Taxation Practical Introduction Australian -Myassignmenthelp.Com

Question: Discuss About The Taxation Practical Introduction Australian? Answer: Introducation 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 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 additi onal 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 cars 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: 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. 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. 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 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 the se 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. 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 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. 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. 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. Reference List: Bloom, I.M. and Joyce, K.F., 2014.Federal Taxation of Estates, Trusts, and Gifts. LexisNexis. Brownlee, W.E., 2016.Federal Taxation in Australia. Cambridge University Press. Coleman, C. and Sadiq, K. (n.d.).2013Principles of taxation law 2013. Feld, A., 2016. 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