Taxation of Investment Funds

Question: Discuss about the Taxation of Investment Funds. Answer: Introduction: According to the legalization of section 5 and 6 of the Income Tax Assessment, ordinary incomes imply the amount of assessable income of individuals from a process of a definite ordinary concept (Brudno, 1958). In the case study given, the Australian resident named as Peta purchased a property two years ago in Kew. The property also includes two old tennis courts. Peta is also aiming to divide the two courts into three and selling those after the renovation stages (Boxer, 2008). In this scenario, a local tennis club wants to purchase that two tennis courts. In the present condition, the ordinary income has to be calculated (McKinnon, 1993). The incomes generated from dividends, wages, interests, commissions and bonuses are considered as the ordinary income of an individual. In the given case study, Peta gain an amount from the deal of selling the two tennis courts to the local tennis clubs. She invested $100,000 for the process of renovation of that two tennis courts (Brudno, 1958). As per actual concepts, the ordinary incomes are the incomes that are excluded from the income tax returns (Mills, 1925). Peta was aiming to sell the tennis courts by after all the renovation works and also the process of dividing the tennis court into three parts. In the mean time, she got a good offer from a local tennis club and she sold the courts with an overall profit margin of $500,000. This income of Peta is classified as her ordinary income. In accordance with the legal guidelines of Income Tax Act (1997), the earnings of Peta come under the category of replication of the original property for aiming to earn a desired profit (Protocol amending convention with Australia regarding double taxation and prevention of fiscal evasion, 2002). Applicable laws and legal guidelines In accordance with the taxation laws of America, the incomes of the residents are classified into various types namely ordinary income, statutory income etc. ("Taxation of Imported Books in Australia", 1932). Both the 5 and 6 sections of the ITA regulation include all the necessary guidelines of ordinary incomes (Hogan, 2012). As per this guidelines, any types of assessable income of the individual residents of the country is comes under the category of ordinary income category. Being a foreign resident, Peta earns a profit from the deal of selling the tennis grounds to the local sports organization (Dabner, n.d.). This income is also comes under the ordinary income laws. The tax on this income is also calculated at the financial year ending phase as this income comes under the taxable income category (Hogan, 2012). The incomes that are excluded from the category of ordinary income as per the income tax legalization of Australia are: If the earnings of the individuals comes under the category of cash prize other than the process of business. Individuals get the money from others as gift The earnings from the resources related to the hobbies of the individuals are also not included in the category of ordinary income (Dabner, n.d.). The money earned from the insurance policies also not included in the category of ordinary income Same situation was occurred in a case among the Cooling and FCT. In that case, the court declared the earning as ordinary income when a property was being sold. Implementation of the laws In the given scenario, the earning from the process of selling of the tennis court property of Peta is comes under the group of ordinary income according to the legalization of Australian Income Tax laws (Robbins, et al, 1926). During the stages of purchase of property by Peta, the conditions of the tennis courts were very poor. So, she decided to make three different units of the two tennis courts and sell them after the process of performing all the required maintenance work of the tennis courts ("Taxation of Imported Books in Australia", 1932). Her prime aim was to earn profit by utilizing the backyard portion of her property (Issues for consideration in taxation reform, 1985). In this situation, she got good offer from a local sports organization. So, she dropped her idea of making three parts of the tennis courts (Taxation in Australia, 1983). She makes the necessary renovation works on the tennis filed and sold the tennis courts at $600,000. This earnings of Peta is comes under the rule of ordinary income. The above study implies that the earring of Peta of an amount of $500,000 from the deal of selling the tennis courts. She also spends some amount for the renovation works of the two tennis courts. The amount of she has gain from the deal is too high and it comes under the ITA acts (Taxation in Australia, 1983). Although this profit is not included in the ordinary income rules, the profit she gained is comes under the category of earning from the process of sales of capital assets (Issues for consideration in taxation reform, 1985). So, the earning of Peta is included in the category of Capital Gains Tax. Alan is an employee of the company ABC Pty ltd. The offers he got from his company include: He will be paid $300,000 as his salary The organization also provides a mobile phone to Alan, and in addition they also provide the amount $220 per month to Alan for the payment of monthly mobile bills and this is also included in GST. If the monthly bill for the cell phone exceeds that amount, Alan has to pay the rest money. Alan used the mobile only for his official purpose. The organization also pays the fees for the education of his children. The organization pays an amount of $20,000 as the school fees of his children (Kenny, n.d.). According to the legalization of Australia, the school fees will not comes under the category of GST. He was agreeing with the terms and conditions of the organization and joined the company (LAFFER, 1942). The company offered him a latest mobile phone that costs $2,000 and this amount is comes under GST. The organization throws a party during the period of year ending to celebrate their success at a local Thai restaurant. The party was thrown for 20 employees of the organization that costs $6,600 and this amount is included under the GST taxation (Kenny, n.d.). The organization has to calculate Fringe Benefit Tax at the ending of the financial year means on the 31st March of the given year. The organization also has to consider the attainments of GST-inclusive in this context in order to effectively contribute in the association of tax credits. In this case, if the organization had workers, how the dissimilarity will occurs During the process of tax calculation, the organization also has to consider the situation if the clients are also present in the year ending party. Applicable laws and rules In accordance with the Fringe Benefits Tax of Australia, the organizations also have to provide benefits to their employees. For satisfying the employees, the organizations have to offer special benefits to their employees. The organizations have to pay FBT taxes at the rate of 49% at the time of financial year ending period (LAFFER, 1942). The expenses excluded from the FBT taxes are: Various electronic devices like Printers, GPS, laptops, mobiles etc. Provided the safety arrangements like defensive clothing offered by the organizations in the field of mines or factories Computer software Providing necessary tools and kits to the employees The above elements will not come under the category of FBT benefits. The small sized organizations whose annual turnovers are under $2 million are also excluded from the FBT tax. As per the Australian laws, if the organizations provide food facilities to their employees on daily basis and without any special occasions, then it is also not included in the FBT taxation (Lehmann Coleman, 1989). The Australian government charge Goods and Service Tax (GST) at the rate of 10%. Application of Laws The amount paid by the organization to Alan for the purpose of payment of mobile bill= $ (200*12) =$ 2400 The company pays $ 200,000 as the school fees of the Alans children. It is not included under GST, but included under FBT taxation. The organization also offers a smart phone to Alan that costs $2,000. The amount is also included under GST. The cost of the year ending party for their 20 employees is $6,000. It is also included in the FBT. Expenditure Amount Total amount paid by the organization ABC under FBT taxation for the staffs = (2,400 + 20,000 +6,000) $ = $28,400 So, the total calculation of FBT benefits for the current financial year is being considered on the amount of $ 28,400. So, the FBT tax for the organization ABC will be= $ (28,400 * 49%) = $13,916 For Part B The dinner parties offered by the business organizations are considered under the FBT tax benefits (Lehmann Coleman, 1989). So, in this case the FBT benefit amount of the organization ABC is not affected by the lower number of employees present in the party (McKinnon, 1993). The FBT amount is remaining same and it will be $ 13,916. Expenditure Amount In the case is the year ending party is not included under the FBT taxation, the revised sum under fringe benefit = $ (2,400 + 20,000) = $ 22,400 The revised amount under Fringe Benefits Taxation = $ (22,400 * 49%) = $10,976 Conclusion From above analysis, it has to be analysis that the FBT amounts are calculated for the organization ABC. The analysis also considers the situations if there will be alterations in the case studies. References Boxer, A. (2008). TAXATION IN AUSTRALIA*.Economic Record,41(96), 639-649. https://dx.doi.org/10.1111/j.1475-4932.1965.tb03112.x Brudno, W. (1958).Taxation in Australia. Boston: Little, Brown. Dabner, J. The Taxation of Investment Funds in Australia.SSRN Electronic Journal. https://dx.doi.org/10.2139/ssrn.2701084 Hogan, L. (2012). 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