Taxation of Charlie’s Car Usage
As defined in the “Subsection 136 (1) under Fringe Benefit Tax Assessment Act 1986” an employee that uses the car for his personal use and does not relates to the employment income will constitute a personal use of the vehicle or car (Martin 2014). The case study opens up with the situation where Charlie is the employee of Shiny Homes and imparts his duties as the agent of real estate.
Shiny Homes on the other hand, executes the work of landscaping and as the part of the employment Shiny Homes has provided Charlie with a car. An important consideration of the section 7 of the FBTAA 1986 provides a that when an employee is provided with a car, the employee would be liable to fringe benefit tax (Auerbach and Hassett 2015).
The situation of Charlie describes that he was provided with car and has make use of it for employment and private use. As depicted approximately thirty thousand kilometres were travel for personal use with fifty thousand kilometres were used for business purpose. In subsection 136 (1) Car usage by worker or employee will be taxable given that the employee used the car personally (Tanzi 2014). Subsequently, “para 3 of the FBTAA 1986” puts forward that cost that is occurred for the work purpose of the car should be mandatorily logged in the log book as this will account for the kilometres that is travelled for work purpose in determining the fringe benefit of the car under the operating cost method.
A statutory process can employed to obtain the FBT for car. An important legislation that is useful in determining the taxable value of fringe benefit is “section 10A and Section 10 B of the FBTAA 1986” where operating method of costing is used (Gahvari and Micheletto 2016). There has been relavant legislation of “Section 9 of the Miscellaneous Taxation Ruling 2027” to know the amount of fringe benefit of car. A rate of twenty percent is applied getting the fringe benefit of car under statutory process. Tax is levied at a statutory rate for the actual car value along with the total number of days used by employee. For a taxpayer 20% of the fringe benefit tax is levied in ascertaining the value of the car under the statutory method. The taxable value of the car fringe benefit is generated by implementing the statutory method relating to the original value of the car provided by the employee to the employer in regard to the number of the days in proportion to which the car was available for personal use of car.
Tax Consequences of Allan’s Gifts and Marmalade Sales
As understood from the case study there has been several administrative cost that is incurred in running the car is segregated from the personal use that is made by the associate or the employee at the time of computing the taxable amount of fringe benefit tax (Chambers and Moreno-Ternero 2017). The below stated table is representation of the taxable value of car fringe benefit for Charlie under the statutory method;
The table shows that assessable amount of fringe benefit is $14,700. Evidently, the assessable amount based on statutory rate is lower than operating costing process. The amount of fringe benefit is recommended to be considered in respect of the statutory rate and should not account the amount in respect of operating costing process.
Observation from the study shows that Shiny shouldered the responsibility of providing Charlie with a hired car on his wedding day. A noteworthy consideration for Charlie is that in deriving the taxable value of fringe benefit the hire charges that is paid by the employer for Charlie will be included in the determination of the fringe benefit. Shiny Homes even shoulder the honeymoon accommodation cost for Charlie. Consequently, such benefit would be considered in determining the fringe benefit tax amount. It is worth mentioning that vital aspects of car parking is described in S-39A of FBT 1986 (Haufler, Norbäck and Persson 2014). The criteria is stated below;
- At the time of car parking the car should be controlled by the employee
- The car is minimally put into the use by the employee or the associate for travelling back and forth from home and office for a minimum of once in a day (Mellon 2016).
- The car must be parked at a certain location which is owned or leased by the employer.
Taking into the considerations the concluding note of the present case study an assertion can be bought forward by stating that Charlie would be liable for fringe benefit tax under “FBTAA 1986”. Car was privately used by Charlie during employment course.
The problem statement introduces the consequences of income tax for Alan. As depicted from the case study Allan was the locum doctor and was very much well recognized among his clients. When Alan cured his patients, he received home-produced cakes and scones by his patients. Home grown foodstuff has no market worth and these component are not accounted as taxable item.
Later, it was noticed that Allan received dozens of wine bottle from one of his client as Allan treated his client’s dog from the snakebite. The retail value of the wine bottle in the market is estimated to be $360. As a result of this the wine bottle will be included in the taxable income of Allan since it has commercial value and will be considered in the computation of the assessable income (Apps, Long and Rees 2014).
Primary Production vs. Hobby
According to the “taxation ruling of TR 97/11” it helps in determining whether the taxpayer is carrying on the business of the primary producer under “ITAA 1997” (Cohen, Fedele and Panteghini 2016). The ruling serves as the guide in providing that whether an individual is carrying on the business of the primary production. There are certain elements that should be accounted in determining whether the person is indulgent in business or hobby;
- If the person has more than just the objective of engaging in the business while hobby hardly possess the intentions of engaging in business.
- A business holds the significant commercial activity whereas the hobby does not has any form of significant business activity
- A business being carried on with the intention of making profit from the activity whereas in hobby there is no such intention of making profit
- Whether the business activity is carried on in the identical manner in respect of the trade while hobby is carried on in the form of ad hoc manner (Peiros & Smyth, 2017).
- A business activity is generally organized and it is carried on in the business-like manner while hobby is not organized or executed in the normal business manner.
According to “FCT v Evans v (1989” decision made states that regards must be paid in deciding nature of activity namely the business and hobby. (Snape and De Souza 2016). The sum of revenue or income generated from the hobby cannot be regarded as the income. Consequently, the profit generated from such hobby would be considered as executing the activity of business.
Evidently “section 6 (1) of the ITAA 1997” is related to farming on land. For that reason, the “taxation ruling TR 97/11” ascertains if an individual is executing trading or primary production activity (Saad 2014). The court of law indicated that performing the trade of primary production, the law court has stated whether the activity is well regarded as hobby or any recreational activity. The case study depicts the situation that Betty has started making marmalade which turned out to be widespread in her neighbours. A decision of opening stall was made on every Sunday. Allan sold the excess amount to the supplier regularly.
The activities engaged in by Allan and Betty is having the characteristics of business which is repetitive in nature. As held in the case of “Martin v. Federal Commissioner of Taxation (1953)” the law court have placed emphasis that no single reflector could provide a conclusive evidence and constantly involved overlapping indicators (Stewart, 2017). The intention of profit was existing in the activities performed by Allan and Betty since their activities accompanied business character. Conclusively Allan and Betty activities were of business in nature and they will be liable for income tax.
There is a ruling relating to tax of “IT 2668” where transaction of barter system is taxable as GST relating to cash and credit. Additionally, “Subsection 25 (1) of the ITAA 1936” lay down that revenue derived by an individual through barter system would be liable for income tax. In the present case study of Allan and Betty the extent to which the nature of the value received by them is dependent on the nature of the considerations in the recipient’s hands (Jones, 2017).
The judgement of court in “F.C. of T. v. Cooke & Sherden 80 ATC 4140; 10 ATR 696” the considerations that is received as money by the Allan and Betty will attract tax liability and it will additionally be liable for GST as well under the GSTR 1999 (Lang 2014). The barter system that is set up by the Allan and Betty is considered equivalent to the cash or credit and as a result of this it would attract tax liability.
Reference List:
Apps, P., Long, N. and Rees, R., 2014. Optimal piecewise linear income taxation. Journal of Public Economic Theory, 16(4), pp.523-545.
Auerbach, A.J. and Hassett, K., 2015. Capital taxation in the twenty-first century. The American Economic Review, 105(5), pp.38-42.
Chambers, C.P. and Moreno-Ternero, J.D., 2017. Taxation and poverty. Social Choice and Welfare, 48(1), pp.153-175.
Cohen, F., Fedele, A. and Panteghini, P.M., 2016. Corporate taxation and financial strategies under asymmetric information. Economia Politica, 33(1), pp.9-34.
Gahvari, F. and Micheletto, L., 2016. Capital income taxation and the Atkinson–Stiglitz theorem. Economics Letters, 147, pp.86-89.
Gevorkyan, A., Flaherty, M., Heine, D., Mazzucato, M., Radpour, S. and Semmler, W., 2016. Financing Climate Policies through Carbon Taxation and Climate Bonds–Theory and Empirics.
Haufler, A., Norbäck, P.J. and Persson, L., 2014. Entrepreneurial innovations and taxation. Journal of Public Economics, 113, pp.13-31.
Jones, D., (2017). Tax and accounting income-Worlds apart?. Taxation in Australia, 52(1), p.14.
Lang, M., 2014. Introduction to the law of double taxation conventions. Linde Verlag GmbH.
Martin, L. 2014. Taxation, loss aversion, and accountability: theory and experimental evidence for taxation’s effect on citizen behavior. Unpublished paper, Yale University, New Haven, CT.
Mellon, A.W., 2016. Taxation: the people’s business. Pickle Partners Publishing.
Peiros, K., & Smyth, C. (2017). Successful succession: Tax treatment of executor’s commission. Taxation in Australia, 51(7), 394.
Saad, N., 2014. Tax knowledge, tax complexity and tax compliance: Taxpayers’ view. Procedia-Social and Behavioral Sciences, 109, pp.1069-1075.
Snape, J. and De Souza, J., 2016. Environmental taxation law: policy, contexts and practice. Routledge.
Stewart, M. (2017). Australia’s Hybrid International Tax System: Limited Focus on Tax and Development. In Taxation and Development-A Comparative Study (pp. 17-41). Springer, Cham.
Tanzi, V., 2014. Inflation, indexation and interest income taxation. PSL Quarterly Review, 29(116).
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