Taxation Law For The Journal Of Economy And Society

Part 1

Discuss about the Taxation Law for the Journal of Economy and Society.

A brief overview of this part discusses about one Peta who purchased a house in a place called Kew. The house comprised of two old tennis courts at the back and their condition was considerably poor. Peta’s main aim was to live in the house and also had in mind an aim of building three units within the tennis court and finally makes a sale on them at a profit (Artz 2010). The part in question mentions that, the tennis club offered to buy the old tennis courts from Peta in the current tax year once they are remunerated. The money for remuneration is estimated at a total of $ 100,000. Once the tennis courts were made better, Peta sold them to the new tennis club at a total of $ 600,000

Discussion whether the receipt of 600,000 is an ordinary income under section 6-5

Section 6-5(1) of the Income Tax Assessment Act of 1997 outlines an inclusion of assessable income and income that is earned according to an ordinary or usual concepts (Blundell and MaCurdy 2009). The section in question explain that income earned with respect to ordinary concepts is not defined but rather given the consideration that it is the amount to which people would consider to be an income or that which is incorporated with the common law concept of income .

On the same note, the discussion on ordinary income can also be determined on the following grounds; income that is generated from personal exertion for example that of salary and wages (Cassidy 2016). The other ground of determining the same is on income generated from property, for example interest, rent and dividends. The final area is on income that is made out of a business. After ignoring the capital gains as provided for in the question in context, it is clear with regards to information related to ordinary income above, that the receipt of $ 600,000 is an ordinary income under section 6-5 (Chetty, Looney and Kroft 2009). This is because; this receipt includes both the initial amount of money that was invested in resurfacing the tennis courts as well as building new fences around them and the income earned as interest.

The section in question argues within the provisions of Income Tax Assessment Act of 1997 that an income that is earned from property like in the case of Peta where she has earned reasonable income from the selling of the two tennis courts to a tennis club next door is reffered to as profit. Being that, the ITAA of 1997 under section 6-5 regards that money earned or income generated in this manner is under ordinary income, I confirm the same for the receipt of $ 600,000 given to the individual in question on of this task by the tennis club next door (Barkoczy 2016) .

Part 2

The question in context is about one Alan who is employed at a propriety limited company known as ABC. It is mentioned that at the time of his employment, he engaged in negotiations with the company in a number of areas. The areas included the following; salary of about $ 300,000, an additional payment of his mobile bill at $ 220 every month and this must also include GST (Drago and Lovell 2011).

The employment of Alan is also covered to be a 2 year contract whereby he is required to make payments every month for unlimited usage of his phone.  ABC propriety Limited Company has also made easier Alan’s spending easier by providing him with the latest mobile phone handset which is estimated at a cost of $ 2000, with the inclusion of GST. Finally, it is mentioned that at the end of the year, ABC hosted a dinner at a local Thai restaurant at a total cost of $ 6,600 including GST, and the dinner brought on board 20 employees (Feldstein 2009).

Advice to ABC on its FBT consequences that may arise out of the explained, including any calculation of any FBT liability for the year ending 31^st March 2016.

FBT is an abbreviator terminology for Fringe Benefits Tax and it is incorporated in the Income Tax Act 2004 under section CX 2. This form of tax is interpreted to be the amount of money that is paid to either a person or an employee, other than wages and salary (Frank 2001). With regards to scheme of legislation, this particular tax is stipulated to only exist in an environment where there is an agreement of provision for a benefit by an employer to an employee in line with their necessary Income Tax Assessment Act (Gruber and Saez 2002).

 The main advice that I would offer to ABC Company with respect to the consequences that may arise from its fringe benefit tax, is to consider reducing the amount of money offered under the umbrella in context. According to the question, the amount of money paid to Alan as fringe benefit tax is quite huge and this may affect the companies’ profit margin. For example, Alan is offered to payments for his mobile bills of $220 per month (Frank 2001). This particular payment also includes Goods and Services Tax which is abbreviated as GST. Not only does the FBT ends there, but it also assures Alan of an additional $ 20,000 every year as an amount of money paid to Alan children for school fees. This money is not only much on the side of the company as far as sustenance is concerned but it is also outrageous.

FBT consequences for ABC Company

 Other than the mentioned, FBT generally is a benefit made to the employee by an employer under certain terms of agreements but this does not limit it to cases related to taxes. This money is also taxed; it was argued by prominent scholars in the field of business in the past that the tax accrued from FBT is usually allocated to the federal government. The main point that I am trying to bring on board is that, this money is assessable to taxation and this may increase the company’s final tax offer. The only money that is exempted from taxation is that amount that is offered on grounds of entertainment (Infanti 2015).

A good example is on the case where at the end of the year, the company in context hosted a dinner at a local Thai restaurant for its employees whose number was estimated to 20 employees. The total cost of this particular dinner was viewed to be roughly $ 6,600 after inclusion of the GST (Khuong and Tien 2013). The fact that GST is included does not guarantee that FBT is applicable. Though both operate on grounds of taxation, they are still different with different provisions and stipulation in the Income Tax Assessment Act.

This explanation warrants me my second advice to the company in context, the second advice that I would give is for the company to find a way of reducing the amount of money spent in the dinners especially those held on an annual basis (Linz and Semykina 2013). This they can only achieve by reducing the number of employees and coming up with methods that reduces extra expenses. This will save the money at a greater extent that would be included as GST. It is usually recommended that companies develop systems that can regulate their spending but earns them much interest. The huge spending of ABC Company can also be explained in terms of calculations of the actual figures.

FBT Liability= All the amount of money that is paid to Alan as an extra expense apart from his salary. Since the FBT liability is calculated with respect to ABC Company, the liability will encompass the money that is also spent in the end year dinner. It is thus wise for the company in context to come up with policies and legislations that will reduce its spending on a number of areas (McMahon 2015). Going further, if the aspect of input tax credit is brought on board, which is the credit that is paid for tax paid on input in relation to any GST inclusive acquisition, the spending margin of the company would rise up. This is because the Alan is guaranteed of a number of inputs informing of money apart from his normal salary. Therefore taxation rate will automatically show a positive deviation.

Input Tax Credits and GST-inclusive acquisition

On the same point, the GST inclusive acquisition in this particular case is pegged on the latest mobile phone handset that was bought to Alan by ABC Company. This handset cost incurred by the company was $ 2,000. Though this is an example of FBT, it is majorly a demonstration of goods and services tax, thereby proving a fact of extra taxable amount (Neumer 2015).

(b) How there would be a difference in my answer with regards to ABC Company, if the company is entitled to 5 employees

If the number of employees is reduced to 5 employees, my answer would show much difference especially in finance related areas. This will be explained from two points of view. The first point of view to offer an explanation from is in line with the question requirement towards the end. The company as mentioned previously that it hosted an end year dinner at a local restaurant known as Thai for all its 20 employees.

The dinner expense for the employees in context was estimated at an amount of $ 6, 600. It is of of question that if the number of employees is reduced to 5, then there would be great difference in terms of the end year dinner preparation cost in the restaurant in question. Even if the company opts for another restaurant, the expense won’t be high. The other way on how my answer would differ if there are 5 employees would be but that they are entitled to all the benefits and other good deals made to Alan. This would greatly infringe the economic status of ABC, since it will be subjected to offering much extra expenses that in the end would cost the company’s financial status (Prescott 2004).

(c) How the answer provided in (a) would show difference if the clients of ABC also attended the dinner that was celebrated at the end of the year

It goes with no doubt, that there are expenses involved in a dinner; the expense that was spent by ABC Company in preparation of the previous dinner was $6,600. If the clients are brought on boards as well, there is a likelihood of heavy spending being made at the dinner. The company first includes the initial amount of money spent on employees then an additional amount of money that may be five times the initial amount is likely to be incurred as well. It is in this area where the point of difference will be noted and the end result may not go well with the financial status of ABC (Shiller 2009).

Difference in answer with regards to ABC Company if it is entitled to 5 employees

Nevertheless, the amount of money that is spent in the dinner under the Income Tax Assessment Act of 2004, the stipulation given is that the money is suppose to be exempted from the view of an FBT but an application of GST is mandatory. The point on insinuation in this particular context is that, yes, this money may not be treated as fringe benefit tax because it is meant for entertainment as provided in the relevant acts and stipulation, the money has to be tasked.

This will again increase the company’s rate in terms of the goods and services tax that it going to incur from the dinner. Once this tax amount rises above that of the normal case that was incurred in A, the difference in finances will be noted (Saez 2001). It is therefore important for companies and business organizations to adopt policies, methods and other ways that are aimed at reducing cost. This will increase the company’s profit margin as opposed to the explanation shown in part (c) of question two.

Conclusion

In conclusion, the tax in question has greatly touched on a number of key areas within the provisions or the question requirements. These provisions include those of FBT and GST. Other than question one, the two have been greatly discussed in question two with regards to its concerns. Finally, a number of contrasts have been made especially in the second part to give further understanding of both FBT and GST.

References

Artz, B., 2010. The impact of union experience on job satisfaction. Industrial Relations: A Journal of Economy and Society, 49(3), pp.387-405.

Blundell, R. and MaCurdy, T., 2009. Labor supply: A review of alternative approaches. Barkoczy, S. (2016).Foundations of Taxation Law. 8th edition. Sydney: CCH Australia Handbook of labor economics, 3, pp.1559-1695.

Cassidy, J. (2016) Concise Income Tax, 10th Edition, Sydney: The Federation Press

Chetty, R., Looney, A. and Kroft, K., 2009. Salience and taxation: Theory and evidence. The American economic review, 99(4), pp.1145-1177.

Drago, R. and Lovell, V., 2011. San Francisco’s Paid Sick Leave Ordinance: Outcomes for Employers and Employees.

Feldstein, M., 2009. Tax avoidance and the deadweight loss of the income tax. Review of Economics and Statistics, 81(4), pp.674-680.

Frank, R.H., 2001. Luxury fever: Why money fails to satisfy in an era of excess. Simon and Schuster.

Gruber, J. and Saez, E., 2002. The elasticity of taxable income: evidence and implications. Journal of public Economics, 84(1), pp.1-32.

Infanti, A.C. ed., 2015. Controversies in Tax Law: A Matter of Perspective. Ashgate Publishing, Ltd.

Khuong, M.N. and Tien, B.D., 2013. Factors influencing employee loyalty directly and indirectly through job satisfaction–A study of banking sector in Ho Chi Minh City. International Journal of current research and academic review, 1(4), pp.81-95.

Linz, S. and Semykina, A., 2013. Job satisfaction, expectations, and gender: Beyond the European Union. International Journal of Manpower, 34(6), pp.584-615.

McMahon, M.J., 2015. Rethinking Taxation of Privately Held Businesses. Available at SSRN 2500476.

Neumer, S.M., 2015. Section 337″ Property”. Trading in Stocks during Liquidation: Income Tax: Corporate Distributions. Stanford Law Review, pp.970-976.

Prescott, E.C., 2004. Why do Americans work so much more than Europeans? (No. w10316). National Bureau of Economic Research.

Saez, E., 2001. Using elasticities to derive optimal income tax rates. The review of economic studies, 68(1), pp.205-229.

Shiller, R.J., 2009. The new financial order: Risk in the 21st century. Princeton University Press.