Taxation Law Case Study Analysis

This case study delves into the intricacies of fringe benefit tax calculation and implications on provided benefits. It also explores the taxation of different types of income and activities, providing a comprehensive analysis of tax laws and regulations.

HI 6028- Taxation Law
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Contents
Question 1.......................................................................................................................................3
Question 2.......................................................................................................................................8
References.....................................................................................................................................12
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Question 1
Shiny homes have been providing a benefit associated with car to Charlie and also offering the
benefit of an automobile parking. It needs to be noted that the same has a liability associated with
fringe benefit tax payment on the mentioned benefits. The organization has been incurring
various running and repairs cost for the car utilized by Charlie. There are a number of tax
implications on the provided set of purchases. The ATO offers a number of strategies by which
the tax legal responsibility of these benefits can be calculated (Australian Government, 2018).
The fringe advantage tax is actually imposed around the employers, and it is assessed from the
Fringe benefit tax assessment act, 1986. The particular FBT covers a number of benefits
provided by the actual employers for their employees. In total, there are thirteen fringe
advantages on which different calculations are applied for the particular taxation. Inside
reference to the evaluation year that runs from June to May, the Fringe benefit taxes year is
actually calculated from the 1st of April to the 31st associated with March. The actual FBT Rate
for the year 2015-16 is actually 49%. The rate regarding tax is applied on the Fringe Benefit after
tax amount for the corresponding year of duty (Australian Government, 2018).
There exists a requirement of every quarter payment from the FBT amount and the same has to
be reported in the activity assertions. The amount compensated as FBT is deductible for that
employers beneath section 8-1 of the Income Tax Assessment Act, 1997. It is crucial to
remember about the occurrence of the FBT. It arises when an employer or even an associate
associated with employer provides a benefit to the worker and the associate of an employee, in
respect from the employment from the employee.
Step Description
1 Calculation associated with Taxable Worth of
each perimeter of fringe benefit from the
given formulae recommended by the ATO
2 Bifurcating the benefits directly into GST
Creditable Advantages (Type 1) and other
Benefits (Type 2)
3 Grossing the value of benefits to get the
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major amount of rewards. The grossing value
is done through multiplying the type 1
rewards by 2.1463 and the type 2 advantages
by 1.9608
4 Including the employer’s overall non-exempt
amount.
The formula is presented below for calculating the fringe benefits:
= [0.20 * 70000 * (198/213)] - 0
= $13014.08
The Operating Cost Basis
Taxable Value = (C*(100%-BP))-R
Where,
C = Operating cost of car, with Interest and Depreciation
BP = Business Percentage
R = Recipient’s Payment
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Operating Cost of Car
Particulars Amount (in $)
Petrol and Oil Per Month 13000
Repairs and Maintenance per
month
22750
Registration 240
Insurance 960
Cost of Car 1000
Total 37950
Taxable Value = (37950*(100%-70%))-0
= $11385
The value to be taken here will be $11385 as the same represents the lower value between the
two amounts obtained. The benefits will include the home allowance of $3000 also. The taxable
value of the fringe benefits will be taxable (Australian Government, 2018).
The benefit of parking given will be chargeable to tax only if following conditions are fulfilled:
 There is a commercial parking centre within one kilometre radius of the primary place of
business from the employer.
 The car is sitting for more than 4 hours
 The automobile is available to be used by the employee and it has already been provided
by the employer.
 The car can be used to go home at least once inside a whole evening.
 The car will be parked close to the primary place of employment (Administrative Appeals
Tribunal of Australia v Perth City Council).
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All the conditions are met by the benefit presented to Charlie. Hence, the benefit of parking is
going to be available to him in the present case.
There are few methods of figuring out the duty benefit provided as follows:
Methods
Commercial car parking station method
Market Value Method
Average Cost Method
Statutory Formula Method
12 Week Register Method
The first 3 techniques will calculate the same outcomes as the closest radius has only one parking
space made available to the workers. The Twelve week register method will demand the
employer to keep detailed information of information per the ATO (Authorities, 2018). This will
not be feasible by the employer as it will involve an in depth recording of the transactions.
Taxed Value of parking benefit: No. of Months * each week Charge
: 26*200
: $5200
The actual taxable price of car parking will probably be $5200 (c’)
The total taxed value of fringe benefit is calculated below:
Complete Taxable Price of Fringe Rewards = a + b + c
= $11385 + $3000 + $5200
= $19585
All the items are assumed to be type 2 amounts without GST credits.
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Grossed Up Value = $19585 * 1.9608
= $38402
Fringe Advantage Tax= $38402 * FBT Rate
= $38402 * 49%
= $18817
The amount of benefit shall be reportable in the activity statements filed by the concerned
employer. The value of taxable advantage will also be reported in the assertions filed simply by
Charlie. The amount of the actual taxable gain shall be reported by Charlie to the ATO.
However, the amount will not be taxed to Charlie and it will end up being exempt from the
payment regarding Tax (Australian Government, 2018).
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Question 2
Part a
Any income in Australia is considered chargeable if it is one of the either types of income.
Ordinary earnings and legal income are usually chargeable to tax. Normal incomes are the ones
which are acquired in the general nature of income. Statutory earnings are those which may have
to be particularly included in the revenue based on the legislations formed through the ATO
(Australian Government, 2018). To test whether certain amount is an income, it shall be tested
based on its quality in the hands of the actual recipient, rather than on the basis of the
characteristic of expenditure by the payer. This kind of fact was established in the case of
McNeil.
Further, the relevant information include the recurrence, regularity as well as periodicity of the
sum (Keily), continuing requirement of invoice (Blake), profit-seeking objective (Myer Center
Limited)
If we consider the significance of taxes it seems that the total amount shall be taxed as there is
business aspect involved and an objective to earn profit. The expectancy of invoice and
repetition of the amount cannot be established. Thus, the particular legislations need to be further
evaluated to check whether the amount is actually taxable or otherwise not.
Further, Section 21 and Section 21A of the Income Tax Assessment Act, 1936 shows that the
amount acquired as a non-cash benefit is chargeable to tax. The money worth of the benefit will
probably be deemed to be the taxable worth for the individuals.
In the given case, Joe received a dozen wine bottles for the treatment of winemaker’s dog. The
wine bottles stood at a retail value of $360. The acts states that gain up to $300 will be tax
exempt (Federal government, 2018). However, considering that the value of wine bottles is more
than the specified restrict, it will be contained in the taxable income of Alan (Australian
Government, 2018).
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Part b
There has to be an obvious distinction between an interest and a business while thinking about
the tax implications of the activities carried on through the tax payer. If the activity is carried out
as a hobby, then it will never be taxed. Nonetheless, an activity carried out as a part of business
operations with a motive of earning income will be taxable in the hands of the actual taxpayer as
a possible ordinary income. The court ruled in the case of Martin vs. Federal Commissioner of
Taxation that the length of betting for that motive regarding profit has been considered as an
activity with income motive. It was thereby considered as a business and taxed appropriately. In
the case of Babka vs. Federal Commissioner of Taxation it was kept that the exact same set of
routines could not be termed as a business as they were missing the inherent characteristics of the
business which involved profit and other related aspects associated with the business just like
having a bet. The case associated with Brajkovich v. Federal Commissioner of Taxation
additionally held there would be an unusual circumstance where the betting and also gambling
will probably be considered as a business (Australian Government, 2018). This could also keep
where the amount received is big enough for the tax payer. It can be ascertained in the facts from
the cases in which even when the sum attracted is large, there should be an obvious and
recognized set of activities which comprise a business. In the event the facts with the situation
vary from the information that meant tax payer will be carrying on a business, then the profits
cannot be taxed unless there is a specific provision provided for the same.
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Part c
The part 2 of the question provides the scenario that Alan together with Betty have been
receiving amount in the popular stall they have positioned in the market region. It is plainly
stated that the objective of the activity is to fulfil a hobby. There is no formal set of arrangements
where there is an organisation and activities are carrying out in an organised manner. Even if the
amount is received as a great amount, it does not establish that Mike and Gloria are continuing a
business. It has been proven in the previously mentioned explained situation laws. However, if
later on the activities develop and there is a regular and recurring income which can be related
with an organised group of activities, the stall will probably be considered as a business and it
will be taxed accordingly. The size of procedure does not matter regarding establishing a
business exists (Australian Government, 2018).
In Barter System, it will be considered as a business and the $50 sum received from each and
every participant will probably be considered as a taxable receipt. The aggregate amount
acquired in a monetary year is going to be taken as a profit from the business enterprise and any
approaching expenditure is going to be allowed to be deducted from the incomes. Alan and also
Betty would have to maintain specific records as reported by the ATO and they must file tax
statements accordingly. Tax regulations do not distinguish between barter transactions for your
applicability of provisions.
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Part d
The income tax will not distinguish between any kinds of forms of cash transactions along with a
barter deal which is taken equally after tax as a money transaction. There's a provision associated
with arm’s length value which must be followed while getting into barter dealings. The turnover
of barter transactions must be included with regard to calculation regarding GST along with
other income tax procedures. As per the ATO, there is a specific provision for computation of
value of barter transactions. The individuals have to make sure that they are making detailed data
while stepping into transactions on the barter system. If the arm’s length price of a purchase is
calculated and it exceeds the prescribed price by the legislations, the actual tax procedures will
be relevant on the dealings. The individuals cannot concede that the transactions are not liable to
tax implications. They would have to file in depth activity claims and deal with the purchases
similar to money transactions (Australian Government, 2018).
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References
 Australian Government, 2018. Business or hobby?. [online] Business.gov.au. Available
at: https://www.business.gov.au/info/plan-and-start/a-business-or-a-hobby [Accessed 20
Jan. 2018].
 Australian Government, 2018. Car fringe benefits. [online] Ato.gov.au. Available at:
https://www.ato.gov.au/general/fringe-benefits-tax-(fbt)/types-of-fringe-benefits/car-
fringe-benefits/ [Accessed 20 Jan. 2018].
 Australian Government, 2018. How to calculate your FBT. [online] Ato.gov.au.
Available at: https://www.ato.gov.au/general/fringe-benefits-tax-(fbt)/how-to-calculate-
your-fbt/ [Accessed 20 Jan. 2018].
 Australian Government, 2018. Legal Database. [online] Ato.gov.au. Available at:
https://www.ato.gov.au/law/view/document?DocID=SAV/FBTGEMP/00017&PiT=9999
1231235958/ [Accessed 20 Jan. 2018].
 Australian Government, 2018. Legal Database. [online] Ato.gov.au. Available at:
https://www.ato.gov.au/law/view/document?find=%22CDS10095%22&docid=ato/
cds10095 [Accessed 20 Jan. 2018].
 Australian Government, 2018. Reducing your FBT liability. [online] Ato.gov.au.
Available at: https://www.ato.gov.au/General/fringe-benefits-tax-(fbt)/do-you-need-to-
pay-fbt-/reducing-your-fbt-liability/ [Accessed 20 Jan. 2018].
 Australian Government, 2018. Working out the taxable value of a car fringe benefit.
[online] Ato. Available at: Government, A. 2018. Car fringe benefits. [online]
Ato.gov.au. Available at: https://www.ato.gov.au/general/fringe-benefits-tax-(fbt)/types-
of-fringe-benefits/car-fringe-benefits/ [Accessed 20 Jan. 2018]. [Accessed 16 Jan. 2018].
 Tax, F, 2018. Car Parking FBT. [online] Atotaxrates.info. Available at:
https://atotaxrates.info/businesses/fringe-benefits-tax/car-parking-fbt/ [Accessed 20 Jan.
2018].
 Administrative Appeals Tribunal of Australia v Perth City Council, (1995). [CASE
26/95]. 95 ATC 275.
 Babka v. Federal Commissioner of Taxation, (1989). 89 ATC 4963.
 Brajkovich v. Federal Commissioner of Taxation, (1989). 89 ATC 5227
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