Taxation Law for Commonwealth Consolidated Act

Discuss about the Taxation Law for Commonwealth Consolidated Act.

1: Section 6-5 of Taxation Law of Australia provided guidelines on applicable tax on assessable income. Income, which is subject to taxation, is called assessable income.  Income according to ordinary concepts is essential ingredient of assessable income. Ordinary income is considered as the amount an individual earns or derives in ordinary course of running any type of business.

Ordinary income generally comprises three main categories as given below:

Income from any type of business like trading, retailing etc

Income from personal exertion like salary or wages

Income from property like rent

On the connotation of the case in our hand, it is important to note that Section 6-5 also mentions that accessible income should include the monetary amount received from isolated transaction outside of ordinary business, with an intention to make profit. Any amount above written down value of a depreciating asset, if sold, comes under the purview of assessable income (Austlii, 1997).

The case in our hand talks about purchase and sale of property which is essentially immovable asset from the owner’s perspective. Peta acquired the assets two years back. However, in the current tax year, she has renovated her property and have sold it. This a type of transaction that doesn’t fall under three of the generally considered category of ordinary income. This is one off sale of an asset. This is not a regular trading activity. This transaction neither falls in the category of income from wages and salary nor falls under the category of income from property like rent, which is essentially a recurring income. However, from the case study, it is evident that Peta spent certain amount for restoration of the asset (tennis court) and then has sold above the written down value. Hence, taking reference from Section 6-5, the transaction to sales of this asset has been made with an intension to make profit. Hence, this transaction should fall under the purview of assessable income but not under the purview of ordinary income under the guiding principle - amounts from isolated transactions outside the ordinary course of business, if the seller intends to make a profit.  The clause of assessable income with reference to depreciable asset may not apply here as the property value in this case has gone up (Legislation, 1997).

Section 6-5 provides guidelines on certain exemptions. These exemptions fall under various clauses and sub clauses like commission income, capital gain from selling certain capital assets like building or land, payment of selling certain know how etc. In our present case, the transaction is essentially falls under the category of selling capital asset and hence it is exempt from considering as assessable income but falls under the purview of capital gain tax.

Going by the above articulation, we can conclude that the sales of tennis court after restoration neither falls under ordinary income bucket nor fall under the purview of assessable tax. Only capital gain tax is applicable for these sales (nexusnotes-media, 2000).

2. A:

Fringe benefit tax (FBT) is the tax levied under Australia Tax System on majority of non-cash benefit to the employees. This tax is levied on the employer whereas the benefit can be provided either directly to the employee or to someone who is associated to the employee. FBT is calculated on the taxable value of the fringe benefit provided by the employer for the year runs 1 April to 31^st March. Applicable broad categories of fringe benefits include car including car parking, entertainment, expense payment, loan, debt waiver, housing etc.

The case in hand provides a number of benefits of by the employer to one of its employees.

Salary of the employee is $300,00. As per the new changes, effective from 1^st April 2016, salary package exempt from FBT is capped at $2550 per FBT year. Since the salary package of Alan exceeds the capped level, FBT is applicable for this case on the other benefits offered by ABC company on Alen (Ato, 2015).

Monthly mobile phone bill falls under the purview of expense payment fringe benefit. Monthly mobile bill, $200, is inclusive of GST. Mobile bill is considered under reimbursement of employee expense and hence GST credit can be claimed. School fees of Alen’s children are also part of FBT under the category of expense payment fringe benefit. Since this is GST free, ABC Company cannot claim GST credit against this.  Latest mobile handset offered by ABC falls under the purview of residual fringe benefit category and cannot claim GST credit.

At the end of the year, the dinner party at local Thai restaurant hosted by Alen to all employees and their partners will be considered as fringe benefit as the benefit is targeted to the employees of ABC company it the associated members of the employees.  Total expense is in excess of $300. This expense has taken place outside of the office place. This type of FBT is covered under entertainment and fringe benefit category. While computing the GST liability, ABC Company cannot claim GST credit (Ato, 2012).

B:

For small company, a number of concessions are applicable in terms of fringe benefit. Certain work related items are also exempt from FBT for the employees of small organization.  These work related items include mobile handset, laptop, portable printers etc. In our case, if ABC had only 5 employees. It can be assumed that the total turnover of this company is less than $2M per FBT year.  Hence, ABC Company would fall under small business entity. In that case, mobile handset offered by ABC to Alen would not fall under the purview of FBT (Rediff, 2005). 

C:

The scenario indicates Alen, the employee of company ABC hosted the dinner party in the local restaurant where the Clients of ABC company also attended the party along with other employees. The expense incurred by Alen towards entertainment comprised expense towards the employees of the company as well as the expense for the Clients of the company. Total expense needs to be split fewer than two heads. Expense incurred towards the entertainment of the employees will attract FBT whereas the other heads of expense should be reported as expense reimbursement for the Clients and would not be treated as fringe benefit (FRCA, 2012).

References:

Ato, 2012. What is a fringe benefit? [Online] Available at: https://www.ato.gov.au/General/Fringe-benefits-tax-(FBT)/In-detail/Employers-guide/What-is-FBT-/ [Accessed 09 September 2016].

Ato, 2015. Fringe benefits tax (FBT). [Online] Available at: https://www.ato.gov.au/General/Fringe-benefits-tax-(FBT)/ [Accessed 09 September 2016].

Austlii, 1997. Commonwealth Consolidated Acts. [Online] Available at: http://www.austlii.edu.au/au/legis/cth/consol_act/itaa1997240/s6.5.html [Accessed 09 September 2016].

FRCA, 2012. FRINGE BENEFIT TAX. [Online] Available at: http://www.frca.org.fj/wp-content/uploads/Brochures/Fringe_Benefit_Tax_For_All_Employees_and_Employers.pdf [Accessed 09 September 2016].

Legislation, 1997. Income Tax Assessment Act 1997. [Online] Available at: https://www.legislation.gov.au/Details/C2013C00082 [Accessed 09 September 2016].

nexusnotes-media, 2000. Jurisdiction to Tax - RIGHT TO TAX. [Online] Available at: https://nexusnotes-media.s3-ap-southeast-2.amazonaws.com/wp-content/uploads/edd/2015/04/Taxation-Law-I-Notes21415-copya.pdf [Accessed 09 September 2016].

Rediff, 2005. What is fringe benefit tax? [Online] Available at: http://www.rediff.com/money/2005/mar/22spec.htm [Accessed 09 September 2016].

 

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