01 Taxation Assignment Sample

Here’s the best sample of 01 Taxation Assignment, written by the expert. 

Introduction

In the current environment, the taxation is one of the concerning aspect that is very important for the companies and peoples. It is mandatory financial charge that is based on the some financial principles laws. A company and individual person that always pay the taxation liabilities according to the current liabilities of the company. In the word each company has the different rules and regulations regarding the tax. In this way, this report is based the treatment of the income tax that improves the knowledge on the various concepts and term in the taxation. In this, the first part of report is based on the fringe benefit that is provided by a company to their employees. Furthermore, in the next section, this report represents the discussion on taxation that can apply on the context of the earning from the taxation.    

Answer 1

In the business environment, fringe benefit is a significant part of the business. It is paid additional in the context some essential benefit to the employees. Fringe benefits tax (FBT) is a tax that is paid by the employers on certain benefits which are provided to the employees including their family and other relatives. The benefits are provided in addition to or as a part of total salary or wages package. FBT is different from income tax and computed on the taxable value of the fringe benefits provided. These additional benefits can be seen spatially from the salary and wages. In Australia, if a company follows Australian taxation law then it is essential to know for the company about the types of the fringe benefits. In this, shine homes and Charlie should know that fringe benefits tax various categories in the fringe benefit. The bellows are the main fringe benefits:

1. Car fringe benefit
2. Car parking fringe benefit
3. Entertainment and fringe benefits
4. Loan fringe benefits
5. Housing fringe benefits
6. Living away from home fringe benefits  (Jotzo, 2012)

From the above table, it is found Shine Home is providing $66512 as the fringe benefit to the Charlie. In relation to this, the Fringe Benefits Tax Act 1986 and the Fringe Benefits Tax Assessment Act 1986 are incorporated. This law allows the government to impose the tax in respect of the fringe benefits taxable amount of the employer of a year of tax.  The rate of tax regarding the fringe benefits taxable amount of an employer of a year of tax is 47%. FBT is an assessment required on the estimation of specific advantages, known as “fringe benefits”, gave by the company to employees. FBT is payable by the company not the employee. The FBT rate is presently 47% of the earned up assessable estimation of fringe benefits gave. An incidental advantage is adequately any type of employee compensation other than pay or compensation or different instalments which are liable to salary impose. It is basically an advantage gave to a worker by the company in regard of that business.

Answer 2

A) Advise Allan of any income tax consequence

Each personal has some hobbies that can be seen in the free time of the people. In the context of Allan, it is found that it got 12 Lonarch Brae Shiraz in appreciation that value is $4320 ($360). In this, it is found that Allan helped the wine maker because vet was unavailable there. In the appreciation, it got $4320 worth gift that is not taxable income. At the same time, gardening is its hobby not its profession. It has not aim to make profit by the gardening so all the income by this will not be taxed amount (Burkhauser et al., 2012). According to the given situation, Allan has a tax liability because there is a profit to sale the property and purchase of the house is also taxable according the taxable transactions. On the other hand, Betty is also working as part time as an accountant so it also earns profit for the family. Allan earns profit by working as locum doctor, so it also earning profit the family. According to the family income they have the liability to pay income tax according to the IRS standard.

B) Hobby is to be distinguished from a business

Under the Australian Taxation law, it is found that business and hobby both are different activities. In this, business is a kind of activity, in this, people aim to gain profit. On the other hand, hobby is a kind of activity where a person has aim to be satisfy not earn profit. It is essential to know whether the activities can be classified as a business or a hobby (Nijland and Dijst, 2015). For determining this, it is required to go for last years of business (including current year). If there is profit for the hobby during three years of those years, then it can be said that there is a profit motive. From the case, it can be found that there is no profit motive behind the hobby of Allan and Betty. They do not keep records but they never intended to make a profit but it can be estimated that in a month, gross receipts could be $500 to $600. The hobby is making profit on regular basis but in small amount. There is no situation of loss for the hobby of Allan and Betty. A legitimate business has a primary purpose of income or profit and the activity is engaged in with continuity and regularity. In this case, the activity made a profit in some time, but in less time that indicates this is the hobby rather than business. In this hobby, the taxpayer can expect to make a profit in the future from the business. The hobby is not a taxable if the person does not earn profit for the business or a personal income. According to IRS, the transaction related with the hobby should be based on the honesty. So, do not try by Allan and Betty to fraud related with their income sources (Lee et al., 2012). It is because if Allan and Betty done the gardening with their hobby and use the vegetable and fruits for the purpose of personal use and provide people for tease only. In the hobby, Allan and Betty should not sale the products that was making by mother’s recipes in the market because it increases the income and it is necessary to loyally add this income in the income statement.

 C) Advise Allan and Betty of any income tax implications

In para 2, it can be said that Allan and Betty are not able to pay tax on the income because their income is part of their hobby. It is not part of their profession. At the same time, they have not any aim to earn profit by these activities and not doing any trading activities. Basically, their profession is different from hobby. Hence, it can be recommended to Allan and Betty that they should take help of a good Charted Accountant regarding their taxable liability (Paturot et al., 2013).  But at the same time, in the third Para, it can be determined that there is business as Allan and Betty thought to set up a barter system that is  system of exchange where goods or services are directly exchanged for other goods or services without using money. According to the taxation, the hobby not includes the earning of the profits and if the profit is earning by the person than it will be a business. So, it can be said that the earning profit in hobby is not perfectly hobby and it can be a business also. On the other hand, Allan and Betty are also earning profit by the barter system and both cash transaction and non-cash transaction profits are added in the taxable income of the person. The barter earnings also create the situation of tax such as self employment tax, excise tax, capital gain tax, etc. The value amount of the barter transaction is treated as taxable transaction and amount of profit is used as income. The income tax will be applicable in each transaction of Allan and Betty where they are earning profits (Graetz and Doud, 2013). The profit which is earned by Allan and Betty by selling the products in the supermarket that was $500 to $600 in the current year. In addition to this, each earning with the administration charges of $50 as up-front payment will be impacted on the income tax. Additionally, the earning from the barter system will also be treated as the income so this amount will also be added in the income statement of the business.

D) Advise the participants in the barter scheme of any income tax implication

Barter service is a kind of exchange of good and service without exchange of money and cash. People mainly avoid tax on the barter because lack of exchange of money and cash. But, it is not true because barter exchanges are concerned under the taxable income by IRS. Due to this, it is advised to participants to estimate the faire value of barter service and complete their taxable liability (Schofield et al., 2011). The administration record is charging $50 as upfront fees to join this barter system but at this is an income of this business. So, it is taxable for the business, and they should use another option which should not part of the income tax. In this scheme, all the transaction of barter is calculated as taxable and the auditor will focus on the each transaction of the business. The transactions of the participants in the barter system will also be calculated after valuing to provide the benefits of each transaction (Fan, et al., 2012). The bartering details of each participant will be valued by the auditor on the basis of IRS. Only some transactions that is officially not included in the administrative record by the participants.

Conclusion

From the above discussion, it can be concluded that taxation is a significant liability of the firm and individual that depend and calculated on the basis of the laws and rules of a country taxation system. In this, it is also found that fringe benefit helps the individual to get the some extra tax and financial benefits. At the same time, earning from hobby is not taxable because the purpose of person is not to earn the profit. It is because it is not the part of the profession person that person is not able to pay tax on the income because their income is part of their hobby. It can also be summarised that the hobby not includes the earning of the profits and if the profit is earning by the person than it will be a business.

References

Burkhauser, R. V., Feng, S., Jenkins, S. P., & Larrimore, J. (2012). Recent trends in top income shares in the United States: reconciling estimates from March CPS and IRS tax return data. Review of Economics and Statistics, 94(2), 371-388.

Fan, J.P., Titman, S. and Twite, G., (2012). An international comparison of capital structure and debt maturity choices. Journal of Financial and quantitative Analysis, 47(1), pp.23-56.

Graetz, M.J. and Doud, R., (2013). Technological innovation, international competition, and the challenges of international income taxation. Columbia Law Review, pp.347-445.

Jotzo, F. (2012). Australia’s carbon price. Nature Climate Change, 2(7), 475-476.       

Lee, S., Ling, P.M. and Glantz, S.A., (2012). The vector of the tobacco epidemic: tobacco industry practices in low and middle-income countries. Cancer Causes & Control, 23(1), pp.117-129.

Nijland, L. and Dijst, M., (2015). Commuting-related fringe benefits in the Netherlands: Interrelationships and company, employee and location characteristics. Transportation Research Part A: Policy and Practice, 77, pp.358-371.

Paturot, D., Mellbye, K., & Brys, B. (2013). Average personal income tax rate and tax wedge progression in OECD countries.

Schofield, D. J., Shrestha, R. N., Percival, R., Passey, M. E., Kelly, S. J., & Callander, E. J. (2011). Economic impacts of illness in older workers: quantifying the impact of illness on income, tax revenue and government spending. BMC public health, 11(1), 418.

Shiftan, Y., Albert, G. and Keinan, T., (2012). The impact of company-car taxation policy on travel behavior. Transport Policy, 19(1), pp.139-146.

Zelenak, L., (2012). Custom and the Rule of Law in the Administration of the Income Tax. Duke LJ, 62, p.829.

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