TAXATION: University Assignment on Fringe Benefits and Income Tax

This assignment solution addresses key aspects of Australian taxation law, focusing on fringe benefits tax (FBT) and income tax. It begins by defining fringe benefits and explaining the FBT assessment, including the statutory formula and operating cost methods for calculating taxable value. The solution then applies these concepts to a case study involving a car fringe benefit, detailing the calculation of FBT using both methods and considering additional benefits like wedding car hire and accommodation. The second part of the assignment explores income tax implications for individuals and businesses. It examines the tax treatment of income earned by a locum doctor and a part-time accountant, including the valuation of non-cash benefits like food and wine. Furthermore, the solution delves into the criteria for determining whether an activity constitutes a business, as opposed to a hobby, and analyzes the tax consequences of a gardening business and barter transactions. The assignment concludes by applying relevant tax rulings and legislation to provide a comprehensive understanding of the subject matter.

Running head: TAXATION
Taxation
Name of the Student:
Name of the University:
Authors Note:

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Table of Contents
Answer 1..........................................................................................................................................2
Answer 2..........................................................................................................................................7
A...................................................................................................................................................7
B...................................................................................................................................................8
C...................................................................................................................................................9
D...................................................................................................................................................9
References:....................................................................................................................................10

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Answer 1
As stated by the rules the Fringe Benefit tax Assessment Act 1986 fringe benefits are those
benefits which the employer pays to the employees other than actual wages and salary. The
provisions in relation to fringe benefits would only be applicable when it can be established that
the relationship between the provided and receiver is that of an employer and employee. Only
when the relationship has been established the rules provided through the FBTA in relation to
tax liability of both employer and employee towards such benefits can be availed.
The rules and regulations of determining a car fringe benefit are stated via the fringe benefit
legislation specifically section 7. In this section it is ruled that whether the car is deployed for
making personal use by the employee of a person in relation with the employee is not relevant.
The only mandatory requirements is that the car has been given to the employee to make
personal use by the employee or any one in relation.
There are two ways which may be deployed to calculate the FBT of a car. One of the way is
Statutory way and the other way is operating cost way. The consideration of cost and operating
cost is done respectively by the processes to calculate the FBT. The FBT should be determined
through the use of the method through which the lowest taxable value is provided. However it
has to be considered that for the purpose of using operating cost method a person should always
maintain all relevant documents.
Case study situation

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In the Case study situation , it is provided that a sedan (the car for which the fringe benefits tax is
required) has been provided to Charlie by Shiny Homes Pty Ltd. It is visible via the facts that the
car in the given situation had been given to make private use (wedding) and it has been actually
used for private purpose by Charlie alongside employment purposes. Therefore it can be stated
that the car which have been allocated to Charlie by his employer is eligible to be assessed under
fringe benefits taxes.
As discussed above either the statutory formula method or the operating cost method can
be used for the purpose of calculating the taxable value in relation to fringe car benefits. In
relation to the statutory formula method the calculation of taxable value of car fringe benefits is
done through the use of 20 percent statutory rate (Braverman et al. 2015). In the budget of 2011,
20% have been affixed as the statutory rate in relation to all kind of cars. Thus for the purpose of
finding out the taxable value of fringe benefits the 20% statutory rate is multiplied by the car’s
base value. The extent to which the car has been used in a private manner by the employee is not
considered for the purpose of finding out taxable value of fringe benefits with respect to the
statutory formula method. In relation to the operating cost method proportionate segregation of
the total operational cost is done under the category of private purpose and work purpose to find
out the taxable value of fringe benefits.
Statutory method

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Operating cost Method
Calculation of FBT

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The deemed depreciation is calculated through the use of the formula as provided by section
11(1) of the FBTA using the statutory rate of 25%.
The deemed interest is calculated is using the formula provided under section 11(2). The
statutory interest rate is 5.65% for the year 2016/17.

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It is able to been seen from the done calculation that TVFB in relation to the car is lower through
the use of SFM, the method will be used to determine the TVFB of the car. Moreover the car had
been hired by the employer for the purpose of a wedding and thus this charge should also be
included in TVFB (Woellner et al. 2016). The accommodation for the purpose of honeymoon
which has been provided by the employer is also to be considered as a fringe benefit and has to
be incorporated into TVFB. As per the provisions of section 39 of the FBTA fringe benefits in
relation to car parking only arises in case the car is parked in a pace which is owned or leased by
the employer. However this is not so in the given case as personal parking has been used
.
Answer 2
A
As Betty and Allan have agreed in relation to changing the tree, the acquisition of a large
country house located in Central Victoria and the sale of their Melbourne house will not be liable
to be subjected to any tax consequences. The income earned by Allan and Betty as a locum
doctor and part time accountant respectively is to fall under income tax with respect to the
provisions provided under the Income Tax Assessment Act 1997 (Nijland and Dijst 2015). It has
been provided in this case study that the popularity of Allan towards is clients who are old is
high and therefore he is able to get many cakes as well as food which is homemade in form of a
token of appreciation from the clients alongside the fee charged by him for his professional
services. However, as such products fall under the category of non-commercial product having a
certain value in market which is precisely $36, the food and cakes are not eligible to be subjected
to any additional taxes for Allan. However the wine which has been given to Allan is going to be

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subjected to Tax consequences as the amount is supposed to be added to his income which is in
addition going to be used for the purpose of determining Allan’s tax liability with respect to the
provisions of TAA.
B
Certain indicators are contained in The Taxation Ruling TR 97/11 which are used to find out the
engagement of a person in business (Pearce. and Hodgson 2015). Thus through the use of the
ruling a clear difference between business and other activities can be determined as provided
below:
1. The need for which the activity is carried out is important to analyzing if it is a business
or any other activity. The activity is to be considered as a business if it has a commercial
purpose.
2. The activity would be deemed as a business of its objective is to make profit
3. In case the relationship of employee and employer exist I the activity it is automatically a
business
4. The amount of investment made in relation to the activity is also used to determine its
nature
5. A business activity mandatorily requires a premises whereas other activities do not
The criteria for the purpose of differentiating between other activities and business have been
specifically discussed in the case of Cooper Books Pty Ltd vs. Commissioner of Taxation of
Commonwealth of Australia.

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C
In the situation where any other activity of a client takes the form of a business for the purpose of
making profits than it results in income tax consequences for the activity (Kimet al. 2015). In the
given situation Allan and Betty’s hobby of gardening has taken the form of business activity.
This is because they are able to gain $500-600 every month through sale. In addition under the
ITAA the barter system introduced by Betty and Allan is also to be assessed.
D
In case Barter transactions within the country have the same nature as business
transaction they would be subjected to the rules off GST and ITAA. Therefore any business
transaction in from of the barter system is to be treated in the same way as any other credit of
cash transaction with respect to computation of income tax under the rules of GST and ITAA.
Thus in the given situation the system which has been set up by Betty and Allan in the area
would be treated in the same way as credit or cash dealings for GST and income tax purpose.

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References:
Barkoczy, S., 2017. Core Tax Legislation and Study Guide. OUP Catalogue.
Gale, W.G. and Samwick, A.A., 2014. Effects of income tax changes on economic growth.
Kim, P.H., Longest, K.C. and Lippmann, S., 2015. The tortoise versus the hare: Progress and
business viability differences between conventional and leisure-based founders. Journal of
Business Venturing, 30(2), pp.185-204.
Nijland, L. and Dijst, M., 2015. Commuting-related fringe benefits in the Netherlands:
Interrelationships and company, employee and location characteristics. Transportation Research
Part A: Policy and Practice, 77, pp.358-371.
Pearce, P. and Hodgson, H., 2015. Promoting smart travel through tax policy. The Tax Specialist, 19,
pp.2-8.
Pearce, P. and Pinto, D., 2015. An evaluation of the case for a congestion tax in Australia. The Tax
Specialist, 18(4), pp.146-153.
Tang, R. and Wan, J., 2015. Fringe benefits tax and fly-in fly-out arrangements: John Holland Group Pty
Ltd v Commissioner of Taxation. Australian Resources and Energy Law Journal, 34(1), p.17.
Woellner, R., Barkoczy, S., Murphy, S., Evans, C. and Pinto, D., 2016. Australian Taxation Law
2016. OUP Catalogue.

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