Fringe Benefit Tax determination for Charlie
The study is presently dealing with the determination of the fringe benefit tax for Charlie that is working as the real estate agent for Shiny Homes. Evidently, the case study describes that Charlie has been assigned with a car that was used by him for both private and business purpose. Charlie has incurred administrative expenses in running the car which included petroleum, maintenance charges, fees and insurance. “Section 7 of Fringe Benefit Tax Assessment Act 1986” provides circumstances when the employee is under obligation of paying fringe benefit tax (Pinto 2014).
A description provided under “Section 136 (1) of the FBTAA 1986” where use of car by the employee that does not holds any association with the earning of taxable income would be considered as the personal use of car (Woellner et al. 2014). Evidence from the case study defines that Charlie used the car for both personal and business use with the total of 80,000 km has been travelled by the car.
“Paragraph 3 of the FBTAA 1986” explains that any expenses associated with the usage of car must be incorporated in the log book and the same is used in obtaining the fringe benefit taxable value under operating cost method (Braithwaite 2017). It is noteworthy to denote that “section 10A and Section 10 B of the FBTAA 1986” assist in obtaining the assessable amount of taxable benefit under the operating cost. On the other hand, a statutory formula method can be employed in computing the assessable value of fringe benefit at a statutory rate of 20% (Hopkins 2016). In the present case study of Charlie, administrative expenses such as fuel cost, repairs and maintenance, registration and insurance is segregated in determining the taxable value of the fringe benefit under the operating cost method. A tabular form of computation illustrates the application of fringe benefit taxable value under the statutory method is given below;
Alternate to this, operating method of costing is employed in the determination of the fringe benefit value for Charlie is provided;
As understood from the above stated calculations the assessable amount of the fringe benefit under the statutory method is lower than the that of the assessable value under the operating cost method. Hence, for Charlie the assessable value of fringe obtained under the statutory method must be considered.
The situation from the case in the later part suggest that expenses was incurred for Shiny Homes for the car that was hired in the wedding of Charlie. Additionally, accommodation cost of honeymoon is also borne by Shiny Homes for his employee Charlie. These benefits provided to Charlie would attract tax liability and would be included in the fringe benefit tax.
Operating cost and Statutory formula method
As noticed Charlie incurred car parking expenses for the car provided to him by his employer and under “Section 39A of the FBTAA 1986” such benefits would attract tax liabilities (Sackman et al. 2016). However, there are definite criterion that should be met which is stated below;
- The car should be parked at a radius of one kilometre and the premises should be either leased or owned by the employer
- The car is at least once in a day used travelling between home and office
The tabular representation provides the computation of FBT for Charlie below;
On a concluding note the assessable value of the fringe benefit tax is liable to be paid by Charlie in respect of the “FBTAA 1986” relating to the benefit provided in his employment with Shiny Homes.
2.aThe case study brings the query relating to the tax consequences for Alan. Alan was the locum doctor and was widely known among his patients or clients. On one occasion Allan treated one of his client dog from the snake bite and in return he was provided with the token of appreciation contained a dozen bottle of wine having the value of $360.
Alan often received cakes and scones that were made in home from his clients having no commercial or market value. The homemade cakes and scones did not have any market value and will attract no tax liabilities (Clarke 2017). However, the bottle of wine is assessable since it has the market value of $360 and will be included in the ascertainment of the assessable income.
b.The “taxation ruling of TR 97/11” defines that whether or not the taxpayer is involved in the business of primary production (Feld 2016). The taxation ruling helps in ascertaining the whether the activities indulged in by the taxpayer is business or hobby. The differences is stated below;
- An activity involving commercial sale of products is regarded as business while bobby involves sale of goods to the relatives and friends
- The purpose or the intention of the person is to indulge in the business activity whereas a hobby involves no purpose or objective of carrying on the business
- A business involves repetition of the activity while there is a little amount of repetition or regularity of the activity (Townsend 2017).
- Business activities might be big in size and scale while the hobby is relatively small in size and scale.
The feature of the activity along with the intention of the taxpayers and method of operations assist in determining whether the business of primary production is performed. Several such relevant indications is given in the judgement of the court of law in the case of “Ferguson v Federal Commissioner of Taxation (1979) 9 ATR 873” (Pearce and Hodgson 2015). The amount obtained from the hobby is regarded as income while profit derived from such hobby is considered as the performing the business activities.
c.The evidence obtained from case defines that Betty has begun making marmalade and soon became very famous in her neighbourhood. Later on she opened a stall and sold on every second Sunday of every month. Simultaneously, Allan also sold the additional amount to the supplier on the regular basis.
According to the judgement held in the case of “Martin v. FC of T (1953)” it was explained that no single activities will be able to render exclusive evidence and comprised of the overlying reflectors (Pearce and Pinto 2015). The intention of profit making was present and the activities carried on by Betty and Allan were repetitive in nature. Hence, their activities constitute business and will have pay tax on the income derived from such activities.
d.The Australian taxation office provides that transactions originating from barter system and trade will be liable for taxation and GST much like the cash and credit transaction. As it has been defined under the “Subsection 25 (1) of the ITAA 1936” income from the barter system is accountable for tax (Tang and Wan 2015).
Citing the reference of “F.C. of T. v. Cooke & Sherden 1980” amount of money received from the barter system by Allan and Betty will be accountable for tax and will also attract GST under the GSTR 1999 GSTR 1999 (Shields and Samardzic 2015). Similarly, the income from the barter system similar to the amount generated from the cash and credit transaction.
Reference List:
Braithwaite, V., 2017. Responsive regulation and taxation: Introduction. Law & Policy, 29(1), pp.3-10.
Clarke, D., 2017. Private mineral royalties in resource sector: M and A transactions-another taxable commodity. Australian Resources and Energy Law Journal, 36(1), p.82.
Feld, A., 2016. Federal Taxation of State Tax Credits.
Hopkins, B.R., 2016. The Law of Tax-Exempt Organizations+ Website, 2016 Supplement. John Wiley & Sons.
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.
Pinto, D., 2014. State taxes. In Australian Taxation Law (pp. 1763-1762). CCH Australia Limited.
Sackman, J., Van Brunt, R., Rohan, P.J. and Reskin, M., 2016. Tax Issues in Condemnation Cases (Vol. 7). Nichols on Eminent Domain.
Shields, J. and North-Samardzic, A., 2015. 10 Employee benefits. Managing Employee Performance & Reward: Concepts, Practices, Strategies, p.218.
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.
Townsend, J.A., 2017. Federal Tax Procedure (2017 Student Ed.).
Woellner, R., Barkoczy, S., Murphy, S., Evans, C. and Pinto, D., 2014. Australian Taxation Law Select: legislation and commentary. CCH Australia
