Tax Implications of Barter System

This assignment analyzes the tax liabilities arising from a barter transaction between individuals named Allan and Betty. It emphasizes that such a system, while seemingly non-monetary, is legally equivalent to cash or credit transactions and therefore attracts both income tax and Goods and Services Tax (GST) under relevant legislation like GSTR 1999. The analysis draws upon legal frameworks and taxation principles to illustrate the application of these rules in a real-world scenario.

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
Answer to requirement 1:...........................................................................................................2
Ascertainment of the Car FBT:..................................................................................................2
Answer to question 2:.................................................................................................................5
Answer to requirement A:..........................................................................................................5
Answer to requirement B:..........................................................................................................6
Answer to requirement C:..........................................................................................................7
Answer to requirement D:..........................................................................................................8
Reference List:...........................................................................................................................9

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Answer to requirement 1:
As defined in the “Subsection 136 (1) under Fringe Benefit Tax Assessment Act
1986” an employee that uses the car for his personal use and does not relates to the
employment income will constitute a personal use of the vehicle or car (Martin 2014). The
case study opens up with the situation where Charlie is the employee of Shiny Homes and
imparts his duties as the agent of real estate.
Shiny Homes on the other hand, executes the work of landscaping and as the part of
the employment Shiny Homes has provided Charlie with a car. An important consideration of
the section 7 of the FBTAA 1986 provides a that when an employee is provided with a car,
the employee would be liable to fringe benefit tax (Auerbach and Hassett 2015).
Ascertainment of the Car FBT:
The situation of Charlie describes that he was provided with car and has make use of
it for employment and private use. As depicted approximately thirty thousand kilometres
were travel for personal use with fifty thousand kilometres were used for business purpose. In
subsection 136 (1) Car usage by worker or employee will be taxable given that the employee
used the car personally (Tanzi 2014). Subsequently, “para 3 of the FBTAA 1986” puts
forward that cost that is occurred for the work purpose of the car should be mandatorily
logged in the log book as this will account for the kilometres that is travelled for work
purpose in determining the fringe benefit of the car under the operating cost method.
A statutory process can employed to obtain the FBT for car. An important legislation
that is useful in determining the taxable value of fringe benefit is “section 10A and Section
10 B of the FBTAA 1986” where operating method of costing is used (Gahvari and
Micheletto 2016). There has been relavant legislation of “Section 9 of the Miscellaneous
Taxation Ruling 2027” to know the amount of fringe benefit of car. A rate of twenty percent

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is applied getting the fringe benefit of car under statutory process. Tax is levied at a statutory
rate for the actual car value along with the total number of days used by employee. For a
taxpayer 20% of the fringe benefit tax is levied in ascertaining the value of the car under the
statutory method. The taxable value of the car fringe benefit is generated by implementing
the statutory method relating to the original value of the car provided by the employee to the
employer in regard to the number of the days in proportion to which the car was available for
personal use of car.
As understood from the case study there has been several administrative cost that is
incurred in running the car is segregated from the personal use that is made by the associate
or the employee at the time of computing the taxable amount of fringe benefit tax (Chambers
and Moreno-Ternero 2017). The below stated table is representation of the taxable value of
car fringe benefit for Charlie under the statutory method;
A demonstration of operating costing process is provided

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The table shows that assessable amount of fringe benefit is $14,700. Evidently, the
assessable amount based on statutory rate is lower than operating costing process. The
amount of fringe benefit is recommended to be considered in respect of the statutory rate and
should not account the amount in respect of operating costing process.
Demonstration of deemed interest and depreciation are as follows;

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Observation from the study shows that Shiny shouldered the responsibility of
providing Charlie with a hired car on his wedding day. A noteworthy consideration for
Charlie is that in deriving the taxable value of fringe benefit the hire charges that is paid by
the employer for Charlie will be included in the determination of the fringe benefit. Shiny
Homes even shoulder the honeymoon accommodation cost for Charlie. Consequently, such
benefit would be considered in determining the fringe benefit tax amount. It is worth
mentioning that vital aspects of car parking is described in S-39A of FBT 1986 (Haufler,
Norbäck and Persson 2014). The criteria is stated below;
a. At the time of car parking the car should be controlled by the employee
b. The car is minimally put into the use by the employee or the associate for travelling
back and forth from home and office for a minimum of once in a day (Mellon 2016).
c. The car must be parked at a certain location which is owned or leased by the
employer.
FBT computation is given which is follows;

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Taking into the considerations the concluding note of the present case study an
assertion can be bought forward by stating that Charlie would be liable for fringe benefit tax
under “FBTAA 1986”. Car was privately used by Charlie during employment course.
Answer to question 2:
Answer to requirement A:
The problem statement introduces the consequences of income tax for Alan. As
depicted from the case study Allan was the locum doctor and was very much well recognized
among his clients. When Alan cured his patients, he received home-produced cakes and
scones by his patients. Home grown foodstuff has no market worth and these component are
not accounted as taxable item.
Later, it was noticed that Allan received dozens of wine bottle from one of his client
as Allan treated his client’s dog from the snakebite. The retail value of the wine bottle in the
market is estimated to be $360. As a result of this the wine bottle will be included in the
taxable income of Allan since it has commercial value and will be considered in the
computation of the assessable income (Apps, Long and Rees 2014).
Answer to requirement B:
According to the “taxation ruling of TR 97/11” it helps in determining whether the
taxpayer is carrying on the business of the primary producer under “ITAA 1997” (Cohen,
Fedele and Panteghini 2016). The ruling serves as the guide in providing that whether an
individual is carrying on the business of the primary production. There are certain elements
that should be accounted in determining whether the person is indulgent in business or hobby;
a. If the person has more than just the objective of engaging in the business while hobby
hardly possess the intentions of engaging in business.

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b. A business holds the significant commercial activity whereas the hobby does not has
any form of significant business activity
c. A business being carried on with the intention of making profit from the activity
whereas in hobby there is no such intention of making profit
d. Whether the business activity is carried on in the identical manner in respect of the
trade while hobby is carried on in the form of ad hoc manner (Peiros & Smyth, 2017).
e. A business activity is generally organized and it is carried on in the business-like
manner while hobby is not organized or executed in the normal business manner.
According to “FCT v Evans v (1989” decision made states that regards must be paid in
deciding nature of activity namely the business and hobby. (Snape and De Souza 2016). The
sum of revenue or income generated from the hobby cannot be regarded as the income.
Consequently, the profit generated from such hobby would be considered as executing the
activity of business.
Answer to requirement C:
Evidently “section 6 (1) of the ITAA 1997” is related to farming on land. For that
reason, the “taxation ruling TR 97/11” ascertains if an individual is executing trading or
primary production activity (Saad 2014). The court of law indicated that performing the trade
of primary production, the law court has stated whether the activity is well regarded as hobby
or any recreational activity. The case study depicts the situation that Betty has started making
marmalade which turned out to be widespread in her neighbours. A decision of opening stall
was made on every Sunday. Allan sold the excess amount to the supplier regularly.
The activities engaged in by Allan and Betty is having the characteristics of business
which is repetitive in nature. As held in the case of “Martin v. Federal Commissioner of
Taxation (1953)” the law court have placed emphasis that no single reflector could provide a

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conclusive evidence and constantly involved overlapping indicators (Stewart, 2017). The
intention of profit was existing in the activities performed by Allan and Betty since their
activities accompanied business character. Conclusively Allan and Betty activities were of
business in nature and they will be liable for income tax.
Answer to requirement D:
There is a ruling relating to tax of “IT 2668” where transaction of barter system is
taxable as GST relating to cash and credit. Additionally, “Subsection 25 (1) of the ITAA
1936” lay down that revenue derived by an individual through barter system would be liable
for income tax. In the present case study of Allan and Betty the extent to which the nature of
the value received by them is dependent on the nature of the considerations in the recipient’s
hands (Jones, 2017).
The judgement of court in “F.C. of T. v. Cooke & Sherden 80 ATC 4140; 10 ATR
696” the considerations that is received as money by the Allan and Betty will attract tax
liability and it will additionally be liable for GST as well under the GSTR 1999 (Lang 2014).
The barter system that is set up by the Allan and Betty is considered equivalent to the cash or
credit and as a result of this it would attract tax liability.

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Reference List:
Apps, P., Long, N. and Rees, R., 2014. Optimal piecewise linear income taxation. Journal of
Public Economic Theory, 16(4), pp.523-545.
Auerbach, A.J. and Hassett, K., 2015. Capital taxation in the twenty-first century. The
American Economic Review, 105(5), pp.38-42.
Chambers, C.P. and Moreno-Ternero, J.D., 2017. Taxation and poverty. Social Choice and
Welfare, 48(1), pp.153-175.
Cohen, F., Fedele, A. and Panteghini, P.M., 2016. Corporate taxation and financial strategies
under asymmetric information. Economia Politica, 33(1), pp.9-34.
Gahvari, F. and Micheletto, L., 2016. Capital income taxation and the Atkinson–Stiglitz
theorem. Economics Letters, 147, pp.86-89.
Gevorkyan, A., Flaherty, M., Heine, D., Mazzucato, M., Radpour, S. and Semmler, W., 2016.
Financing Climate Policies through Carbon Taxation and Climate Bonds–Theory and
Empirics.
Haufler, A., Norbäck, P.J. and Persson, L., 2014. Entrepreneurial innovations and
taxation. Journal of Public Economics, 113, pp.13-31.
Jones, D., (2017). Tax and accounting income-Worlds apart?. Taxation in Australia, 52(1),
p.14.
Lang, M., 2014. Introduction to the law of double taxation conventions. Linde Verlag GmbH.
Martin, L. 2014. Taxation, loss aversion, and accountability: theory and experimental
evidence for taxation’s effect on citizen behavior. Unpublished paper, Yale
University, New Haven, CT.

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Mellon, A.W., 2016. Taxation: the people’s business. Pickle Partners Publishing.
Peiros, K., & Smyth, C. (2017). Successful succession: Tax treatment of executor's
commission. Taxation in Australia, 51(7), 394.
Saad, N., 2014. Tax knowledge, tax complexity and tax compliance: Taxpayers’
view. Procedia-Social and Behavioral Sciences, 109, pp.1069-1075.
Snape, J. and De Souza, J., 2016. Environmental taxation law: policy, contexts and practice.
Routledge.
Stewart, M. (2017). Australia’s Hybrid International Tax System: Limited Focus on Tax and
Development. In Taxation and Development-A Comparative Study (pp. 17-41).
Springer, Cham.
Tanzi, V., 2014. Inflation, indexation and interest income taxation. PSL Quarterly
Review, 29(116).