Taxation Law Assignment: Fringe Benefits, Income Tax, and Barter

This taxation law assignment provides a comprehensive analysis of fringe benefits, income tax, and barter systems within the context of Australian taxation law. It addresses the tax implications of fringe benefits, including car fringe benefits, detailing the statutory formula and operating cost methods...Read More

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

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Table of Contents
Question 1..................................................................................................................................2
Issue........................................................................................................................................2
Rule........................................................................................................................................2
Application of relevant law....................................................................................................3
Conclusion..............................................................................................................................5
Question 2..................................................................................................................................6
Answer 1................................................................................................................................6
Answer 2................................................................................................................................6
Answer 3................................................................................................................................7
Answer 4................................................................................................................................7
References..................................................................................................................................8

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Question 1
Issue
Advising Shiny Pty Ltd and Charlie in relation to tax implications towards fringe
benefits.
Rule
Fringe benefits have been defined by Brownlee (2016) as an added advantage given
by the employer which comes along with the money wage and salary gained by the
employees as the compensation for their services. A few typical examples of a fringe benefit
are a car provided to the employee or additional health care cost of the employee borne by the
employer. A fringe benefit tax results out of a fringe benefit. This tax is calculated separate to
income tax for a period of 1st April to 31st March. The provisions of the Fringe benefits Tax
assessment Act 1986 provide rules to determine the Taxable value of fringe benefits.
Any benefit which is additional to the basic salary of the employee provided by the
employer is to be considered as a fringe benefit as also discussed by the judge in the case of
John Holland Group Pty Ltd &Anor v. Commissioner of Taxation [2015] FCAFC 82.
The FBTAA through sub-section 7(1) set out provisions towards a car fringe benefit.
According to the section a car is considered as fringe benefit if it is given by the employer
and is held by the employee for a private use purpose or if the purpose for which the car has
been given is a private use purpose. It is irrelevant whether the car is put to private use by the
employee or any person associated with them (Morgan Mortimer and Pinto 2013).
The FBTAA through section 9 sets out provisions for calculating the taxable value of
fringe benefit of the car by a process which is called statutory formula method. Under this
process the car’s cost is required for the calculation. No consideration is provided under the
process to the public or private use of the car by the employee or his associates.

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The FBTAA through sub-section 10A and 10B sets out provisions for calculating the
taxable value of fringe benefit of the car under a process called the operating cost method.
The car’s operating cost is required for calculation of tax under this process. Contrary to the
statutory method the private and public use of the car is separately considered for calculation
under this method (Oestreich and Keane 2016).
The statutory rate is used for the purpose of multiplication with the cost of the car to
derive the fringe benefit tax. The present statutory rate subsequent to the budget of 2011 for
all cars is 20%.
The FBTAA through subsection 11(1) states that to calculate the deemed depreciation
a rate of 25% needs to be applied. Subsection 11(2) states that to calculate the deemed
interest a statutory rate of 5.65% need to be applied. The methods yielding the lower value is
used for the purpose of tax computation (Finkelstein 2014).
Application of relevant law
In the given situation it has been stated that Charlie works as an employee of shiny
homes Pty Ltd. The employer provided the employee with 4 wheel drive sedan valued at
$70,000 on 1st September. This means that the car is a fringe benefit. Thus the computation
of fringe benefit tax is to be done under statutory and operating cost method.
Statutory method

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Operating Cost Method
Depreciation- Section 11(1)

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Interest- Section (11) (2)
It can been seen in the situation that the formula which provides a lower value of
fringe benefit tax is the statutory formula and as per the above discussed legal provisions this
method has to be considered for taxable value of car fringe benefit. It has been provided in
the case study that Charlie had parked the car his garage in the evening and subsequently in a
private parking. Thus under FBTAA section 39 A as the parking is not done in a place owned
by the employer it is not liable for car parking fringe benefit tax. However the employer is
liable to pay tax in relation to the accommodation provided to the employee for honeymoon
purpose.
Conclusion
The above discussed tax advice and computation are applicable.

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Question 2
Answer 1
In the case study it has been provided that Allan and Betty want to change their house
and thus they have sold their Melbourne home and bought a large house in central Victoria.
As there is no profit involved in this case there is no chance of any income tax implications
(Schenk 2016). Betty’s income as a part time accountant and Allan’s income as a locum
doctor is liable under section 6.5 of the Income Tax Assessment Act 1997 to be considered
for tax calculation (Pyrmont 2014). The popularity with Allan has among is client makes him
receive scones and cakes as a token of appreciation addition to his fee. However as these
items do not have market value they are not considered for income tax assessment. However
as the wine which Allan has received is worth $360 it is liable to be assessed for income tax
under ITAA 1997.
Answer 2
According to Pope (2016) a hobby is a leisure or pastime activity which is carried out in a
spare time for pleasure or recreation. However a business activity is as a whole commercial in
nature and has the intention of making profit. There are certain indicators which have been
provided by taxation rulingTR 79/11 used to differentiate between a hobby and a business.
These are as follows
1. Whether the purpose or character of the activity is significantly commercial
2. Whether there is more than just intention to indulge in the business by the person
3. Whether the purpose of the purpose is to make profit and there is a prospect of profit
in the activity
4. Whether there is regularity and repetition involved in the activity
5. Whether the activity is similar to a hobby or a business activity
6. Whether the activity is planned and organization so that it can make money

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7. Whether the activity is described better as a hobby
These provisions had been discussed by the court in the case of Vartuli v. Chief
Commissioner of State Revenue (NSW) [2015] NSWCA 372 where the court held that any
activity for the purpose of making profit is a business.
Answer 3
As per Jones v Federal Commissioner of Taxation - [1963] HCA 17 when a hobby
turns into a business the profit derived from it are considered under Income tax assessment. It
has been provided in the situation that the hobby of Betty of making Marmalade has turned
into a business as she now has the intention of making profit. In addition the activity is
subjected to repetition and recurrence. Thus the profit made by her would be assessed for the
purpose of computing income tax under ITAA 1997.
Answer 4
According to the Australian Taxation office, Trade exchanges and Barter System is
subjected to same GST and tax implications which are imposed on any other regular credit or
cash transactions. These provisions are also discussed through the case of Sterling Guardian
Pty Ltd v Commissioner of Taxation - [2006] FCAFC 12. Thus the barter system which has
been entered upon by Betty and Allan is subjected to have the same implications as any credit
or cash transaction under GST and ITAA.

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References
Brownlee, W.E., 2016. Federal Taxation in Australia. Cambridge University Press.
Finkelstein, M., 2014. Cases on Federal Taxation (Book Review).
Fringe Benefit Tax Assessment Act 1986 (Cth)
Income Tax Assessment Act 1997 (Cth)
John Holland Group Pty Ltd &Anor v. Commissioner of Taxation [2015] FCAFC 82.
Jones v Federal Commissioner of Taxation - [1963] HCA 17
Morgan, A., Mortimer, C. and Pinto, D. 2013. A practical introduction to Australian taxation
law. North Ryde [N.S.W.]: CCH Australia
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.
Sterling Guardian Pty Ltd v Commissioner of Taxation - [2006] FCAFC 12.
Woellner, R., Barkoczy, S., Murphy, S., Evans, C. and Pinto, D. 2014 (n.d.). Australian
taxation law.