The Principles and Management of Taxation - MyAssignmenthelp.com

Question: Discuss aboutThe PrinciplesandManagement of Taxation. Answer: Introduction: According to the Fringe Benefit Tax Assessment Act 1986 any form of benefit that is paid to the employees apart from the salaries and wages is regarded as the fringe benefit (Legislation.gov.au, 2018). however, the act lay down that there should be an association among the employer and the employee along with the provider of the fringe benefit tax legislation. This would help in keeping an account of the tax liabilities originating from such benefits provided for both the employer and the employee. As laid down under Section 6 of the FBTAA 1986 car provided to employee by the employer and the same is used for the private purpose altogether then it would attract car fringe benefit tax (Ato.gov.au, 2018). The car fringe benefit tax is applicable at any time of the day in regard to the occupation of the employee for the car held by the person or it is taken to be available for the personal usage of the employee or the associate. As defined under the sub-section 136 (1) of the taxation ruling MT 2027 usage of car by the employee which is not directly related to the course of generating the taxable salary of the associate would be regarded as the personal use. In order to arrive at the assessable amount of the fringe benefit of the car, the statutory method or the operating cost formula is employed. Additionally, section 10A and Section 10 B of the FBTAA 1986 transacts with the determination of the taxable value of the car based on the operating cost method (Ato.gov.au, 2018). Under sub-section 136 (1), the method of operating cost considers the cost that is sustained on the operations of the car and the details of the business journeys is required to incorporated in the log book if they are used for ascertaining the proportion of the private use of the car for implementing the operating cost method. Case Facts: In the present case study, Charlie is the employee of Shiny Homes Pty Ltd and has been provided with the car and the same would be liable for fringe benefit tax under the legislation. As evident Charlie used the car for both private and business purpose and under Sub-section 136 (1) it would attract fringe benefit tax. The decision laid down in the case of Lunney and Hayley v FCT (1958) stated that the travel from the employee home to the place of work is regarded as the ordinary private travel (Ato.gov.au, 2018). Additionally, the travel to the place of work is considered as the necessary pre-requisite. Charlie in this circumstance has travelled kilometres from his home to the place of work and the same cannot be regarded for fringe benefit since they were not in the course of generating taxable income. The private kilometres travelled by Charlie would not change the outcome since the place of work is regarded as itinerant in nature. There are two methods involved in computing the assessable amount of the fringe benefit tax namely the statutory method and the operating cost method (Deutsch, 2014). The statutory rate for computing the chargeable worth of the fringe benefit of the car is 20%. The statutory percent is multiplied with the base amount of the car in order ascertain the assessable value of the fringe benefits. The degree of private use of the car offered to the employer is not pertinent in the ascertainment of the assessable amount of the fringe benefit in statutory formula. Whereas under the operating costing method both the work and private purpose of the car is separated in determining the assessable amount of the car fringe benefit. The below stated statutory method is employed in determining the value of fringe benefit; Computation of Fringe Benefit Tax under Statutory Method Statutory method Taxable value of fringe benefits Particular Amount ($) Amount ($) Base value of the car 70000 Statutory rate @20% Car Available for Private use (Days) 196 Number of days in the FBT year 365 Taxable Value of the Car Fringe benefit 7517.81 The below stated operating cost method is employed in determining the value of fringe benefit; Computation of Fringe Benefit Tax under Operating Cost Method Operating cost method: Taxable value of fringe benefits Particular Amount ($) Amount ($) Petrol oil cost 14000 Repairs maintenance Cost 24500 Deemed Depreciation 17500 Deemed Interest 3955 Registration fees 140 Insurance Cost 560 Total operating cost 60655 Proportion of Private Use: Total kilometer run 80000 Work related Use 50000 Private related Use 30000 Private use (%) 37.5% Taxable value of fringe benefits 22745.625 The deemed depreciation is computed with the help of the statutory rate of 25 per cent by making use of the guidelines provided under section 11 (1) Calculation of Deemed Depreciation Particulars Amount Base value of car $70,000.00 Depreciation rate 25% Deemed Depreciation $17,500.00 Deemed Depreciation = (Base value of Car x Depreciation rate x 365)/365)) On the other hand, the deemed interest is computed by making use of the formula that is stated under the section 11 (2). The statutory interest rate being 5.65% for the year ended 2016/17. Calculation of Deemed Interest Particulars Amount Base value of car $70,000.00 Statutory Interest rate 5.65% Deemed Interest $3,955.00 As evident from the above stated computations the assessable amount of the car fringe benefit is lower under the statutory method than the operating cost method and amount incurred under the statutory method would be considered. In the later part of the case, it is noticed that Shine Homes hired car for Charlie during his Wedding and the value of the hire charged car would be considered as the taxable value and will be included in the fringe benefit tax. Additionally, the honeymoon accommodations that is paid by Charlies employer Shine Homes must be considered in the assessable value of the fringe benefit. Section 39A of the FBTAA 1986 lay down the number of conditions which is necessary required to be met prior to providing the facilities of the car parking to the employee by the employer (Kenny, 2014). Section 39A of the FBTAA 1986 provides that the car parking fringe benefit originates at the time when the car is parked at the premises of the car provider or the car is leased or under the control of the employee. In the present case study, it is found that the car is parked at the separate entity and does not result in the car fringe benefit tax. The below stated computations determines the fringe benefit tax for Charlie Computation of Fringe Benefit Tax Particular Amount ($) Amount ($) Taxable value of fringe benefits of car $7,517.81 Taxable value of fringe benefits for car hired exclusively for the honeymoon purpose of Charlie $1,000.00 Taxable value of accommodation of hotel $3,000.00 Taxable value of total fringe benefits $11,517.81 FBT rate 49% Taxable Value of Fringe Benefit $22,583.94 Fringe Benefit Tax $11,066.13 Conclusively it can be stated that the applicable case laws and pertinent sections of the FBTAA 1986 is applied in determination of the fringe benefit tax (Morgan et al., 2014). The use of car by the Charlie is regarded as the fringe benefit and would attract fringe benefit tax. As evident from the current case study of Allan and Betty they undertook the decision of tree change. Additionally, they decided to sell their house located in Melbourne in order to acquire the country home located in the Central Victoria and the same will be liable for any tax liability. However, according to the section 6-5 of the ITAA 1997 income derived directly from the business or profession will be considered for taxation (Sadiq et al., 2014). Similarly, the income derived by Allan and Betty as the part time accountant and the Locum doctor will attract tax liability under the section 6-5 of the ITAA 1997. The case study evidently puts forward that Allan was wide known among his elderly clients as the locum doctor and charged fees from the patients that visited him. He received a large number of homemade cakes and food from his patients in the form of token for appreciation. It is worth mentioning that cakes and food does not attracts tax liability since they did not possess the nature of commercial goods nor having any commercial value (Woellner et al., 2014). Apart from this Allan did received wine from one of his customer that contained commercial value of $36. Therefore, the value of wine that is received by Allan will attract tax liability and will be included in the taxable revenue in respect of the ITAA 1997. The taxation ruling of TR 97/11 is concerned with the determination of the individuals indulged in business activities (Woellner et al., 2014). The taxation ruling of TR 97/11 helps in distinguishing the differences associated with business and hobbies which is listed below; The objective of the activity forms vital element in ascertaining whether the activity constituted business or hobby. On finding that the activity holds business objective then the same will be considered as the business activity. The purpose of the business is to derive profit while the hobby does not holds such purpose. Business activities generally attracts large number of capital investment whereas hobby does not contain any capital investment. The business activities contain of the employer and employee relationships however under hobby there is no such relationships exists. To conduct business there is a need for premises, however no such premises is required in performing the hobby. As held in the case of Cooper Books Pty Ltd vs. Commissioner of Taxation of Commonwealth of Australia the court in its decision has stated the necessary criteria to distinguish between the business activities and the hobby. On finding that the hobby of the tax payer transforms into the business activities and derives profits from the same then it will attract tax liability for any amount of income derived from the business (Frecknall et al., 2014). As evident in the present case of Allan and Betty the hobby of gardening has transformed into the business activities and derived the revenue of approximately $500 to $600 from the sale of Marmalade will be liable for taxation. Similarly, the barter system of Allan and Betty will additionally attract tax liability in respect of the ITAA 1997. The transactions of the barter system are subjected to the provision of the taxation under the ITAA 1997 and GSTR1999 given that the transactions holds the nature of the business transactions (Miller Oats, 2016). The commercial transaction under the barter system would be considered at with the transactions conducted under the cash and credit. Income derived from such transaction would attract tax liability under the ITAA 1997 and GSTR 1999. The barter system set up Allan and Betty will be considered in respect of the cash and credit transaction and would be liable for income tax and GST. Reference List: Deutsch, R. (2014).Australian tax handbook 2014. Pyrmont, NSW: Thomson Reuters. Frecknall-Hughes, J. (2014).The Theory, Principles and Management of Taxation: An Introduction. Routledge. Fringe Benefits Tax Assessment Act 1986. (2018).Legislation.gov.au. Retrieved 6 January 2018, from https://www.legislation.gov.au/Details/C2016C00276 Kenny, P.Australian tax 2014. Legal Database. (2018).Ato.gov.au. Retrieved 6 January 2018, from https://www.ato.gov.au/law/view/document?docid=PAC/19860039/7 Legal Database. (2018).Ato.gov.au. Retrieved 6 January 2018, from https://www.ato.gov.au/law/view/document?docid=MTR/MT2027/NAT/ATO/00001 Miller, A., Oats, L. (2016).Principles of international taxation. Bloomsbury Publishing. Morgan, A., Mortimer, C., Pinto, D.A practical introduction to Australian taxation law. Sadiq, K., Coleman, C., Hanegbi, R., Jogarajan, S., Krever, R., Obst, W., Ting, A.Principles of taxation law 2014. TD 2016/7 - Fringe benefits tax: for the purposes of section 39A of the Fringe Benefits Tax Assessment Act 1986 what is the car parking threshold for the fringe benefits tax year commencing on 1 April 2016 (As at 18 May 2016). (2018).Law.ato.gov.au. Retrieved 6 January 2018, from https://law.ato.gov.au/atolaw/view.htm?docid=%22TXD%2FTD20167%2FNAT%2FATO%2F00001%22 Woellner, R., Barkoczy, S., Murphy, S., Evans, C., Pinto, D.Australian taxation law select 2014. Woellner, R., Woellner, R., Barkoczy, S., Murphy, S., Evans, C., Pinto, D.Australian Taxation Law 2015.