TAXN Law Assignment: Car Fringe Benefits, Income, and Barter System

This Taxation Law assignment addresses car fringe benefits, income tax, and barter systems under Australian tax law. The assignment analyzes a scenario involving an employee receiving a car fringe benefit, determining its taxable value using the Statutory Formula Method and Operating Cost Method. It also explores the tax implications of other benefits like parking and honeymoon costs. Part B delves into income tax, distinguishing between business and hobby activities, and examining the taxability of income from activities like selling homemade marmalade and barter transactions. The document references relevant legislation, including the Fringe Benefit Tax Assessment Act 1986 and the Income Tax Assessment Act 1997, and provides a detailed analysis of each aspect of the case study, supported by relevant case law and rulings.

Running head: TAXATION LAW
Taxation Law
Name of the Student
Name of the University
Authors Note
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Table of Contents
Answer 1....................................................................................................................................2
Part B..........................................................................................................................................5
Answer 2 (a)...........................................................................................................................5
Answer 2 (b)...........................................................................................................................6
Answer 2 (c)...........................................................................................................................7
Answer 2 (d)...........................................................................................................................7
Reference List:...........................................................................................................................8

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Answer 1
Brownlee (2016) defines a fringe benefits as an additional materialistic privilege
which an employee receives along with his basic form of compensation such as his wages or
salary. The Fringe Benefit Tax Assessment Act 1986 is the primary legislation which
governs the provisions related to tax implications of fringe benefits in Australia.One of the
primary requirements in relation to the existence of a fringe benefit is that it must move from
the employer to the employee in an employment relationship. Where the requirement is
addressed the benefit would be eligible to be taxed under FBTAA provisions.
When an employee is provided a car by the employer which is additional to his wages
or salary in from of a fringe benefit it is regarded as a car fringe benefit under FBTAA
Section 7. It is stated by the legislation that when an employee uses the car which is owned
by the employee totally or is on lease for private purpose, such usage would be considered
under Car Fringe Benefit Tax. In the same way the usage of the car would be considered
under Car Fringe Benefit Tax in case the car is provided to the employee for private use even
where the employee does not put the car up for such use.
The determination of car fringe benefits taxable value is done through the application
of preexisting methods. There are mainly two methods provided under the FBTAA which
are applied for this purpose. They are the Statutory Formula Method and the Operating Cost
Method. The process of applying such methods for value determination is provided expressly
through the provisions of FBTAA (Statutory Formula Method s 9 and Operation Cost
Method s 10A and 10B). Under the provisions of section 9 the actual cost of the car is
required to evaluate the tax value and in relation to section 10A and 10B the operational cost
is required. In addition when it comes to the operating cost methods the extent to which the
car has been used in a public and private manner has to be differentiated and on the other

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hand no such distinction is required in the application of the statutory formula method.
Another difference between the applications of both the methods is that the Statutory
methods requires additional documents to be applied appropriately.
The present situation (Case facts)
The issue in relation to the situation is that a car has been provided by Shiny Homes
Pty Ltd (Employer) to Charlie (employee) in addition to his wage and salary. As per the
definition of Car fringe benefit it would be treated as a fringe benefit under FBTAA
provisions. The application of section 7 on the situation would provide an evident result that
the car has to be subjected to fringe benefits tax. The issue in relation to determining the
Taxable fringe benefit value can be resolved by the application of the two methods. Under
both the methods the statutory rate which would be applied is 20%. This rate has to be
multiplied with the car’s base value to determine the taxable value of fringe benefit. As
discussed above personal and private use of the car has to be differentiated in relation to the
calculation under the operating cost method and not under the statutory formula methods.
This has been done in the following computation
Statutory method
Operating Cost Method:

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In relation to the provisions of “section 11 (1)” the deemed depreciation is computed
by applying the statutory rate of 25%.
In relation to the provisions of “section 11 (2)” the deemed interest is computed by
applying the statutory rate of 5.65% for the year 2016/17.

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As evident from the above computation the method which provides a lower value of
taxable fringe benefits is the Statutory method. Thus this method is to be preferred over
operational cost method to derive the taxable value. In the present situation it has been given
to use that the employer had rented the car for letting the employee use it for the purpose of
his wedding. The employer also provided the honeymoon cost incurred by Charlie. These
benefits have to be taxed under the FBTAA. Provisions for parking fringe benefits are set out
by section 39A of the FBTAA which arise only when the parking of the car is done on a
place owned or hired by the employer. However the parking in this case have been separate
thus it cannot be taxed.
Part B
Answer 2 (a)
In the situation stated by the case study it has been provided that both Allan and Betty
have made a decision that they want to change tree. They have also taken a decision to sell

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off their house which is located in Melbourne and with its proceeds purchase a country house
which is located in Victoria. Therefore as this transaction would not be considered under tax
implications. Allan and Betty earn a living working as a locum doctor and a part time
accountant respectively. Therefore under the provisions of section 6-5 of the Income Tax
Assessment Act 1997 the income of Allan and Betty would be subjected to income tax
implications. In addition to these facts the case study also states that Allan as a result of his
popularity within his professional field gets food and cakes in form of a token of appreciation
within the clients. Although the fees which Allan charges is subjected to the provisions of
ITAA the cakes and food would not be liable to be taxed as the commercial value of these
products is only $35. Allan has also been gifted with a wine bottle which is valued at $360,
thus it is going to be included towards assessable income tax provisions of the ITAA.
Answer 2 (b)
Indications are provided though Taxation Ruling TR 97/11 which helps to
differentiate activities between hobbies and business activities. These indications are as
follows
 The intention of the parties is one of the primary differentiating factor between a
business activity and a hobby. Where the intent is commercial it depicts business
activity and where the intent is non-commercial it depict a hobby.
 Business activities are primarily carried out to make profit and hobbies are carried out
for personal satisfaction
 Business is constituted when the people associated with it have some form of
commercial relationship such as an employment relationship whereas in a hobby the
relationship is personal.
 A hobby generally include a low level of investment and on the other hand high
investment is required in relation to a business activity

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 A business activity has to have a registered place on the other hand a hobby can be
carried out without a place.
The case of “Cooper Books Pty Ltd vs. Commissioner of Taxation of Commonwealth of
Australia” ruled that the profit generated from a hobby is to be treated as an income of the
person.
Answer 2 (c)
The marmalade made by Betty has become famous among the neighbors. Therefore
she made a decision of opening a stall and selling the product every next Sunday. It had been
stated by the principles provided in the case of Martin v. FC of T (1953) that “no lone
activities is capable of providing exclusive evidences and contains place on top indicators”.
However in the situation of Allan and Betty the nature of the activity is recurring. Thus their
activities would be subjected to tax consequences.
Answer 2 (d)
As provided by the Australian Taxation Office (ATO) a barter system transaction is to
be subjected to tax under GST and ITAA rules. This can be stated as this system of business
is considered same as business under cash or credit transaction. According to the provisions
of Subsection 25 (1) of the ITAA the revenue generated from this business is eligible to have
tax implications. According to the provisions of “F.C. of T. v. Cooke &Sherden 1980” profit
gained form the barter system implemented by Allan and Betty is liable for GST as per GSTR
1999 and ITAA. This is evident as the income which has been generated through Barter
system is to be treated same as credit and cash transaction.

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Reference List:
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LexisNexis.
Brownlee, W.E., 2016. Federal Taxation in Australia. Cambridge University Press.
Coleman, C. and Sadiq, K. (n.d.).2013 Principles of taxation law 2013.
Feld, A., 2016. Federal Taxation of State Tax Credits.
Finkelstein, M., 2014. Cases on Federal Taxation (Book Review).
Kenny, P. 2013. Australian tax 2013. Chatswood, N.S.W.: LexisNexis Butterworths.
Morgan, A., Mortimer, C. and Pinto, D. 2013. A practical introduction to Australian taxation
law. North Ryde [N.S.W.]: CCH Australia.
Murphy, K.E. and Higgins, M., 2014. Concepts in Federal Taxation 2015. Cengage
Learning.
Nossaman, W.L. and Wyatt Jr, J.L., 2016. Income Taxation of Trusts and Estates. TRUST
ADMINISTRATION AND TAXATION, 2.
Oestreich, N. and Keane, M., 2016. ACCTG 503 Federal Taxation of Individuals.
Pope, T.R., 2016. Pearson's Federal Taxation: 2017 Comprehensive. Prentice Hall.
Pyrmont,2014 NSW Australian Taxation Law Cases. Thomson Reuters.
Schenk, D.H., 2016. Federal Taxation of S Corporations. Law Journal Press.
Willbanks, S.J., 2015. Federal taxation of wealth transfers: cases and problems. Wolters
Kluwer Law & Business.
Woellner, R. 2013. Australian taxation law 2012. North Ryde [N.S.W.]: CCH Australia.

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Woellner, R., Barkoczy, S., Murphy, S., Evans, C. and Pinto, D. 2014 (n.d.). Australian
taxation law.