- Internal Code :
- Subject Code : BULAW5916
- University : Federation University
- Subject Name : Law
Taxation Law And Practice - 1
Issue: Whether Luxwood would be liable for the payment of taxes on the credit provided under the LuxRewards system?
Rule: Income Tax Assessment Act 1997 (ITAA 1997), Fringe Benefits Tax Act 1986
Application: The loyalty rewards provided by the companies to their customers is the major business practice globally. The same is done to keep the customers associated with them. The non-refundable credit provided to the customers on the aggregate purchases made by them has no limit which can be converted or capped with an upper limit as per the limitations set by the Australian Tax Office (ATO). The income whether it is assessable or not can be decided under section 6-5 of the ITAA 1997. The section[1] mentions that the income derived by the individual either directly or indirectly from all the local sources during an income year could be assessed for the tax to be paid by the individual. Regarding the taxable income and on the loyalty points issue, the ATO has provided on its taxation ruling,[2] that, followed with certain restrictions, the reward points are not subject to be assessed under the Fringe Benefits Tax (FBT) as they are a part of the personal contractual relationship between the employer and the employee. However the same is only valid if certain restrictions are followed. For instance, in the Payne case,[3] it was held that the purchase done through the reward points gained against flight tickets was not assessable under the income tax as she received the benefits because of her personal contract with the airlines on the payment of the membership fees. Similarly, the reward points under the LuxRewards system are also a part of the personal contract of the customers and Luxwood on the purchase of the furniture made by them either directly or through authorized retailers. The said reward points credited by Luxwood does not fall under the category of ordinary income but are benefits provided to the customers by Luxwood for using the credit card facility issued by the company. The ordinary income is provided under the provisions of subsection 6-5(1)[4] and the same cannot be assessed without the consultation of the non-cash benefits provided under the Act.[5] The full federal court had decided,[6] that the reward points received by the customer do not constitute ordinary income under the Act as the benefits gained by the individual cannot be exchanged against money or for any other monetary benefits. Therefore, the said reward points credited cannot be held to be assessed under income tax and Luxwood cannot be held liable for the amount it has credited to the customers until 30 June 2020.
Conclusion: The rewards provided by Luxwood under the LuxRewards system could be assessed or not by the ATO depending on whether the credit card is used personally or for business transactions. To prevent any further liability, it is advised to Luxwood to cap the upper limit of the reward points according to the upper limit advised by the ITAA 1997.
Taxation Law And Practice - 2
Issue: Whether Luxwood continues to bear the refunds at the present rate or make a change in the refund policy against refunds?
Rule: The Trade Practices Act 1974
Application: The refund policies issued by any business is the key concept of its marketing strategy and the same has been done here by Luxwood through its ‘no questions asked’ refund policy. However, this might attract a lot of customers for Luxwood, but it can create a lot of financial burdens on the company as well. Being a manufacturer of furniture, Luxwood is bound to manufacture quality products as provided under the Trade Practices Act 1974[7]and also under the guidelines provided by the Australian Competition & Consumer Commission (ACCC).[8] On refunds and warranties, the ACCC has provided specific guidelines for the consumers, sellers, and manufacturers that they need to follow for the smooth conduct of business. According to the guidelines, the seller is bound to provide a remedy to a consumer if he has suffered any deficiency or quality issue in the product purchased from the seller or manufacturer. However, the manufacturer is only bound to provide a refund or warranty in case if the purchase has been made directly from them (Steiber 2018). Now, under the ‘no questions asked’ refund policy, Luxwood is entertaining the customers for the refunds made by them under their change of mind which does not need to be done. It is not necessary to provide a refund to the customer every time and in return, a repair, replacement, or refund policy shall be applied by Luxwood to deduct the losses incurred by it. Also, it is not necessary to provide a refund in case the customer has changed its mind. By providing a refund in such cases, Luxwood is incurring additional costs even though it just pays the remaining balance of 40% when the 60% has been paid by the supplier warranties. In the cases where no supplier is available, the costs of refund reach 100% on Luxwood thus providing with additional burden on the name of refunds. Additionally, it is suggested that the ‘no questions asked’ policy shall be amended with a ‘conditional refund’ policy so that the additional costs incurred can be reduced.
Conclusion: It is suggested that Luxwood shall make a change in its refund policy to reduce the burden of the additional costs under the refunds. Also, it is visible that the products manufactured by Luxwood are of superior quality, therefore, such a high number of refunds might be due to the change of mind of the customers and thus, providing refunds to the customers against the change of mind is not necessary for the manufacturer or seller under the Trade Practices Act 1974.
Taxation Law And Practice - 3
Issue: Whether the company’s legal advisors can get the matter finalized in the favor of Luxwood?
Rule: Competition and Consumer Act 2010 (CCA 2010)
Application: The market nowadays is full of variety and the same is possible because of multiple manufacturers in the manufacturing process of the goods that are excessively consumed by the customers. Under the CCA Act 2010,[9] certain rules and regulations have been drafted for the protection of the professionals and the consumers of these professional services. The issue of the marketing of the lounge suite by the rival firm that is identical to the Luxwood’s best-selling product line is a concept of commoditization. Commoditization is a process that allows the manufacturing of a product that is identical to the same class of products already sold in the market by another firm. These products allow the consumers to choose the products from the available variety in the market but under different price tags, thus, making it more reasonable for the customers to purchase. This is also the reason why the companies provide offers and cashback on the products under the same commodity to compete from the rival manufacturers (Kenton 2020). The same could also be applied by Luxwood to present the product differently before the customers. The Fairtrade provisions under the Act provide that the businesses are not allowed to fix the prices or to make any anti-competitive agreements or acts so that they create a negative impact on the customers. However, the provisions on commoditization are not that proper therefore, the market is nowadays getting filled by identical commodities from different manufacturers in almost every sector (Lima and Silveira 2014). The difference between products under the same commodity can only be decided by the price tag most of the time. Other than the price tags, the products are almost identical which provides the customer with an option to choose from the best and the reasonable product. Commoditization brings a competition hardship for the manufacturers and a relief for the consumers. Thus, the legal advisors of Luxwood cannot win the claim against the rival firm as it is a fair trade practice under the CCA 2010 and the cost of legal fees is already been incurred. However, Luxwood can prevent the estimated additional costs of $24000 by not going further with the proceedings. However, as an alternative against the issue, luxwood can bundle the commodity with some other products and continue selling the product with the new strategy so that the company faces no competition threat from the rival firm and continue to sell its best-selling line and serve its customers.
Conclusion: The Company has already incurred the loss of the legal fees and it is advised that the estimated additional costs can be prevented. However, the marketing strategy for the best-selling line can be changed by providing the product under a combo scheme so that it becomes unique and attractive for the customers to choose between the solo product of the rival firm and the combo product by Luxwood.
Taxation Law And Practice - 4
Issue: Whether Luxwood is liable to pay the medical costs to the injured visitor?
Rule: Occupiers Liability Act 1985 (WA), The Wrongs Act 1958 (Vic), Wrongs Act 1936 (SA).
Application: The liability of a seller or manufacturer is not limited to the selling of the products and services, but also includes the services and facilities that it provides to the customer during the purchase of the products. The retailer may be held liable for the damages caused to a customer while being on the premises of the retailer’s business. When a customer visits the Luxwood stores, the company becomes liable for all the services that it provides to the customers arriving in the store to purchase any product. In the case of the lady who slipped on the steps and sustained injuries which further required to seek medical attention falls under the occupier’s liability (Sadler 2002). The allegations imposed by the visitor on the poor condition of the building and one of the steps being loose, fall under the deficiency of services that the manufacturer or seller failed to provide to the consumer during purchase. The occupier’s liability which was incorporated under the principles of tort of negligence requires a standard of care to be followed.[10] The retailer has to exercise a duty of care and to avoid a negligence action. However, the damages to be paid to the visitor by Luxwood depends on the proving of the retailer’s negligence causing the injury to the visitor. Against the same, Luxwood can claim for defenses against the allegations imposed as the first being the voluntary assessment of risk by the customer and the second defense that could be taken by Luxwood is the principle of contributory negligence that also creates a liability on the customer to exercise reasonable care on her part. However, the onus of proving the allegations to be true lies on the customer and if they are found to be true then, in that case, Luxwood has to pay for the medical expenses or any additional costs as the court may direct after deciding the legal proceedings.
Conclusion: Luxwood might be held liable to pay the medical costs to the customer as per the decision of the court. However, the defenses of voluntary risk assessment by the customer and the defense of contributory negligence could also be raised by Luxwood to prove that the fault was on the part of the customer.
Bibliography for Taxation Law And Practice
A Articles/ Books/ Reports
ACCC (2009). Warranties and Refunds, A guide for consumers and business. Australian Competition & Consumers Commission. https://www.accc.gov.au/system/files/Warranties%20and%20refunds%20-%20a%20guide%20for%20consumers%20and%20business.pdf
Sadler, P. (2002). Occupier’s liability in the Retail Industry. http://www.austlii.edu.au/au/journals/LegIssBus/2002/4.pdf
Taxation Ruling TR 1999/6 – Income tax and fringe benefits tax: flight rewards received under frequent flyer and other similar consumer loyalty programs. https://www.ato.gov.au/law/view/document?DocID=TXR/TR19996/NAT/ATO/00001&PiT=99991231235958
B Cases
FC of T v. Cooke and Sherden 80 ATC 4140; (1980) 10 ATR 696; (1980) 29 ALR 202
Payne v Commissioner of Taxation (Cth) (1996) 66 FCR 299
C Legislations
Competition and Consumer Act 2010. (Formerly Trade Practices Act 1974)
Income Tax Assessment Act 1997 (ITAA 1997)
Occupiers Liability Act 1985 (WA)
The Fringe Benefits Tax Act 1986
Trade Practices Act 1974 (51 of 1974 as amended)
Wrongs Act 1936 (SA)
Wrongs Act 1958 (Vic)
D Others
Kenton, W. (2020). Commoditize. https://www.investopedia.com/terms/c/commoditize.asp
Lima, A., and Silveira, J. A. (2014). Fairtrade and De-commoditization. DOI: 10.1007/978-3-658-02925-8_23.
Steiber M. (2018). Everything you need to know about refunds in Australia. https://www.finder.com.au/everything-you-need-to-know-about-refunds-in-australia
[1] S 6-5(3)(a) of the ITAA 1997.
[2] TR 1999/6 of ATO.
[3] Payne v Commissioner of Taxation (Cth) (1996) 66 FCR 299
[4] S 6-5(1) of the ITAA 1997.
[5] S 10-5 of the ITAA 1997.
[6] FC of T v. Cooke and Sherden 80 ATC 4140; (1980) 10 ATR 696; (1980) 29 ALR 202.
[7] Act 51 of 1974 as amended.
[8] ACCC guidelines on warranties and refunds 2009 (Cth).
[9] Competition and Consumers Act 2010.
[10] Australian Safeway Stores v Zaluzna (1987) 162 CLR 479.
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