid for $45000 earning
As per the acts of ATO including ITAA 97 and ITAA 36 the legislation
authorities has fixed the taxation slab for the individuals who made earnings
and their applicable percentage of taxation (James, Wallschutzky &
Alley,2013). Here the income is $45000 which comes under the slab of
37000 to 80000 which has the taxation rate of 32.5% and additional 3572 as
per the ruling which describes that any single dollar more than the 37000
than the taxpayer has to made payment for 3572 in addition.
PAYG collections
The taxes must be paid by tax practitioner on the basis of the earnings
he made on the regular basis (Magnusson, 2014). Thus it say pay as you go
which means the earning of the individual cam ne deposited in the accounts
and the government do not need to go for paper work over implying the
taxation on earnings it can easily be done by deducting directly through their
accounts.
PART B
As per the case study, during the given financial year, Ram has paid
his tax agent with a fee of $1,000 to complete his income tax return for tax
filling. Along with this, he also paid $2,000 to his legal solicitor in order to
create an objection draft to an ATO assessment that is received by him
before two years and paid $50,000 as income tax.
Referring the Income Tax Assessment Act, section D10 on “Cost of
managing Tax affairs” includes preparation and lodgement tax return, obtain
tax advice from the adviser, appeal to the Tribunals or courts and obtaining a
valuation. It clearly states all the tax deductions that are being available to
the party with regards to managing his or her tax affairs. Fees paid to the
6

recognized tax adviser is tax deductible in the year, in which, it is actually
incurred. For such deduction, it is the main requirement that tax adviser
must be registered includes solicitor, tax agent and barrister. However, if he
or she is not a recognized adviser, then such amount is not deductible (D10
Cost of managing tax affairs, 2015).
D10 has several sub components includes cost of managing tax affaris,
deductible ATO interest charge and cost of litigation (Deduction item D10 to
be split, 2017). According to the section, an individual can claim for the
deduction on interest payment with regards to late payment of tax &
penalties, amount by which tax liability is increased as a result of several
amendments. However, on the other side, tax shortfall & penalties charged
on the taxpayer due to late payment or falling meeting out tax obligations
timely cannot be claimed.
Referring to the section, it is clearly stated that if an assessee pays
fees to a tax advisor, interest charge and any other expenditures in order to
comply with the legal obligations then, he or she can obtain tax deductions
from his assessable income for the expenses paid (The Top 5 Forgotten Tax
Deductions, 2015). Applying it to the provided case, it seems clear that Ram
can get tax deductions for the fees that he had paid to their tax advisor so as
to file his income taxation return to the ATO. Thus, for the tax purpose, it will
be considered as a deductible expense.
Besides this, as per ITAA, an individual can claim for the tax deductions
for the fees that he or she had paid to the solicitor (Tran-Nam, Evans &
Lignier, 2014). In the available case, Ram had contacted a legal solicitor for
preparing an objection draft, on which, he can claim tax deductions for the
solicitor fees worth $2000 and reduce his taxable income.
Income tax refers to the taxation liabilities levied by the taxation
authority on the amount of taxable income as per the taxation rate. As per
progressive structure of Australian income tax, person who earns higher
level of income is charged at high rate or vice-versa (Porter, Allen &
Thompson, 2014). Moreover, it follows equality principle, as per which,
7

people whose income falls under the same slab is levied at the same rate of
tax. Tax deductions are available from the assessable income and on the
rest, tax is charged as per the applied tax rate. Here, Ram has paid income
tax liability worth $50,000, on which, no deductions is available (Mitchell and
et.al., 2016).
PART C
In Australia, government imposes different types of taxes classified
mainly into two direct and indirect taxes so as to obtain revenues and spend
it in the social welfare and economic growth.
(Source: Li, 2016)
Australian Federal Government collects high proportion of their
revenue in the form of income tax. Evidencing it from the statistical data, in
2015-16, Australian government received $194.3 billion from individual
income tax (Li, 2016). However, tax revenue from fringe benefit tax is $5.0
billion, custom duty accounted for $9.5 billion, and excise amounted to $7.0
billion, company tax for $71.2 bn, fuels excise for $17.9 bn.
8

As per Income Taxation Assessment Act, 1997, assessable income
constitutes all the income received by the individual in the given tax year. It
comprises salary, commission, bonus, awards, allowances and employee
fringe benefits as well. It is different from the taxable income because out of
assessable income, all the tax deductions which are allowed to the assessee
is deducted to find out the taxable income on which, tax is charged at
prevailing rates (Mitchell & et.al., 2016). According to the Australian Taxation
Office (ATO), all the earnings or proceed that are the result of the ordinary
course of business is included in the assessable income. It includes personal
service income, commission, incentives payment, interest revenue,
governmental payment, rental income, prizes and awards, capital gain and
others. However, prizes that are not related to the business are not the part
of assessable income. Moreover, receipts from the hobby, inheritance,
gambling are excluded from the AI. For the given case scenario, Jimmy who
is an Australian university client is a part-time restaurant worker and earns
various incomes from the restaurant employment. His assessable income is
computed here as under:
Particulars Amount ($)
Income received from the restaurant 27000
Cash tips derived from the customers 750
Gift received from a satisfied
customer (Scotch alcohol)
250
Fringe benefit (Dinner) 645
Total assessable income 28645
Less: Tax deductions
Gift to Eva 250
Fringe benefits 645
Taxable income 27,750
As per the results derived from the calculations made above, it
becomes clear that salary from working in restaurant is the main source of
income for Jimmy. Besides this, cash tips received as well as gifts given by
an extremely satisfied client belong to his course of employment therefore,
they are considered as the part of assessable income. However, on the other
9

side, consider ITAA, gifts that are not related to the employment is excluded.
Applying the same rule to the givens scenario, gifts worth $15,000 received
from his parents is not added while calculating his assessable income
(Braverman, Marsden and Sadiq, 2015). However, dinner provided by the
employer at his expenditures is included, however, at the same time, on
fringe benefits tax deductions is also allowed, therefore, it is subtracted to
determine taxable income (Min & LV, 2017).
Australian Income Tax Act allows deductions on entertainment that
includes meal, drink, recreation and other expenses. It is exempted from the
fringe benefit tax if its value is below AUD 300. However, according to the
given situation, Jimmy had received an expensive bottle of Scotch alcohol
worth AUD250 from one of the satisfied customer. It is not treated as an
entertainment expense therefore, being a receiver; Jimmy would require
paying tax on the same. Thus, although, its value is below threshold, still, as
it is not an entertainment expense therefore would be taxed (Jims, 2015).
Here, as an alternative option, Jimmy can receive tax-deductible gift like
movie tickets, airline tickets, meal at restaurant and others, on such, no tax
is charged. Referring the same to the scenario, Jimmy gave gift to EVA on
which, tax deductions has been provided to him.
Jimmy’s employer has a policy to take all the workers on a dinner and
Jimmy eats total food worth AUD 645. As said, that AUD 300 is threshold
point for tax exemption which is exceeded therefore, minor benefit
exemption does not apply here and the entire amount will be taxed (FBT and
entertainment. n.d.). As an alternative, Jimmy can receive AUD300 and
AUD300 for associates like spouse because both have separate threshold
limit and save tax from the same. In the case law of Knnew V Commissioner
of Taxation, in which, food restaurant expenses were totalled to AUD679.86
beyond threshold, therefore taxed by the government.
As per the findings, Jimmy’s total assessable and taxable income has
been derived to $28,645 and $27,750 respectively.
10

According to the current income tax rules, tax is levied at following
rate in Australia mentioned below:
Taxable income (In $AUD) Taxation rate mentioned in the ACT
18,201-37,000 19c for every AUD for the income over
$18,200
37,001-80,000 $3572 + 32.5c on each AUD for the income
over $37,000
80,001-180,000 $17,547 + 37c on each AUD for the receipts
over $80,000
180,001 and above $54,547 + 45c on each $1 above the
income of $180,000
Considering the above income tax rate, Jimmy’s taxable income is
computed to $27,750 which comes in the first income slab of $18,201-
$37,000, therefore, it should be taxed at 19c (Hayward, 2014). His taxation
liability for the given taxation 7year is computed here as under:
Particulars Amount ( In $ AUD)
Taxable income $27,750
Tax @ 19c for the income above
$18,200
($27,750-$18,200) = $9550*19% $1814.5
Tax payable $1814.5
According to the results, Jimmy is accountable to pay tax at the rate
$1814.5 to the Australia’s principle tax collection authority, ATO.
PART D
Case: Josie is an Australian she is self employees and do work from
her residential place. She works as a mortgage broker which in role to
provide loans and mortgage to buyers from banks. She gains her earnings
through commission from banks. 15% of her premises is used by her for
office purpose and dealings with the consumers. She has claimed various
expenditures to get the favourable deductions over taxes levied on such
expenses.
Particulars Expenditure ($) Deduction ($ & Taxable amount
11

%) ($)
Council rates 4900 2000 2900
Interest on loan
(residence)
18900 50.00% 9450
Electricity and
Heating expenses
6800 45.00% 3740
Cleaner 3400 nil 3400
Telephone (home)
(60% office use)
2700 1620 1080
Telephone
(mobile)(90%
office use)
7200 6480 720
Total taxation 21290
Interpretation: As per the above calculation it is to be interpreted
that expense occurred by Josie with the maximum of the expense occurred
by her for office use. On which she has claimed the deductions as per ITAA
97 S8(I) and S 8(II). The council rate is of 4900 which has the allowable
exemption of 2000 which she has claimed and here she has to made
payment for the remaining cost of the 2900. Loan interest rate can be
deductible at 50% of the allowance which is 18900 of 50% equals to 9450.
Electricity and heating expenses can be exempted for 45% of the total
expenses on this context. She is not liable to claim the cleaning lady expense
as it is her residence too she will not claim the deduction it is fully taxable.
The uses of telephone of home and mobile can be use of the 60% and 90%
for office. She can only claim the amount which is in use for the office
purpose the remaining amount has to be paid by her. Therefore, in
accordance with the above listed measurement it can be said that there has
been payment of 21290 of tax will be payable by Josie. Therefore, this
12

amount has been analysed as per the revenue gained by her over the
employment and commission. There has been various deductions allowed to
her and she has been profitable with low amount of taxes will be payable
from her.
13

REFERENCES
Books and Journals
Apps, P., Long, N., & Rees, R. (2014). Optimal piecewise linear income taxation. Journal of
Public Economic Theory. 16(4). PP.523-545.
Braverman, D., Marsden, S., & Sadiq, K. (2015). Assessing Taxpayer
Response to Legislative Changes: A Case Study of In-House Fringe
Benefits Rules. J. Austl. Tax'n. 17. 1.
Hattingh, L., Low, J. S., & Forrester, K. (2013). Australian pharmacy law and practice. Elsevier
Health Sciences.
Hayward, R. (Ed.). (2014). Valuation: principles into practice. Taylor & Francis.
James, S., Wallschutzky, I., & Alley, C. (2013). The Henry Report and the taxation of work
related expenses: Principles versus practice.
Min, S. H. E. N., & LV, L. Q. (2017). English-Chinese Translation for Tax Vocabularies in
Business English. DEStech Transactions on Social Science, Education and Human
Science, (meit).
Mitchell, R. & et.al., (2016). Law, corporate governance and partnerships at work: a study of
australian regulatory style and business practice. Routledge.
Porter, D., Allen, B., & Thompson, G. (2014). Development in Practice (Routledge Revivals):
Paved with Good Intentions. Routledge.
Tran-Nam, B., Evans, C., & Lignier, P. (2014). Personal taxpayer compliance costs: Recent
evidence from Australia. Austl. Tax F.. 29. 137.
Online
D10 Cost of managing tax affairs. (2015). [Online]. Available through: <
https://www.ato.gov.au/Individuals/Tax-return/2015/Tax-return/Deductio
n-questions-D1-D10/D10-Cost-of-managing-tax-affairs/>.
14

Deduction item D10 to be split. (2017). [Online]. Available through: <
http://taxandsupernewsroom.com.au/deduction-item-d10-cost-
managing-tax-affairs-split/>.
FBT and entertainment. (2017) [Online]. Available through: <
https://www.ato.gov.au/General/Fringe-benefits-tax-(FBT)/In-detail/FBT-
and-entertainment-for-small-business/?anchor=H7#H7>.
Jims, (2015). Gifts to employees, Associates and third parties. [Online].
Available through: < http://www.jimsbookkeeping.com.au/gifts-to-
employees-associates/>.
Li, J. (2016). Why are Australia’s taxes high, and what do they cover?
[Online]. Available through: https://www.quora.com/Why-are-
Australias-taxes-high-and-what-do-they-cover. [Accessed on 13th
September 2017].
The Top 5 Forgotten Tax Deductions. (2015). [Online]. Available through: <
https://www.etax.com.au/5-forgotten-tax-deductions/>. [Accessed on
13th September 2017].
15