Taxation Theory, Practice & Law: A Comprehensive Analysis

Desklib provides past papers and solved assignments for students. This report covers Australian income tax and FBT.

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Assignment Title: Taxation Theory, Practice & Law
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Table of Contents
Introduction:...............................................................................................................................3
Question 1:.................................................................................................................................4
Question 2:.................................................................................................................................8
Conclusion:..............................................................................................................................11
References:...............................................................................................................................12
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Introduction:
For each business individuals and the entity, payment and valuation of the appropriate tax
obligation are very important. The government of Australia has issued the number of
protocols for tax valuation for evaluating the tax obligations present on various incomes
earned by the individuals or business. This report will explain the rules of income tax
valuation and will assist in understanding the way how the tax duties of different partnership
firm and the individual can be appropriately measured. Benefits like fringe benefit etc. will be
explained briefly in the report and various practical statistics based on the FBT obligations
will also be explained.
3

Question 1:
Partnership firm:
It is a structure of business organizations in which two or more people come together with
mutual understanding to complete the object of earning and sharing the incomes. Case
provided in a given assessment is related to an assessment of income that is earned by a
partnership firm for the business operations (Legislation., 2019). In given condition, Olivia
and Daniel are operating a partnership business and earning good profits. According to the
Australian regulations, a partnership firm can be established without any registration process
or written agreement but income generated by such a firm will be taxable in the account of
partners.
According to the income tax assessment regulations of the Australian government, income
earned by a partnership firm will be taxable and partners will be liable to ensure the proper
payment of income tax duties. Firms that are established under partnership do not have
separate legal entity so tax on the income will be paid by the partners (Legislation., 2019). It
is a considerable fact that situation provided in assessment is not delivering any detail about
the registration status of firm and profit sharing ratio of partners so it is supposed that profit
will be shared in the ratio of 1:1. Loss from the operations of partnership firm can be adjusted
from the current year proceeds but the presumption is only claimable if the income of the
firm annoyed the specified limited of $ 20000. Amount withdraws by the partners from the
firm for personal utilization falls under the class of drawings which is required to be deducted
from the capital part of partners. This amount is not allowed as a deduction from business
expenses so the subtraction of $ 6000 will be not allowed during the appraisal of income tax
duty of Olivia and Daniel’s partnership firm.
Calculation of net income:
Particulars $ Amount
Sales 1,50,17
0
Less:
Car expenses 2,36
4
4

Interest component 5,50
0
Account charges 59
5
Depreciation expenses 20,67
9
Union cost 28
4
Repair expenses 1,49
0
Mobile bills 63
4
Council rates 31
0
Electricity bill 1,17
6
Business insurance 1,25
0
34,28
2
Net Profit 1,15,88
8
Calculations are concluding that net income of $ 115888 has been earned by the partnership
firm during the year. This profit will be circulated among olive and Daniel equally. As the
firm is not registered under Australian business regulations, the tax will be paid by the
partners. In a given case, partners are sharing profits equally so each partner will be
accountable to pay tax duties on the profit of $ 57944 approx. And the obligation of tax will
be $ 10378.8. Under the GST regulations of the Australian government, each firm which is
crossing the turnover of $ 75000 is responsible to take the registration to obtain ABN
number. As sales of O & D’s firm are crossing the specified limited of $ 75000, so listing
below GST regulation is required.
Working documents that are prepared for the assessment of tax:
5

Stock statement:
Particulars Amount
Opening stock 9,120.0
(+): Amount of purchase
Purchase in cash
31,155.
0
Purchase in Credit
1,29,188.
0
1,60,343.
0
Less:
Partners Drawings
3,200.
0
Closing stock
9,750.
0
12,950.
0
COGS 1,56,513.0
Creditor Account:
Particulars Amount Particulars Amoun
t
Cash
payment 128678 Opening
balance 6500
Closing
balance 7010 Credit Buying
(B/F) 129188
Total 135688 Total 135688
Debtors Account:
Particulars Amount Particulars Amoun
t
Opening
balance 3925 Cash realized 32800
Credit sales
(B/F) 31885 Closing
balance 3010
6

Total 35810 Total 35810
Allowed Car expenses:
Particulars SUV Van Total
Expenses 2050 1260 3310
% to related with
business 60% 90%
Allowed expenses 1230 1134 2364
Deprecation statement:
Restaurant
refrigeration
Kitchen
appliances
Restaurant
freezer Car - SUV Restaurant
refrigeration
Car –
Van Total
3580 754 1480 10350 2965 1550 20679
Allowed business expenses:
Particulars Mobile bills Council
rates
Electricity
bill
Actual cost 704 517 1470
% to related with
business 90% 60% 80%
Allowed costs 634 310 1176
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Question 2:
(FBT) Fringe benefits taxes:
For maintaining the relationship among the employee and employer, numerous benefits other
than a monetary benefit is also given to the employees by the company and they are
acknowledged as the Fringe benefits. It is necessary for the employer to pay the tax on the
provided fringe benefits, as the business administrators give numerous benefits to the
employees like a house, loan, car etc. and as per the Australian government, every benefit
given is taxable according to distinct principles. FBT is not taken into consideration at the
time of evaluation of the employee’s tax duties, as the employer’s need to pay this tax.
In this case, scenario john is the employee of the company and is given two distinct monetary
advantages extra than remuneration. Therefore, these advantages will be considered as the
fringe benefits and the tax for the same needs to be compensated by the john employer.
Accommodation:
Free house or house at concessional rate can be provided by an employer to his employee to
support the living standard of employee and maintain good relations with human resources.
Providing free house or house at concessional rent falls in the division of fringe benefit and
the same is taxable in the account of the employer (Iknow, 2019). According to the given
assessment, employer of John provided a house to John and he is liable to pay rent of $ 100
per week for such a house. The market rental fee of such house is 800 per week but John is
liable to pay only $ 100 as rent for each week. Here, Regulations of FBT Act 1986 will be
applicable which states that only amount of benefit which is ultimately distributed to the
employee will be considerable for the evaluation of employer’s tax obligation so tax
obligation will be as below:
Essentials $ Amount
Amount paid by employee 100
Market rental fees per week 800
Net profit to employee per week 700
Weeks in year 52
FBT from house 36400
8

School fees:
Payment to the third party on the behalf of employee or reimbursement of expenses to the
employee is taxable on the account of the employer because it falls under the head of
expenditure-payment FBT. If the employer is paying any amount to any person to satisfy the
obligation of the employee, it will taxable under the policy of FBT Act 1986 and employer
will be accountable to reimburse tax duty on the same (Commbank., 2018). Here, employer
of John is paying $ 15000 to satisfy the obligation of school-fees payment of John’s child so
the whole amount of $ 15000 will be taxable under FBT rules.
*** Thus, both amount of $ 15000 which is paid for school fees as well as the amount of
house rent $ 36400 will be taxable under FBT Act 1986 and tax will be paid by john’s
employer.
Taxable value:
(36400 + 15000) * 47% = 51400
9

Conclusion:
Huge complexity is found in the process of tax duty assessment process due to the existence
of diversified regulations in the income-tax framework of Australia. If the correct amount of
tax is not paid by an entity or individual, it attracts problematic situations for the whole
organization. This statement is based on the tax handling policies and providing an evocative
view about different tax assessment issues. For instance, income tax is required to be paid by
each organization and this report is elucidating knowledge about a different section of the
income tax Act 1997 that is applicable in Australia. The report is also elucidating information
about FBT regulations Act 1986 and, finishing that how and why FBT is taxable in the hands
of the employer.
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References:
1. ATO. (2019). Fringe benefits tax (FBT). Retrieved from
https://www.ato.gov.au/General/fringe-benefits-tax-(fbt)/
2. Commbank. (2018). What is fringe benefits tax (FBT)?. Retrieved from
https://www.commbank.com.au/guidance/consumer-finance/60-second-guide-to-fringe-
benefits-tax-201606.html
3. Iknow. (2019). CCH iKnow | Australian Tax & Accounting. Retrieved from
https://iknow.cch.com.au/topic/tlp226/overview/expense-payment-benefits
4. Legislation. (2019). Fringe Benefits Tax Assessment Regulations 2018. Retrieved from
https://www.legislation.gov.au/Details/F2018L01284
5. Legislation. (2019). Income Tax Assessment Act 1997. Retrieved from
https://www.legislation.gov.au/Details/C2017C00282
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