LAW5230 Taxation Law-Taxation Rulings of MT 2027

50,000 km were work related
Petrol and oil per month - $2,000
Repairs and maintenance per month - $3,500
Registration per annum - $240
Insurance per annum - $960

In 1 February 2017, Charlie was involved in a minor car accident and he could not use the vehicle for 2 weeks (1st to 14th February 2017). This occurred before Charlie a week before Charlies wedding and Shine Homes decided to hire a car for that period at a cost of $1,000 to allow Charlie and his wife Deborah to go for their honeymoon trip to Gold Coast. Shine Homes paid for their honeymoon accommodation which is worth $3,000.During working hours Charlie parked his car at Secure Parking (an unrelated entity) and Shine Homes paid $200 per week.

Required
Advise both Charlie and Shine Homes about their fringe benefit consequences of these events. You are required to compute the taxable benefit where necessary.You need to cite the relevant case law and / or legislation.

1. Allan and Betty were living and working in Melbourne. They decided on a sold their Melbourne home and purchased a large country house on a 10 hectare block in central Victoria. Betty works part-time as an accountant and Allan as a locum doctor. Allan is popular with the elderly patients in the town and regularly is given home-made cakes and scones, along with his fee. On one occasion he treated a local wine maker dog for snake bite when the vet was unavailable and was given a dozen bottles of Lonarch Brae shiraz in appreciation. The wine had a retail value of $360.

2. Allan and Betty enjoy gardening. They plan to establish a few hectares of grape vines and begin growing vegetables. They attend a continuing education course on organic farming and find in their second year they have a surplus of produce. Betty started making marmalade and relish using her mothers recipes. Initially she gave them to neighbours but they became so popular that she opened a stall at the Newtown Growers Market held on the second Sunday of every month. Allan sold some of the excess to a local supermarket and now regularly supplies three retailers with sweet potatoes and pumpkin. They keep records as they never intended to make a profit but estimate that in a good month gross receipts could be $500 to $600.

3. Their neighbours have a citrus orchard and throughout the year vegetables are swapped for oranges and mandarins. This seems like such a good idea Allan and Betty decide to set up a system in the area. To join the system a person must pay an up-front, one-off fee of $50 to Allan and Betty as a charge for the keeping of administrative records. Thereafter people register their goods or services to be bartered. For example, Suzie is a retired hairdresser and will provide hairdressing services at her home. No money changes hands. Suzie would receive a credit to her account of 15 to 20 that she can exchange for goods or services of equal value from other registered participants in the scheme (fruit, vegetables, child minding, lawn mowing etc.).

Required 1:
(a) Advise Allan of any income tax consequences of para 1, above.
(b) Citing relevant case law, explain how a hobby is to be distinguished from a business.
(c) Advise Allan and Betty of any income tax implications in paras 2 and 3 above.
(d) Advise the participants in the barter scheme of any income tax implications.

Answer:

As per “taxation rulings of MT 2027” the private use has been determined as per “sub-section 136 (1)” this shows any kind of use made by the associated or the employees used in generating the assessable income of the employee which will be used for private use. The operating cost method has been further seen to be evaluated as per “sub-section 136 (1)”, which defines the valuation method for the effect of private use of the car.

Under the para 3 of the “Miscellaneous Taxation Ruling” concerning the business journey for recording the logbook and ideal document in case the car is used in the determination of the private use. The determination of fringe benefit for the car used by Charlie, the operational cost valuation shall be applied which is seen to follow “sub-section 136 (1) of the Miscellaneous Taxation Rulings of 2027” (Australian Government 2015).

The determination of the private use and business use of the car has been seen to be used for FBT purpose which has been further defined with the income tax law in ascertaining of expenditure in accordance with “section 51 of the Income Tax Assessment Act 1997”.  The difference in the private and business use of the FBT has raised several questions on whether Charlie had incurred expenditure on the use of the car and the expenditure in the present case.

Based on the several depictions of the case study FBT facets are taxable in nature under FBT Act 1986. The use of car by Charlie has been seen to constitute use of car for business use and should be used in producing the assessable income of the employees, henceforth it attracts FBT (Doran et al. 2013).

It needs to noted that Allan sells the excess produce of farming to the local farming and regularly supplies to three retailers. As per the Australian Taxation rulings, even the activities are considered as hobby but supplies services or goods to business (retailers), they may request for ABN. As there is not mention of having ABN, Allan and Betty should maintain “Statement by a supplier” form. This will allow the retailers to pay any tax amount which they are withholding from paying (SMAILES and MCDERMOTT 2013).

In a hobby there need not be any existence of retailers. In this case sold the excess produce to the local supermarket regularly supplying to the three sweet potatoes and pumpkin.

In the second case the setting up of barter system would need to pay an up-front, one-off fee of $50 to Allan and Betty and the same is kept for administrative records. This clearly calls for the business to be held for tax assessment.

As per Australian taxation guidelines it needs to be noted that barter transaction is assessable and deductible for income tax to the same extent as credit transactions or cash. The payment for the tax in this case needs to be in either cash or kind in this case (Whait 2014).

References

Australian Government (2015) ‘Australian Taxation Office’, Registerting for GST. Available at: https://www.ato.gov.au/Business/GST/Registering-for-GST/.

Doran, C. M., Byrnes, J. M., Cobiac, L. J., Vandenberg, B. and Vos, T. (2013) ‘Estimated impacts of alternative Australian alcohol taxation structures on consumption, public health and government revenues’, Medical Journal of Australia, 199(9), pp. 619–622. doi: 10.5694/mja13.10605.

SMAILES, A. and MCDERMOTT, P. M. (2013) ‘The Uniformity Of Taxation Penalties In Australia.’, Monash University Law Review, 39(1), pp. 213–245. Available at: https://search.ebscohost.com/login.aspx?direct=true&db=a9h&AN=90278272&lang=es&site=ehost-live.

Whait, R. B. (2014) ‘Exploring innovations in tax administration: A Foucauldian perspective on the history of the Australian Taxation Office’s compliance model’, eJournal of Tax Research, 12(1), pp. 130–161.