Australian Tax Law and Business Activities

This assignment delves into Australian income tax law, specifically examining the tax implications of business activities and transactions conducted through a barter system. It analyzes the characteristics of Alan and Betty's marmalade-selling operation, determining if it constitutes a taxable business. The assignment further explores the legal framework surrounding barter transactions under Australian taxation laws, referencing relevant legislation like the ITAA 1936 and case precedents to illustrate how income derived from bartering is treated for tax purposes.

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

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Table of Contents
Part A:........................................................................................................................................2
Answer to question A:................................................................................................................2
Determination of fringe benefit:.................................................................................................2
Part B:.........................................................................................................................................6
Answer to question A:................................................................................................................6
Answer to question B:................................................................................................................6
Answer to question C:................................................................................................................7
Answer to question D:................................................................................................................8
Reference List:...........................................................................................................................9

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Part A:
Answer to question A:
As defined under the Fringe Benefit tax Assessment Act 1986 any kind of benefit
apart from the salaries and wages provided to the employee would be regarded as the fringe
benefit. Important criteria of Fringe Benefit tax Assessment Act 1986 is that there must be
the existence of the employee and employer relationship to make an appropriate use of fringe
benefit tax legislation (Barkoczy 2016). Given that the car is used by employee for their
personal use of the same is available for use privately even though it is not in the course of
employment will attract fringe benefit tax. Furthermore, section 7 of the Fringe Benefit Tax
Assessment Act 1986 provides the determination of the car fringe benefit.
Section 7 of the Fringe Benefit Tax Assessment Act 1986 evidently lay down that
where the employer provides car to employee for his private use, it would constitute a fringe
benefit. To determine the fringe benefit of car there are namely two methods. The process of
determining the assessable amount of car fringe benefit is laid under section 9 of the Fringe
Benefit Tax Assessment Act 1986 (Lang et al. 2015). The statutory method undertakes the
value of car in determining the fringe benefit tax. Under section 10A and 10 B of the
FBTAA 1986, the operating cost method is used in ascertaining the car fringe benefit. In
determining, the fringe benefit tax under the operating method the administrative cost
incurred in running the car should be recorded in a logbook. Importantly, the lowest amount
fringe benefit tax that is yield from using both the method should be considered.
Nevertheless, appropriate recording of expenses should be maintained under the operating
cost method.

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Determination of fringe benefit:
In the current case study, it is found that Charlie is an employer of Shiny Homes and
he is provided by his employer a car which would be considered as fringe benefit with
applicable provision of car fringe benefit tax. The car was used by Charlie for executing the
employment related work and also the private purpose. Hence the use of car by Charlie would
be considered liable for fringe benefit tax.
To assess the fringe benefit tax of Charlie both statutory method and operating cost
method is used. An applicable rate of 20% is applied under the statutory method. The
applicable rate of 20% is multiplied with the base value of car under the statutory method
(Tran‐Nam and Evans 2014). While in the operating cost method the operating cost incurred
in running the car is segregated from work and private purpose to arrive at the assessable
value of fringe benefit.
Statutory method
Operating Cost Method:

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With reference to the formula stated under section 11 (1), the deemed depreciation is
determined by employing the statutory rate of 25 per cent.
On the other hand, the provision of section 11 (2) is employed to determine the
deemed interest with statutory interest rate being 5.65% during the year 2016/17.
As evident from the above stated computation, it is evident that the taxable value of
fringe benefit tax under the statutory method is lower than the value derived under the
operating cost method. Furthermore, Charlie employer also occurred expenses for car hired
for Charlie’s wedding and honeymoon accommodation charges. These charges would be

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accounted in determining the fringe benefit tax of Charlie. In compliance with section, 39A
of the FBTAA 1986 a car parking fringe benefit tax is applicable under the circumstances
when the car is parked by the employee at the premises of the employer that is either owned
or leased by the employer (Miller and Oats 2016). However, it is noticed that Charlie parked
the car at the separate entity and because of this; Charlie would not be liable for any fringe
benefit tax.

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Part B:
Answer to question A:
The present study of Alan and Betty is associated with the determination of the
income tax consequences. It is understood from the case study that Alan and Betty derives
their income as locum doctor and part-time accountant. Alan often receives cakes and scones
from his patients and he is a well-recognized locum doctor. There was one instances where
one of Alan client bought a dog whom snake had bitten. Alan treated the dog and as a mark
of appreciation, he received a dozen of wine bottles that had the commercial worth of $360.
According to the provision laid down under, the “Section 6-5 of the Income Tax
Assessment Act 1997” an individual that earns their income from business or profession
would be held liable for taxation (Mellon 2016). The receipt of cakes and scones by Alan
does not have any market value and it would not liable for tax. However, the receipt of wine
bottles from his client with market value of $360 would be included in his assessable income
along with the fees charged by him. Hence, the bottles of wine and fees would be included in
his taxable income and will be considered for taxation purpose.
Answer to question B:
The taxation ruling “Taxation ruling of TR 97/11” is concerned with the
determination of Hobby and Business (Weisbach 2014). The ruling states that Hobby is
regarded as a recreational activity whereas business is revenue-generating activity. The ruling
guides in determining whether the activity of primary production undertaken by individual is
for profit or for leisure purpose. The below differences provide better understanding;
a. Activities such as business possess profitable intentions. Hobby involves no form of
profitable objective.

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b. A person generally has the purpose of engaging in business or commercial activity
and hobby is free from such intent of engaging in business acts.
c. Business is generally premeditated and it is carried out in for moneymaking manner
while hobby is neither planned nor it is executed in a commercial manner.
d. Business usually involves repetitive in nature while hobby is non-repetitive in nature.
Citing the judgement of court in the circumstance of “Evans v Federal Commissioner of
Taxation (1989) 20 ATR, the court has defined whether the taxpayer has indulged in business
or hobby (Baker 2014). A person engaging in activity for recreational purpose would be
considered as hobby while generating profit from such activities in a repetitive manner would
be regarded as business activities.
Answer to question C:
The instances from the study provides that Betty has started making marmalade and
the same turned out to be very famous in her neighbourhood. The “taxation ruling of TR
97/11” is associated with the determination of whether the taxpayer has indulged in the
activities of primary production (Mumford 2017). Additionally, it has been stated in “section
6 (1) of the ITAA 1997” that a person executing the activities of cultivation will be treated as
carrying the activities of primary production.
As obvious, Betty regularly set up the stall on every second Sunday of the month and
sold marmalade. Alan sold the extra amount to the suppliers regularly. The activities of Alan
and Betty constitute the characteristics of business with recurring in nature. In agreement to
the verdict made in “Martin v. Federal Commissioner of Taxation (1953)” there is no such
sole element that would provide a decisive evidence (Gunn and Luts 2015). The selling of
marmalade by Alan and Betty would be treated as business activities and will be subjected to
income tax since their activities intended to yield profit with recurring nature.

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Answer to question D:
“Subsection 25 (1) of the ITAA 1936” defines that any income that is made from the
barter system by the taxpayer would be considered for assessment and would additionally
accompany GST as well (Cao et al. 2015). Primarily, the transactions under the barter system
are treated as at par with the transactions that is made in cash or credit. Evident it is found
that Alan and Betty had set up a barter system and the amount of value that is received by
Alan and Betty in the barter system is dependent on the nature of the amounts received by the
receivers.
Citing the judgement of court in the situation of “FC of T. v. Cooke & Sherden
1980” the amount of considerations that is received under the barter system by Alan and
Betty would be considered for both tax assessment and GST consequences as well. This is
because the transactions of barter system are treated equivalent to that of cash and credit
transactions.

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Reference List:
Baker, P.L., 2014. An analysis of double taxation treaties and their effect on foreign direct
investment. International Journal of the Economics of Business, 21(3), pp.341-377.
Barkoczy, S., 2016. Foundations of Taxation Law 2016. OUP Catalogue.
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.
Gunn, A. and Luts, J., 2015. Tax Rulings, APAs and State Aid: Legal Issue. EC Tax
Review, 24(2), pp.119-125.
Lang, M., Pistone, P., Schuch, J. and Staringer, C. eds., 2015. Introduction to European tax
law on direct taxation. Linde Verlag GmbH.
Mellon, A.W., 2016. Taxation: the people’s business. Pickle Partners Publishing.
Miller, A. and Oats, L., 2016. Principles of international taxation. Bloomsbury Publishing.
Mumford, A., 2017. Taxing culture: towards a theory of tax collection law. Routledge.
Tran‐Nam, B. and Evans, C., 2014. Towards the development of a tax system complexity
index. Fiscal Studies, 35(3), pp.341-370.
Weisbach, D.A., 2014. The use of neutralities in international tax policy.