Australian Taxation Law - Assignment Example

AUSTRALIAN TAXATION LAW Name of Student: Student No: Date: Name of Supervisor: Question 1(a) The law firm has eighty staff, and plan to hold a luncheon and perhaps give gifts to the employees. He has three options; to have current employees attend only; current employees and their associates attend at a cost of $180 per head to the firm; current employees, their associates as well as some clients at a cost of $365 per head. Gifts that do not constitute entertainment are fully tax deductible. It is possible to access a GST input credit however they are subject to FBT if they are more than $100 per employee. This went up to $300 after 1st April, 20071. Gifts for customers are fully deductible and there is a GST input tax credit but no FBT is payable. On a normal working day, expenses do not attract fringe benefits tax neither can tax deduction for expense nor input credit be claimed for employees. If the employee is not at work, or it is not a normal working day, fringe benefit tax applies and a tax deduction as well as input credit is permitted should the total benefit to the employee or his family is more than $300. If this amount is not exceeded, no FBT is payable, however it is not also possible to claim tax deduction or input credit. In the case of gifts to customers, there is no tax deduction levied, neither is GST input credit or FBT payable2. The only occasion upon which non reportable benefits pose a benefit to the firm are if there is something to be gained by understating taxable income. However, non-reportable income is still taxable at the maximum rate via FBT. Should taxable value of fringe benefits amount to less than $2000 with the exception of exempt and non-reportable ones, they do not need to be recorded on the group certificate. Non-reportable benefits would include meal entertainment and entertainment facilities3. Parliament interpreted the meaning of entertainment as denoting amusement in terms of the context herein. The ATO adds to this definition the fact that in a majority of instances, merely providing food and drink adheres to this criterion of entertainment. The instances in which providing food and drink does not meet the criteria for entertainment in the case of Division 32 of the ITAA is very narrow4. Subsection 51AE (3) defines entertainment broadly as; a) Entertainment provided by means of food, drink or recreation or else as5 b) Travel and accommodation connected with or to facilitate entertainment as stated in a) above6. The 50/50 method indicates that the total cost of all entertainment regardless of the number of employees, associates or guests present will be divided equally in two. 50% of the costs will be subject to FBT, with the possibility of claiming 50% of the GST credits. The other 50% of the total cost is not liable to FBT and the GST credits associated with this portion cannot be claimed7. In the case of Robin Hood, if the employees only attend, this means that; a) current employees only entertained at a social function are said to be undergoing meal entertainment, and is not a reportable fringe benefit and therefore no Fringe Benefit tax is paid, the employees do not get a deduction. The tax exempt body is however liable for fringe benefit tax8. b) Current employees and their associates at a cost of $180 to the firm. When employees are given gifts or small incentives whose value is less than $300 and they are not frequently provided, this is classified as a minor benefit by the Australian Taxation Office (ATO). These are exempt from fringe benefits tax9. Meal entertainment for associates is considered to be subject to FBT and is reportable to the employee10. c) Current employees, their associates and some clients attend at a cost of $365 per head. Business lunches and dinners are categorised as meal entertainment in addition to business meetings conducted over lunch and dinner. Employees, associates and clients are all eligible 50% meal entertainment claim for FBT11. The expenses are over $300 so it does not qualify as minor benefits and therefore would attract FBT. A point to note is that if the benefit is liable to FBT, the respective cost centre is responsible for the cost. Where FBT is attracted, the total expense incurred may be multiplied by two. Fringe benefits tax is calculable on whatever value is taxable and is payable by Robin Hood firm. The value that is taxable is the gift or small incentive in this case, the meal. Question 1(b) Errol provides his employee with the use of a car for 183 days during the FBT year ending 30th June 2013. During this time, the car travelled 16,000km. Errol purchased the car the previous year for $50,000. The employee contributed $1,000 towards the running costs of the vehicle and has provided Errol with relevant evidence. Base value of the car $50,000 Last commitment time was After 7:30pm AEST on 10 May 2011 Are you choosing to skip transitional arrangements? No FBT year 2012-2013 Kilometres travelled 16,000kms Number of days used or available for private use in the FBT year 183 The number of days in the FBT year 365 Employee contribution $1000 Taxable value of car fringe benefit $4,013.69 Table 1: calculation of taxable value of car fringe benefit. Question 2 (a) GST considerations for each party in regard to the arrangement of substituting cash payment for food items considering supply. GST is an indirect tax which is used to tax final private consumption in Australia charged at 10%. It is intended to apply to most goods and services and therefore it is quite broad based. This indirect tax is levied upon bodies but the incidence is aimed at imposition on transactions that involve the supply of good and services to consumers and bodies that are unregistered through addition to the price of goods and services. Within the supply chain, those who are liable for GST are entities that make taxable supplies. Taxable supply involves; Registered entities or entities required to be registered for GST. Supply that is carried out in the course or advancement of an enterprise those for consideration Entities connected to Australia. GST is generally payable on the value added at every phase of the commercial chain when dealing with goods and services. These dealings are described as 'supplies' in the GST Act. GST cannot arise if there has been no supply or importation12. The importance of supply was reinforced in the Full Federal Court13 in which it was noted that in terms of economy, GST may correctly be named as a consumption tax since the liability falls on the ultimate consumer. In legal analysis however, that which generates tax liability as well as the obligation to record and report is not consumption but a specific type of transaction known as supply14. 'Supply' is defined in section 9-10 of the GST Act. The basic rules for GST require that the supplier must carry out a supply to the entity known as the recipient. The GST on a taxable supply, namely the service, is payable by the registered supplier. Therefore for Bridgette and Eddie, both of whom are registered for GST, would both be liable to pay GST since they are both suppliers of goods and services. When there is a barter transaction this is viewed as supply for consideration by each party which means that tax invoices will require to be issued in order to facilitate input tax credits be claimed by the parties. In such cases where the transaction is non-monetary, the GST is based on the GST inclusive market value of the property or service given as consideration15. Question 2(b) The availability of input tax credits depends upon the creditable purpose for which an entity acquires a thing, where to some extent; it is aimed at being utilised to operate some enterprise except for the purpose of making input taxed supplies. How much input tax credits which an entity is entitled to, is dependent upon to what extent the entity plans to utilise the acquisitions for business. This creditable purpose is ascertained at the moment of purchase. In any case the actual use to which the purchase is put over the long run may diverge from the intended use. When the extent of creditable purpose changes there is either an increase or decrease in adjustment required. A change is only needed where the GST exclusive value of the acquisition or importation is more than $10,000 for financial supplies and $1000 for every other type of supply16. Construction of new residential premises is liable for claims of input tax credits. Should these be rented out temporarily, this constitutes an input taxed supply which attracts an adjustment at the end of the adjustment period. Should the residential premises be sold later, this constitutes a taxable supply and adjustment will need to be made at the end of the adjustment. How adjustments are calculated is laid out in the GST legislation. To ascertain whether an adjustment is needed, the calibre of actual use is computed over a time period from the date of acquisition to the end of the adjustment period. Bibliography A. Articles/Books/Reports Commonwealth of Australia. Review of the Legal Framework for the Administration of the Goods and Services Tax. Issues Paper. July 2008. p. 28 Hartman, Julia. B.Bus CPA, CA, Registered Tax Agent “Fringe Benefits Tax Booklet” BAN TACS Accountants Pty Ltd. July 2013 B. Cases Taylor v. Oram and Another (1862) 1 H & C 370) Sterling Guardian Pty Ltd v. Commissioner of Taxation (2006) 149 FCR 255; 2006 ATC 4227; (2006) 62 ATR 119 HP Mercantile Pty Ltd v Commissioner of Taxation (2005) 143 FCR 553 at [10]-[15] C. Legislation GST Act, division 129. TR97/17 FBTAA 136(1) and 58P TR 97/17 Para 17 & 18 TD 94/55 Para 1 "quote" ITAA 1997 S32.10, 32.30 FBTAA 1986 S37AD Read More