Taxation Law Assignment Help
Peta is an Australian resident. Two years back, she purchased a residence home in Kew. In this situation, ordinary income has to calculate. In the backyard portion of the house, there are two older and unmaintained tennis grounds. Although the present condition of those tennis courts are not so good, but also she purchased that property with some suitable plans. As the house is in good condition, so they can easily resides there. In addition, she also can make the required construction works of those tennis courts. After completion of the essential construction works of those tennis courts, she can able to make a huge profit by selling those courts.
In this situation, a local tennis club is interested in purchasing that tennis ground. In this case, the club Peta to do all the necessary renovation works of the tennis courts. As the club offering her lucrative deals for those tennis courts, she makes all the agreement work with the club. She spent an amount of $100,000 for the reconstruction works of the tennis courts. The club is offering her the amount of $600,000 for those tennis courts. In this situation in accordance with the Taxation Law of America, the financial gain of Peta from that deal has to be calculated. It also has to analysis if that income comes under the ordinary income category or not.
According to the taxation law of America, the income levels of the Australian can be into various types namely assessable income, statutory income and ordinary income (Fringe benefits tax, 1985). The section 5 as well as 6 of the Income Tax Assessment Law includes all the necessary rule and regulations about the ordinary laws. As per this legalization, all types of assessable incomes come under the category of ordinary income (Fringe benefits tax, 1986). If an Australian earns assessable income from outside sources of the country, that is also considered as the ordinary income and they have to give tax return to the Australian government. As per this laws, the foreign residents if earn money within that country then also have to pay income tax to the government as per the ordinary income laws (Fringe benefits tax, 1987).
In the case of individuals received money is considered as the ordinary income and they have to pay income tax to the government at the ending of the financial year (Fringe benefits tax, 1992). The incomes that are not included in the category of ordinary income are:
- If the person earn money from his hobby.
- If the money is received as the cash prize
- If the amount is received from others as gifts
- If the money is received from betting, but in this case the person should not be included in the betting business
- If the money is received as lending amount from the any financial institute
- The received money from the insurance policies also not comes under the income tax rules.
The case among FCT and Cooling are in the same conditions as the scenario of the case is based on the selling of property and the court’s decision is to consider the earnings of the property seller under the category of ordinary income (MACNAUGHTON, 1992).
Implementation of laws
It has to decide whether the earnings of Peta come under the ordinary income category or not. Peta purchase the tennis courts in very bad conditions, but her foremost aim is to make profit by selling them. When she got offer from a reputed tennis club, she spend $100,000 for the renovation works of the tennis courts, and sold them at the cost of $600,000. In this situation, to categorized Peta’s income as the ordinary income, some provisions have to be fulfilled (Marks, 1989).
- Properties of the buyers are considered as their asset. According to the laws, the earnings from selling property is comes under the category of assessable income.
- When people get benefits from his assets that are categorized as ordinary income. As Peta spent $ 100,000 for the renovation of the tennis court and sold it at $ 600,000. As Peta gain from this deal, this income is considered as the assessable income.
- In the case of money earned from the process of selling property is categorized under ordinary income.
The tennis ground is included in the property of Peta. As she sold a part of her property, her income comes under the category of capital asset income. So, in this case the income of Peta is under the group of capital income taxation and the tax has to paid by Peta is to decide as per the rules of Capital Gain Taxation.
Tennis court is the part of the property of Peta. After making all the renovation work, she sells a part of her property. The money she earned is not comes under the ordinary income category, her income comes under the Capital Gain tax.
Alan is an employee of the organization ABC Pty ltd. The packages offered to him at the time of his joining period are:
- $300,000 will be paid to him as salary
- An amount of $220 will be paid to him for mobile bill payment including GST. The company also said that if the bill amount excesses that amount, the remaining amount have to spend by Alan. He uses the phone only for official purpose.
- The organization also pays the school fees of his children. The organization paid $20,000 as the school fees for this children that is also GTS free.
Alan gets agree with the conditions of the organization and joined the organization. The organization also offers him a new mobile that costs $2000; the amount is also included under GST.
The organization arranges a party to celebrate their success at the end of the year. They arranges a party for 20 individuals that cost $6,600; the amount is also included GST.
- FBT amount has to be compute at the financial year ending. The organization also has to consider GST-inclusive transactions.
- If the number of employees is different, the difference calculation has to analysis
- It also has to analysis how the fact of participation of the clients in the party makes alterations in the tax calculation
According to the taxation laws of Australia, the organization offers benefits to their employees as per the FBT tax (Pope, et al, 1993). The tax calculated at the rate of 49% on the total profit of the companies at the end of a financial year. The rules plays vital roles in this case are:
- Necessary digital devices including laptops, mobiles etc
- Protecting clothing supplied by the organizations deals in mines or factories
- Necessary tools related to trade
The above items are included under FBT tax (THORNTON, 1992). The small business organizations that have turnover less than $2 m for a financial year are considered excluded from the FBT. In the case of providing food offering to their employees on regular basis and without any occasions is also considered as excluded from FBT (Woodbury and Huang, 1991).
The local government also levies GST at the rate of 10%. To avoid the double taxation, the government provides Input Tax Credit facility (Werther, 1974).
Implementation of laws
In the present situation, the organization comes under both the FBT as well as GST. The tax amount has to pay by the company:
For Section A:
The organization provided Alan monthly $220 for the mobile bills. The company also provided the mobile to him and he uses it for only work purposes. So, annual costs to the company = $(200 * 12)
The organization also gives $20,000 per annual for the school fees Alan’s children’s. This money is GST free but comes under FBT.
The organization also provided to Alan a mobile phone that cost $2,000 and it is included under GST and exempted of FBT.
ABC arranged a party for the 20 employees that charge $6,600. It is comes under FBT but Excluded from GST.
|The total tax benefits offered by the company to the employees||= $(2,400 + 20,000 +6,000)|
|The FBT for current financial year||= $28,400 * 49%|
For Section B:
In this part, it has to consider if there are difference in the number of employees. If the total employee is 5, the organization is considered as small organization and nothing would be changed. The dinner party comes under FBT as it was exclusive of occasional party. The FBT was remaining same whether there is lower number of employees.
For Section C:
If the clients are also invited for the dinner, the party will not be under the FBT limit.
|In that case, revised Fringe Benefits value||=$ (2,400 + 20,000)|
= $ 22,400
|Revised Fringe Benefits Tax||= $22,400 * 49%|
The FBT calculation for the organization is properly based on the taxation laws. In this case, the difference in the tax amounts in different situation is also considered.
- Fringe benefits tax. (1985). [Canberra?]: Australian Labor Party.
- Fringe benefits tax. (1986). Sydney: KMG Hungerfords Chartered Accountants.
- Fringe benefits tax. (1987). [Sydney]: The Company.
- Fringe benefits tax. (1992). Canberra: Published for National Marketing Services of the Australian Taxation Office by the Australian Govt. Pub. Service.
- MACNAUGHTON, A. (1992). Fringe benefits and employee expenses: Tax planning and neutral tax policy. Contemporary Accounting Research, 9(1), pp.113-137.
- Marks, B. (1989). Understanding fringe benefits tax in Australia. North Ryde, N.S.W.: CCH Australia.
- Pope, J., Fayle, R. and Chen, D. (1993). The compliance costs of employment-related taxation in Australia. Sydney: Australian Tax Research Foundation.
- THORNTON, D. (1992). Discussion of “Fringe benefits and employee expenses: Tax planning and neutral tax policy”. Contemporary Accounting Research, 9(1), pp.138-141.
- Werther, W. (1974). Flexible Compensation: Rethinking Fringe Benefits. Compensation & Benefits Review, 6(2), pp.55-59.
- Woodbury, S. and Huang, W. (1991). The tax treatment of fringe benefits. Kalamazoo, Mich.: W.E. Upjohn Institute for Employment Research.