Statutory Method
“Sub-section 136 (1) of the MT ruling of 2027” provides that any private use of car by the employee or associate that are not in the course of generating employment income will be treated as private use of the car (Miller and Oats, 2016). As evident from the case situations it is noticed that Charlie had travelled 80,000 km out of which 30,000 km were for his private use. By virtue of the definitions that has been provided under the “sub-section 136 (1)” any form of use made for the car by the employee which is not absolutely in the sequence of deriving computable salary of the employee would establish private use of the car (Hughes, 2014). “Paragraph 3 of the FBTAA 1986” defines that cost incurred in the business journey must be incorporated in the log book or any similar document given that the work related kilometres travelled by car is used in the application of operating cost method.
Alternatively, statutory method is employed in the determination of the fringe benefit tax for car. “section 10A and Section 10 B of the FBTAA 1986” is concerned with determining the taxable value of the car in respect of the operating cost method (Snape & De Souza, 2016). “Under section 9 of the Miscellaneous Taxation Ruling 2027” provides the statutory formula process for determining the car fringe benefit. The figure that is derived by enacting the statutory calculation in regard to the actual value of the car to the employee is allocated in respect of the number of days during which the car was available or used by the employee for the purpose of private use (Lang, 2014). The statutory method for calculating the assessable value of the fringe benefit tax for car is 20%.
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The statutory percentage is multiplied with the base value of the car so that the chargeable rate of the fringe benefit can be obtained (Barkoczy, 2016). The amount of personal use of car by the member of staff is not applicable in the determination of the calculable value of the fringe benefit under the statutory method. On the other hand, the operating method of costing for personal use and work related use of the car should be segregated at the time of determination of the payable charge of the car fringe benefit tax.
Statutory Method
Base value of car = $70,000
Statutory Rate = 20%
No. of Days car available for personal use = 196
Operating Cost Method
Total no days in a year = 365
= ($70,000 x 20% x 196 ) / 365
= 7517.81 Ans
Operating Cost Method
Petrol and Oil Cost = 14000
Repairs and Maintenances cost = 24500
Registration Fees = 140
Insurance Cost = 560
Total operating cost = 39200
Portion of Personal Use: = 38%
Taxable value of fringe benefit = Total Operating Cost x Percentage of Private Use
= 39,200 x 38% = $14,700
The tabular representation of the calculations performed represents the chargeable sum of the car fringe benefit. The figure derived under the statutory method of computations is lower than the figure derived in operating cost method (Barkoczy, 2017). As the chargeable value of the fringe benefits for the car is lower under the statutory method, therefore the assessable value of the fringe benefits of the car provided will be considered under the statutory formula.
In the later instances of the case it is noticed that Shiny Homes incurred the expenses on the car for the car hired in the Wedding of Charlie. An important assertion in this regard is that the value of the car fringe benefit will also include the hire charges paid by his employer Shiny Homes and the same will be liable for fringe benefit taxation (Cao et al., 2015). Furthermore, accommodations charges of Honeymoon were also paid by Shiny Homes on behalf of his employee Charlie and such benefits are ought to be included in the assessable amount of the fringe benefit.
As laid down under “Section 39A of the FBTAA 1986” there are certain criterions that need to be satisfied before providing the car parking facilities to the associate or employee (Saad, 2014). These facilities include;
- The car should be parked at the place that is let out or kept by the provider of the car.
- The car is either rented or kept under the control of the member of staff
- The car has been provided in regard to the employment of the employee’s or the associate.
- The car is at least used by the member of staff for the purpose of travel between the place of home and work for at least once in a day (Graetz & Warren, 2016).
Total Value of Fringe Benefit = $11,517
Fringe Benefit Rate = 49%
Taxable Value of Fringe Benefit = $11,517 / (1-49%)
Fringe benefit Tax = $11,066
On a concluding note it is bought forward that the certain case laws and applicable sections of the “Fringe Benefit Tax Assessment Act 1986”. Use of car in respect of the employment attracts fringe benefit and a fringe benefit tax would be applicable for Charlie in respect of the benefits received during the course of his employment with Shiny Homes.
The present case is associated with the determination of the income tax outcomes for Allan. The instances of the case study provide that Allan and Betty have decided for a change of Tree. By selling their Melbourne house they decided to purchase the large country house that was located on the 10-hectare block in the Central Victoria. The case study evidently provides that Allan worked as the Locum doctor and was popular among the elderly patients and often received home-made cakes and scones.
Determining Tax Liability for Fringe Benefits Related to Personal Use of Car
To determine the tax liability of such it can be stated that cakes and scones does not hold any commercial value and the same could not be regarded as the commercial items (Robin, 2017). However, on one event Allan cured a local wine maker’s dog for the snake bite and in return the wine maker received a dozen bottles of Lonarch Brae Shiraz having the retail value of $360 as the mark of appreciation. It can be stated that wine received by Allan is liable for tax since the retail wine holds the market value of $360. The taxable value of the wine received by Allan will be included in his assessable income at the time of determination of the tax liability under “ITAA 1997” (Fry, 2017).
The “taxation ruling of TR 97/11” takes into the considerations the significance of the trade or business of the primary producer in respect of the “ITAA 1936”. The “taxation ruling of TR 97/11” provides guidelines in indicating the factors that are important in determining whether or not the individual is carrying on the business of primary producer (Gordon & Kopczuk, 2014). The ruling provides the following indicators that is needed to be considered at the time of ascertaining weather the person is engaged in the activities of business or hobby;
- Whether or not the activity carried on holds significant character or purpose of business. A commercial business is the one that is working hard to make the profit (Gardner et al., 2015). If the tax payer is not engaged in the commercial elements, then it is less likely to be considered as business by the Australian Taxation Office.
- Whether or not the taxpayer holds more than just the intention of indulging in the business activities. Whereas hobby does not have such intentions.
- Whether or not the taxpayer holds the drive of profit along with the prospect of deriving profit from the business (Brokelind, 2014). In hobby no intention of profit exists.
- Whether the activities engaged is repetitive in nature and holds the regularity in nature
- Whether the activities involved by the taxpayer is of the identical type and it is carried in the comparable means to that of the ordinary business that are in line of commercial activities
- There should be generally be an investment of large sum in the form of capital and the hobby does not require any huge capital (Grange et al., 2014).
- There is a relationship of employee and employer in the business while the hobby does not have any such form of relationships.
Citing the reference of “Ferguson v Federal Commissioner of Taxation 1979 ATR” the court of law has stated that whether the activity is better described as the hobby or in the nature of the leisure or sporting activity (Kavelaars & Korving, 2014). Money generated from the activities of the hobby is not observed as the proceeds whereas profit derived from such hobby will be regarded as the carrying on the activities of hobby.
The “taxation ruling of TR 97/11” is dealing with the determination of whether or not the taxpayer is executing on the occupation of the primary production. “Section 6 (1) of the ITAA 1997” provides that primary productions refer to the cultivation done on land (Sadiq et al., 2014). The court further provided some pointers of executing the commercial activity of the primary production where court have stated that whether the activity is better considered as the hobby or any form of leisure. As evident from the case study of Allan and Betty it can be stated that Betty commenced the making of marmalade and soon it became popular among her neighbours. As a consequence of this she decided to open the stall at the Newtown Growers Market regularly on the second Sunday of every month. Allan additionally sold the excess to the suppliers on regular basis.
Tax Implications of Barter and Counter Trade Transactions
The activity carried on holds significant character or purpose of business and is repetitive or holds the regularity in nature. As held in the case of “Evans v FC of T (1989) 20 ATR 922” the court has stressed that no one indicator is conclusive and there is regularly a noteworthy commonality of these pointers (Belloc, 2017). The intention of making profit will motivate the person to executive the activity in the methodical and organized manner. Citing the reference of “Martin v. FC of T (1953)” the activities performed by Allan and Betty provides the factor of commercial flavour since they estimated to generate a gross profit of $500 to $600.
In compliance to observing the conditions of the case, the general motive for profit is present and the activities of Allan and Betty would produce a profit. Therefore, the activity will amount to business activities and would attract a tax liability.
The “taxation ruling of IT 2668” is concerned with the income tax implications arising out of the barter and counter trade transactions. Business transactions that involve barter system or trade exchanges will be subjected to income tax and GST just as the normal cash or credit transactions (Lasser et al., 2015). When a person that is the member of the trade exchange and makes the taxable sale to another member then it will attract income tax liability together with GST. As evident from the case study both Allan and Betty have set up the barter system and derived fees. Additionally, they provided “barts” to one of their customer in exchange of money.
“Subsection 25 (1) of the ITAA 1936” provides that income generated by the tax payer under the barter system would be incorporated in the taxable income of the taxpayer (Saad, 2014). The amount to which considerations that is received by Allan and Betty during their barter system is reliant upon the nature of the considerations in the hands of the recipient. By citing the reference of “F.C. of T. v. Cooke & Sherden 80 ATC 4140; 10 ATR 696” the considerations received in the form of money by Allan, Betty would be liable for income tax, and the same shall be regarded for GSTR (Barkoczy, 2016). The barter system set up Allan and Betty would be treated in similar to the receipt of cash or credit. Consequently, it would attract tax liability.
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