Taxation Theory, Practice & Law T2 2018 Individual Assignment

HI6028 Taxation Theory, Practice &
Law T2 2018 Individual Assignment

TABLE OF CONTENTS
Question 1..................................................................................................................................3
Provisions...............................................................................................................................3
Calculations............................................................................................................................5
Question 2..................................................................................................................................5
Provisions...............................................................................................................................5
Fringe benefits tax on car...................................................................................................6
Fringe benefit on other benefits.........................................................................................7
Calculations............................................................................................................................8
Part A: Taxable FBT..........................................................................................................8
Part B: Taxable FBT..........................................................................................................9
References................................................................................................................................11

QUESTION 1
Provisions
In Australia 1985, Capital Gain Tax was introduced, and it applies on an asset that has
obtained after unless it is specially exempted.
In accordance with the Australian Tax Office, the difference between amount received and
cost of asset is the capital loss or a capital gain. As per assertions of Barkoczy (2016), the
individual compensates tax on capital gains is the portion of its income tax, and it is not
measured as a separate tax and it is refereed as CGT. If the asset is held not less period of 12
month than 50% of gain is first discounted for individual taxpayers and for superannuation
funds it is discounted by 33.3%.
It is required to determine capital gain or loss for each and every capital gains tax event that
takes place to assets during the year. Moreover, in case an individual has earned both capital
gain, and capital loss than an individual has to determine net capital gain or net capital loss
for the year. Furthermore, individuals, as well as small business apart from companies, could
normally discount capital gain by 50% if the asset is held for more than a year (Capital gains
tax, 2017). In addition to this, there are three methods for computing capital gain. An
individual can choose the method which gives the best result. The same implies that the
method which leads to least capital gain is applied by the assessee.
In case capital asset is sold, for example, shares, asset etc. then there will be capital gain or
loss. The same is the difference between what the cost of acquirement of the asset is and
consideration obtained when it is sold. Further, it is important to account capital gains and
losses in the income return and to reimburse tax on the capital gains. Though it is referred to
as CGT that is capital gains ,and it is the element of income tax and not a separate tax. In case
the individual had acquired capital gain on the selling of asset than the gain will be added in
the assessable income and the same might increase the tax amount to which is to be paid.
Since the tax is not withheld for capital gains, it might require finding out how much tax is to
be paid and setting aside the adequate funds in order to cover the related amount. On the
other hand, if there is a capital loss then, in that case, an individual cannot claim it against the
other income, but it could be utilised to adjust against capital gain.
Methods for calculating capital gain taxation

CGT discount method: In order to apply this method it is necessary that asset should have
been held for the period of twelve months or more. At the same time, it is not applicable to
the companies. For foreign individuals the 50% discount is deducted on capital gains which
are made subsequent to 8 may 2012. Moreover, the percentage to which capital gain could be
reduced for life insurance companies and complying super funds is 33.33%. Capital gain is
evaluated after reducing base cost from sale proceeds; further, any existing capital loss is
deducted from same and then reduced by a specified discount percentage.
Indexation method: The specified method is applied only for assets which have been acquired
before 21st September 1999 and held for a period of twelve months or more. In this method,
the value of cost base is increased through application of indexation factor which is based on
consumer price index. Thus, the specified indexation rate is applied in order to attain
deductable base cost from sale proceeds.
Other method: In accordance with the study of Woellner and et al. (2016), the specified
method is applied for assets which have been held for less than twelve months before the
CGT event. In this situation, the basic method of reducing cost base from sale proceeds is
applied in order to ascertain capital gain or capital loss.
Capital losses are in adjusted against of Capital gains, in a tax year however if amount of loss
it higher then the net capital losses are carried forward indefinitely. Nevertheless, capital
losses are not counterbalanced against other taxable income. As per the Australian Taxation
Office (ATO), CGT exempted on so many personal assets, which includes individual’s car,
residence, and mainly those assets that are taken as a personal use like example furniture.
Capital Gain Tax is also not applied on depreciating assets that are used exclusively for the
purpose of taxable, like as fitting in a rental property and business equipment (Jacob and
Jacob, 2013).
Faccio and Xu (2015) asserted that establishing the timing of CGT is also important because
the reason behind this is that it informs the individual that in which year the capital loss or
capital gain is to report and probably have an effect on how an individual computes the tax
liability. If an individual disposes of a CGT asset, then the CGT events generally occur at that
time when the individual entries in the contract for disposal. In the real state situation, for
instance, CGT event usually happens at that time when an individual enter in the contract- i.e.
the contract date, not when an individual settle.