The term Fringe benefit can be defined as an additional amount that can be provided to the employee or to the worker except their salary or remuneration. These extra amounts are helping the employers to recruit more employees and motivate the old employees. Taxes on the basis of these fringe benefits are assessed by Fringe Benefit Tax Assessment Act 1986. It is obvious to state that there must be certain employee and employer relation in between the beneficiary and benefit provider. However, it should be understood that there are various kinds of fringe benefits present under the law. This case study is depending on the car related fringe benefit.
Car fringe benefits are provided under section 7 of the Fringe Benefit Tax Assessment Act 1986. If a car is given to an employee for use it for his or her professional use, it can be called as professional benefits. On the contrary, if the employer allows an employee to use that car for his personal use, that will be termed as fringe benefit and the car will come under the parlance of the fringe tax benefit. In certain circumstances, if the employee does not use the car personally, but the car is available for the personal or private use, that will also count as fringe benefit and tax will also assess in that case (Braverman et al., 2015).
There are two methods by which a fringe benefit tax can be assessed such as statutory method and operating cost process. The process of statutory method has been prescribed under the Fringe Benefit Tax Assessment Act 1986 and section 9 of the Act has provided all the calculating process of the methods. However, the tax rate for the car under the statutory formula depends on the cost of the car. On the other hand, the operating cost formula has been stated under section 10A and 10B of the Act. The main considerable portion under this process is the taxable value of the cost that has been spent for the operational purpose of this car. The rate of the tax is being determined on the basis of the lowest taxable values of the fringe benefits. However, in case of both the methods, all the related documents are to be maintained properly to avoid all the future dilemmas.
It has been learnt from the case that the car given to Charlie are being used for private use also besides the professional purpose and according to the provision of the Fringe Benefit Tax Assessment Act 1986, Charlie is liable to pay fringe benefit tax for the sedan therefore. The car has been provided to him by the Shiny Homes Pty Ltd and therefore, there is fair provision to include the car under the fringe benefit tax.
Based on the above mentioned facts, it can be stated that both the methods will be applied on the car to evaluate its taxation rates as per the provision of the Fringe Benefit Tax Assessment Act 1986. The taxable value of the car should be calculated by assuming the statutory rate as 20% and this percentage should be treated as the base value of the car and the figure should be resulted after multiply the percentage with the rear base value of the car. However, certain kilometres has been mentioned in this case that is covered by the car is not at all reliable in case of statutory method. In case of operating cost method, the operating cost of the car should be separated in case of the work related matters and private use of the car. Therefore, the taxable values in both the cases should be different in nature.
Considering the above mentioned taxation formula, it has been understood that the taxation value of the statutory method is lower compare to the operational cost method and therefore, the statutory method will be considered as the appropriate calculation method. The hire charge of the car should also be included within the taxable value of the benefit tax (Woellner et al., 2016). All the additional payment made by the company to the employee are treated as the fringe benefit and therefore, the honeymoon accommodation provided by the company are also included under the fringe benefit program and in this case, that will also included under the fringe tax benefit and should be assessed to that effect (Barkoczy, 2017). However, in case of fringe benefit tax, certain benefits are provided to the tax payer and that is governed by section 39A of the Act. According to the section, if the car, while use for private purpose, is being parked in a leased property or at the property of the employer should get certain tax benefit. However, in this case, it has been observed that the car of Charlie had been parked at a separate entity and therefore, he could not claim for the benefit (Gale & Samwick, 2014).
In the present case, it has been observed that Allan and Betty have made a decision to sale their old house at Melbourne and also decided to buy a property in Central Victoria, which is far better and bigger compared to their current house. It has also been learnt from the facts that Allan is a Locum doctor and Betty is working as a part time accountant. Therefore, their income should be calculated under the Income Tax Assessment Act 1997 (Hodgson & Pearce, 2015). Allan, who is the Locum doctor, is very popular because of his healing power and the elderly people of the city are very much depended on him and many of his patients are given certain confectionery items to him which can be termed as token of appreciation. It can clearly be stated that these gifts are not commercial products and therefore, the question of additional tax consequence will not be cropped up. On the other hand, it has been observed that Allan also get certain wine bottle worth $36 from one of his clients and that bottle is of commercial value. Therefore, Allan has to pay tax for the bottle as the item will be assessed as a taxable income and therefore, such item will be included under the income tax liability program and the provisions of Income Tax Assessment Act will be imposed in this case.
There are certain differences can be pointed out in between the hobby and business (Maurer Maurer et al., 2017). Under the provision of the Taxation Ruling TR 97/11, all the related indicators of a business have been prescribed and therefore, certain differences have made in between hobby and business which can be classified as follows:
There have certain cases been filed to determine the differences in between the business activities and hobbies. However, in Cooper Books Pty Ltd vs. Commissioner of Taxation of Commonwealth of Australia, the court has pleased to make certain differences in between business activities and hobbies.
In case of hobby, there is no question of commercial interest exists. Therefore, hobbies can be exempted from tax liabilities to that extent until any commercial interests are being gained by this. However, if the hobby becomes the profession of someone, then taxes could be imposed and that hobby will become a business activity (Pearce & Pinto, 2015). From the given perspective, it can be seen that gardening was the hobby of Allan and Betty. However, at the point of time when Allan and Betty had made certain profits from the hobby and started to earn $500 to $600 from the hobby, it becomes business activity. Additionally, barter system should also be included under the Income Tax Assessment Act 1997. Therefore, all the income shall be assessed under the income tax system in this case.
Barter is an example of exchange system and in this case, all the transactions are made without any monetary means. Under this system, certain things are transferred in lieu of other thing. However, in Australia, the process of barter system is also included under the Income Tax Assessment Act 1997 (Gitman, Juchau & Flanagan, 2015). Certain provisions of the barter system are included under the Goods and Service Tax system. However, that system should be involved with certain commercial transactional. In case of any commercial transaction, barter system will be regarded as a part of the cash and credit system. in the given case, it has been observed that both Allen and Betty has decided to develop barter system regarding their business and also earns money from that system. Therefore, the barter system involves commercialisation and therefore is a subject of tax and GST system (Saad, 2014).
Barter system is quite similar to the cash and credit system and all the taxes that are assessable or deductable similar to that of cash and credit option. When a person makes certain commercial exchange will become a part of the taxable sale and will become a part of the tax liability. However, in case of the commercial barter process, the exchangeable thing can be money. If the values of the barter system are included under the GST entity, registration of the process is needed. The market value of the goods will help to assess the tax liability under the barter system (Tran-Nam, 2016).
Reference:
Akins, B.W., Chapman, J.L. & Gordon, J.M., 2014. A whole new world: Income tax considerations of the Bitcoin economy. Pitt. Tax Rev., 12, p.25.
Barkoczy, S., 2017. Core Tax Legislation and Study Guide. OUP Catalogue.
Barrett, J. M., & Veal, J. A. (2016). Tax Rationality, Politics, and Media Spin: A Case Study of the Failed ‘Car Park Tax’Proposal.
Braverman, D., Marsden, S. & Sadiq, K., 2015. Assessing Taxpayer Response to Legislative Changes: A Case Study of In-House Fringe Benefits Rules. J. Austl. Tax’n, 17, p.1.
Braverman, D., Marsden, S., & Sadiq, K. (2015). Assessing Taxpayer Response to Legislative Changes: A Case Study of In-House Fringe Benefits Rules. J. Austl. Tax’n, 17, 1.
Gale, W.G. & Samwick, A.A., 2014. Effects of income tax changes on economic growth.
Gitman, L. J., Juchau, R., & Flanagan, J. (2015). Principles of managerial finance. Pearson Higher Education AU.
Hodgson, H., & Pearce, P. (2015). TravelSmart or travel tax breaks: is the fringe benefits tax a barrier to active commuting in Australia? 1. eJournal of Tax Research, 13(3), 819.
Kim, P.H., Longest, K.C. & Lippmann, S., 2015. The tortoise versus the hare: Progress and business viability differences between conventional and leisure-based founders. Journal of Business Venturing, 30(2), pp.185-204.
Maurer, L., Port, C., Roth, T., & Walker, J. (2017). A Brave New Post-BEPS World: New Double Tax Treaty Between Germany and Australia Implements BEPS Measures. Intertax, 45(4), 310-321.
Nijland, L. & Dijst, M., 2015. Commuting-related fringe benefits in the Netherlands: Interrelationships and company, employee and location characteristics. Transportation Research Part A: Policy and Practice, 77, pp.358-371.
Pearce, P., & Pinto, D. (2015). An evaluation of the case for a congestion tax in Australia. The Tax Specialist, 18(4), 146-153.
Saad, N. (2014). Tax knowledge, tax complexity and tax compliance: Taxpayers’ view. Procedia-Social and Behavioral Sciences, 109, 1069-1075.
Tran-Nam, B. (2016). Tax Reform and Tax Simplification: Conceptual and Measurement Issues and Australian Experiences. In The Complexity of Tax Simplification (pp. 11-44). Palgrave Macmillan UK.
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