Corporate Tax Act Law And Income Tax Law: Overview And Analysis

Main Body

Discuss about the Corporate Tax Act Law and Income Tax Law.

The taxation system of a country is one of the most important systems of the government and it plays significant role in collecting the necessary fund for the essential expenditure of the Government like the infrastructure development, health and education services, to maintain the law and order in the society, pension for the elderly people, as well as for the expenditure of the defense system of the company (Barkoczy, 2010). In Australia also, there is important taxation law to raising fund for essential government expenditure.

As per the case study it is observed that Peta an Australian citizen purchased a house in Kew and the house had two old tennis courts down with the back, which were in poor condition. Initially Peta decided to purchase the property to live in the house with her family, build three units on the tennis court, and sell them at a profit (Coleman, 2012). However, the adjacent tennis club within the current tax year offered Peta to buy the tennis court. Moreover, the tennis club has a condition that the tennis court must be in good condition. Then Peta kept aside her previous decision and grabed the offer from the club. She Spent $100,000 on constructing the tennis court for sale. This associated with great deal of work. Peta resurfaced the tennis court and build new fences around them (Federal Court of Australia, Queensland District Registry: Jupiters Ltd v. Deputy Commissioner of Taxation, 2002). Then she sold the the tennis court to the club for $600,000 in the current taxation year. Now the question is if the capital gain tax ignored then whether the receipt of $600,000 will be considered as the ordinary income.   

An Australian citizen purchases a property and then work on that property as well as invests considerably on the construction and then sold the property in much higher price (Kenny, 2013). Moreover, the issue is to recognize that income gain from the trade will be treated as ordinary income or not.

As per the Australian taxation law, Peta has to pay income tax for the income she gains from the sale of the property of tennis court. As per the Income Tax assessment Act 1997 – Sect 6.5 it is an ordinary income as Peta invest her money and time on the property to gain better profit thus her purpose was income generation and in this perspective this is ordinary income (Kenny, 2012).

Issue

In this particular case study it is perceived that Peta an Australian citizen purchased a property a house, which had two tennis courts down the back. The tennis court was in a very poor condition when she purchased the property and while an adjacent tennis club show interest to buy the tennis court with a condition that the tennis court must be restored into good condition (Kim Jihyun, 2013). Then Peta accepted the offer and invest $100,000 to restore the tennis court and then she sold the tennis court to the club for $600,000 much better price and income substantially in this deal. Moreover, as she works on this property for the purpose of income generating it should be considered as ordinary income.

As per the Australian taxation law and Income Tax assessment Act 1997 the income generated from the sale of the property will be considered as ordinary income because Peta who purchased the property work on that property to gain maximum profit and in this case the income generated from the selling of the property should be considered as ordinary income and the income must be assessable for tax consequence (Mason, 2010).

The income generated from the selling of the property means the tennis court by Peta must be include in her ordinary income and assessed for the taxation as per the taxation rule of the country. As per the Australian taxation Act and Income Tax assessment Act 1997 she has to include the income from the selling of the tennis court must be assessable income and taxable as per the norms and taxation rate of the country (Moens and Trone, 2010).

The case study provides the consideration of the brief situation regarding the case study of the Alan. It thereby provides information about the Alan and the company ABC Pty Ltd where Alan is an employee of the organisation (Bargain and Keane, 2010). The remuneration [package that have been negotiated with Alan provides the following package that consists of the salary of about $300,000. The payment regarding the Alan’s mobile bill seems to be $220 per month with including the GST. Alan seems to be under the contract of about two years where he has to a fixed amount for the unlimited usage of the phone and thereby Alan uses the phone for the work purpose only (Bebbington, 2009). The company ABC provided Alan with a new handset which costs around $2000. The total costs of the school fess of the children are about $20000 per year.

Law

With the implementation of fringe benefit taxes, the fringe benefit taxes mainly consists of different types of the benefits that are provided by the employees with assembling the cash benefits such as the salary, wages, commissions or rewards. The assembling of the fringe benefits is seen when the fringe benefit exceeds $2000 in a fringe benefit tax year with the consideration of the rules prescribed by the Australian Taxation law (Herault and Azpitarte, 2014). As per the case study, the ABC Pty Ltd provides one of its employees named Alan with a mobile phone dill of $220 which seems to be not included in the fringe benefit. The company seems to be paying the school fees of the children of Alan and thereby it seems to be $20000 per year which is included in the fringe benefit. Besides this the latest phone of Alan is seemed to be included in the fringe benefit and thereby including the GST is also is included in the fringe benefit taxation system, the company spending at the Thai restaurant which seems to be providing benefit to the company as it will gain the benefits of the fringe benefit taxes (O’Donoghue, 2011). In this case the overall fringe benefit tax seems to be calculated as it is given below:-

ABC pays fringe benefit tax for Alan’s children’s school fees $20,000/year as it seems to be GST free and thus it is considered type 2 benefits (Mason, 2010). The tax rate will be applied @ 1.9608.

$20,000*1.9608 = $39,216

FBT rate 49% thus $39,216*49% = $19215.84    

For the handset provided by the company $2,000 including GST is considered as type 1 benefit (Woellner, 2012). The tax rate will be applied @ 2.1463

$2,000*2.1463 = $4292.60

FBT rate 49% thus $4292.60*49% = $2103.374

The company spend $6,600, including GST in a Thai restaurant for dinner of the 20 employees, which is considered as type 1 benefit (Moens and Trone, 2010). The tax rate will be applied @ 2.1463

$6,600*2.1463 = $ 14165.58

FBT Rate 49% thus $ 14165.58 * 49% = $6941.1342

No, the company ABC Pty Ltd will have to pay the same cost and the answer will be same as the calculations are provided above.

Yes the answer will be different this time as the clients are included in the dinner party provided by the company ABC Pty Ltd. Henceforth, no fringe benefit will be provided as it is considered as the business meeting and the henceforth the employees are supposed to be perform their duties as per their own crucial roles played in the organisation of ABC Pty Ltd (Parsons, 2011).

Conclusion

Income tax Act one of the most important taxation Act that force the residents as well as non residents in Australia to provide assessable tax, as per the norm and current taxation rate of the country for their income in this country. It play important role in raising necessary fund for the essential government expenditures. Income Tax assessment Act 1997 provides the useful guidelines in Australia to assess the income taxes of the individuals and entities as well provide the direction for the calculation of the taxable income for them. The Income Tax assessment Act 1997 – Sect 6.5 provides the guidelines to detect the ordinary income (Parsons, 2011). Besides this, it helps in calculating the fringe benefit tax, capital gain tax and GST for the tax conditions. The fringe benefit tax charged to the companies for providing additional non cash facilities to their employees.

References

Barkoczy, S. (2010). Foundations of taxation law 2011. Sydney: CCH Australia.

Coleman, C. (2012). Principles of taxation law 2012. Sydney, N.S.W.: Thomson Reuters.

Federal Court of Australia, Queensland District Registry: Jupiters Ltd v. Deputy Commissioner of Taxation. (2002).Gaming Law Review, 6(6), pp.571-576.

Kenny, P. (2012). Australian tax 2012. Chatswood, N.S.W.: LexisNexis Butterworths.

Kenny, P. (2013). Australian tax 2013. Chatswood, N.S.W.: LexisNexis Butterworths.

Kim Jihyun, (2013). Review of 2012 Corporate Tax Act Law and Income Tax Law Cases. Seoul Tax Law Review, 19(1), pp.423-466.

Mason, T. (2010). Income tax law. Frenchs Forest, N.S.W.: Pearson Australia.

Moens, G. and Trone, J. (2010). Commercial Law of the European Union. Dordrecht: Springer.

Parsons, R. (2011). Income taxation in Australia. Sydney, NSW: Thomson Reuters.

Bargain, O. and Keane, C. (2010). Tax-Benefit-revealed Redistributive Preferences Over Time: Ireland 1987-2005. LABOUR, 24, pp.141-167.

Bebbington, P. (2009). Fringe benefit. New Scientist, 203(2724), p.27.

Herault, N. and Azpitarte, F. (2014). Recent Trends in Income Redistribution in Australia: Can Changes in the Tax-Benefit System Account for the Decline in Redistribution?. Economic Record, 91(292), pp.38-53.

O’Donoghue, C. (2011). Do Tax-Benefit Systems Cause High Replacement Rates? A Decompositional Analysis Using EUROMOD. LABOUR, 25(1), pp.126-151.

Woellner, R. (2012). Australian taxation law select 2012. North Ryde, N.S.W.: CCH Australia.