Issue
Rule
Application
The act says to keep a record of it for at least 5 years so that tax officers can understand the tax liability for that respective year.
Majorly, the Fringe Benefits Tax Assessment Act (FBTAA) 1986 is used to understand the concept and impose the benefits under this act.
FBT dates back to 1986, where it was propounded to overcome the income tax deficiencies (Australian Taxation Office, 2020). It involved benefits other than salary and to wages. It is calculated annually beginning on 1st April and ending on 31st March the succeeding year (Australian Taxation Office, 2020).
Brief facts-
During the current tax year Erin received the following amounts:
Issue-
Calculate the assessable income.
Solution-
Details |
Sections |
Authority |
Assessable income (in $) |
Deductions (in $) |
Salary and Wages |
Sec 6-5 |
98000 |
||
Interest on bank deposit |
Sec 6-5 |
Repayment of capital - Interest (4200) deductible - Use Test |
4200 |
|
Rent |
Sec 6-5 |
Rent is assessable income (500*7*50) |
175000 |
|
Winnings on poker machines |
Sec 8-1 |
Gambling and betting wins are not taxable income unless one is operating it |
10000 |
|
Selling eggs |
Sec 8-1 |
Considering it a hobby |
500 |
|
Holiday bonus |
Sec 6-5 |
Income from the employer |
1000 |
|
Watch from a client |
Sec 8-1 |
A personal gift from a client |
200 |
|
Total |
278200 |
10700 |
||
Erin’s taxable income |
267500 |
Explanations-
Issue-
Rule-
Application-
Revenue expenditure means an expense that one has consumed or will consume within an accounting period of 12 months (Caldwell, 2014). These are like electricity bills, rates, wages and salaries, motor vehicle expenses etc. They could be paid in advance but that does not change their nature (Caldwell, 2014). The only effect is seen in companies balance sheets for that accounting period (Caldwell, 2014). Capital expenditure is usually seen as expenditure on assets, something that shall benefit the company in the long run like more than one accounting period of 12 months (Caldwell, 2014). These could be furniture, plants, types of machinery etc (Caldwell, 2014). Not always assets going to be in physical forms. It also includes non-tangible ones like intellectual property rights (Caldwell, 2014). The only crucial feature of this expenditure is that should last beyond a period of 12 months.
To distinguish between capital expenditure not entitled for a tax deduction as per 8-1 of ITAA, 1997 and revenue expenditure which is deductible some precedents demarcate the two. In Sun Newspaper Limited v Federal Commissioner of Taxation [(19380 HCA73; 61 CLR 337], the guidelines were given for the difference between the two. Three elements are to be seen is ascertaining which one is capital and which one is revenue expenditure. First, the nature of advantage sought; second, the way it is going to be used; and third the means adopted to have it. A similar kind of judgement was given in AusNet Transmission Group Pty Ltd v Federal Commissioner of Taxation[(2015) HCA 25]. In absence of circumstances where one cannot judge it, then by default, it is being taken as capital expenditure adjudged in British Insulated & Helbsy Cables v Atherton [(1924-26) 10 TC 155]. The nature of the advantage distinguishes the two of them. Therefore, the payment of rent for business premises is fully deductible, even when half of the payment was credited at the purchase price, adjudged in Federal Commissioner of Taxation v South Australian Battery Makers [(1978) HCA 32] and recently in Commissioner of Taxation v Sharpcan Pty Ltd [(2019) HCA 36].
There is no specific mention about the two in the Income-tax assessment act 1986. However, there are certain sections that define examples of it. Like under part 3rd, division 3 subdivision H clause (2) defines the period of deductibility of certain advance expenditures. In the sub-clause (b) says that where expenditure is made in respect to rent or lease rent which is made in advance shall be considered as an advance expenditure which shall be subject to tax deductions. Then there is section 8-1 which talks about that expenses of revenue nature are deductible but those of capital nature are not. However, since there is no list of it in the act, it is judged with the help of precedents which gives a clear picture.
Paula is employed as a Physical Education (PE) teacher at the local high school.
During the year, she spent the following amounts for which she has substantiation:
Issue-
Which of the above expenses is deductible?
Rule-
Draft Taxation Ruling, 2019
Solution
As per the TR 95/14, the ruling applies to teachers, tutors, early childhood, primary, secondary, special education, technical and further education (TAFE) and relief employee teachers. It does not apply to expenses related to lectures at higher education and teachers engaged in exchange programmes. It entails the allowances and reimbursements under section 25and paras 26(e) and 26(eaa) of ITAA 1936.
The deduction is allowable only when the expense is-
If the expense is incurred partly for work purposes and partly for private purposes, the work-related expense is reimbursed.
Therefore, as per The Australian Tax office, 2020-
AusNet Transmission Group Pty Ltd v Federal Commissioner of Taxation[(2015) HCA 25].
Australian Tax Office. (2020. Taxation ruling. Retrieved from https://www.ato.gov.au/law/view/document?DocID=TXR/TR9514/NAT/ATO/00001#P21
Australian Taxation Office. (2020). Fringe benefits tax – A guide for employers. Retrieved from https://www.ato.gov.au/law/view/pdf/sos/fbtgemp20200129.pdf
British Insulated & Helbsy Cables v Atherton [(1924-26) 10 TC 155].
Caldwell, R. 2014. Taxation for Australian businesses: Understanding Australian business taxation concessions. John Wiley and Sons, 2014.
Commissioner of Taxation v Sharpcan Pty Ltd [(2019) HCA 36].
Federal Commissioner of Taxation v South Australian Battery Makers [(1978) HCA 32]
Federation University. (2020). Fringe Benefits Tax (FBT). Retrieved from https://federation.edu.au/__data/assets/pdf_file/0018/38061/FBT_What_is_it.pdf
Ferguson v FCT [(1979) 9 ATR 873]
Hayes v FCT [(1956) 96 CLR 47],
Laidler v Perry [(1966) AC 16],
Sun Newspaper Limited v Federal Commissioner of Taxation [(19380 HCA73; 61 CLR 337],
The University of Adelaide. (2019). Legal Compliance Education and Awareness. Retrieved from https://www.adelaide.edu.au/legalandrisk/system/files/media/documents/2019-01/FBT_101.pdf
Remember, at the center of any academic work, lies clarity and evidence. Should you need further assistance, do look up to our Taxation Law Assignment Help
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