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Taxation Law Assignment

Essay by   •  August 10, 2019  •  Essay  •  2,707 Words (11 Pages)  •  458 Views

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1 Part A

The first part of the case is regarding to access if Fergal activity as a blogger would be considered as carrying on business for taxation purposes. As the question clearly indicates that this is only for business activity, Fergal’s activity as a machinest can be ignored as this would be employment not business. As explained in Section 995-1 of the ITAA97 a business activity would be any profession, trade, employment, vocation or calling, but does not include occupation as an employee. Due to this, Fergal’s activity as a blogger is meeting the criteria set by Legislative law as he was not an “employee” of Eerie Energy. However, this is not sufficient evidence to prove that Fergal is a carrying on business for taxation purposes as this definition only provides a general indicator and not detailed analysis of all the aspects the ATO or Judges would consider indicators of carrying on business.

In the case Fergal’s primary occupation and he writes a blog during his free time which is only followed by his close circle and family members. Furthermore, there is no real profit-making intention during this time as he was not doing this professionally or generating any income out of this. However, Fergal is eventually discovered by a journalist and is featured as one of the local identities on a newspaper which also resulted in ABC approaching him regarding a documentary. These events gave a dramatic rise to Fergal’s popularity and many people following his blog for advice regarding training regimes and the products he uses. Fergal is then approached by Eerie Energy to promote their fitness product on his blog which he agrees to. Eerie Energy sends Fergal a box of 150 Eerie Vibe bracelets all for $195 which he promotes and sells to his friends and family for $150 each. At this point, there is a clear indication that Fergal has a profit-making intention which is explained by the judges in Ferguson V FCT. Furthermore, Eerie Energy sends Fergal a cheque of $400 as a reward for improving their sales along with another box of Eerie Vibe bracelets to promote and sell. Fergal is then seen promoting these on his blogs by including statements that the product made him feel very focused and promoting these on sporting events (Sunday run) that he attended (where he sold all of the Eerie Vibe bracelets and ordering another box of the bracelets from Eerie Energy). This can be linked to Stone V FCT case as Fergal was using his sporting ability and following to earn. Moreover, Eerie Energy at a point in the case directly communicates to Fergal that he can sell the products at retail value and keep the profits from the transaction of $55 as his personal gain. This can be linked back to Ferguson V FCT case due to the clear profit-making intention and as these activities can be considered frequent, this can be then linked to FCT V JR Walker in which the judge’s decision was partially influenced by the fact there was consistency in the taxpayer’s business activity. However, FCT V JR Walker also identifies that the business should be carried out in a “business-like manner” by keeping detailed records of accounts or adapting a systematic approach.

Through case law and legislation provides substantial evidence regarding Fergal’s activities as carrying on business for taxation purposes. However, this can still get further insight and confirmation through Tax Rulings and the one relevant to this situation would be Taxation Ruling TR 97/11 Am I carrying on a business of primary production? This provides specific requirements to access whether the taxpayer is carrying on business for tax purposes or not. The details of these requirements are mentioned below:

  1. whether the activity has a significant commercial purpose or character; this indicator comprises many aspects of the other indicators: Fergal’s connection with Eerie Energy would be considered for commercial purposes as there is involvement of a profit-making intention and repetition/consistency in the business activity. Thomas V FCT identified that significant commercial purpose is linked to the other variables which are met in this case as identified in the case law above.
  2.  whether the taxpayer has more than just an intention to engage in business: Ferguson V FCT clearly identifies that profit-making intention and actions are crucial for a business which is met by Fergal in this case as he is seen actively selling and promoting Eerie Energy products through his blogs and on sport related events.
  3. whether the taxpayer has a purpose of profit as well as a prospect of profit from the activity: Fergal in the case is seen frequently reordering products and selling them through his blogs and sports events. Furthermore, at one point Eerie Energy had directly communicated to Fergal that he can sell the products at retail value and keep a profit of $55 as personal gain/profit. This can also be linked to Smith V Anderson where the judge identifies that activities that wold occupy the time, attention and labour if the taxpayer concerning profit would be considered as a business for taxation purposes.
  4. whether there is repetition and regularity of the activity: As Fergal is frequently buying the Eerie Energy products, consistently selling and promoting them, due to which this requirement is met. This requirement can also be linked to the repetition requirement mentioned in the FCT V JR Walker case identified in the case law section above.
  5. whether the activity is of the same kind and carried on in a similar manner to that of the ordinary trade in that line of business: This requirement is also met as many blogging business activities would be done in a similar way. For example, Pioneer Woman which is a lifestyle blog where the creator promotes many of her personal projects and photography.
  6. whether the activity is planned, organised and carried on in a businesslike manner such that it is directed at making a profit: As there is no information that Fergal is conducting his activities in a businesslike manner and there is no formal system used we can indicate that there is no “systematic approach” as mentioned in Newton V Pyke.
  7. the size, scale and permanency of the activity: This is not necessarily a precise indicator as businesses can be of varying sizes depending on the activity of the business. In Fergal’s case, there is profit intent Ferguson V FCT and repetition of business activity FCT V JR Walker which would be sufficient to prove that Fergal’s blog is a business for tax purposes.  
  8. whether the activity is better described as a hobby, a form of recreation or a sporting activity: in the case, we see that Fergal develops a consistent profit minded approach according to Ferguson V FCT which proves that although initially the blog was a hobby, it later became a business for tax purposes.

With all of the cases, legislative laws and tax rulings, there is substantial evidence that Fergal’s involvement with Eerie Energy through promoting and selling their products resulted in Fergal’s activities as a blogger becoming a carrying on business for taxation purposes.

Part B

Item or Description                                        Amount                Law

Salary                                                        79500                s6-5 ITAA97 salary is                                                                        considered ordinary income                                                                        and must meet requirement                                                                        -s of a real gain (Hochstrasser                                                                        -V Mayes 1960)



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