Capital Gains Tax and Fringe Benefit Tax: Analysis and Computation

This article provides an analysis of Capital Gains Tax and Fringe Benefit Tax with computation examples. It covers the relevant provisions of ITAA 1997 and FBTAA 1986. The article also includes examples of asset disposal, loan fringe benefit, car fringe benefit, and expenses fringe benefit.

Taxation Theory, Practice & Law
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Question 1
The capital gains or capital losses resulted from asset disposal would be considered for the
Capital Gains Tax (CGT) consequences for the taxpayer for the respective assessment year.
The assets which belong to the category of pre-CGT asset (before the period September 20,
1985) are not subjected to any CGT liability on the received capital gains or capital losses. The
relevant provisions for this aspect are in line with s. 149(10), ITAA 1997. One of the imperative
aspects for the transaction of sale is to define the event and the relevant sub category (Barkoczy,
2017). The CGT event corresponding to asset disposal is A1 category as defined in the
provisions of s. 104 (5) ITAA 1997 (Krever, 2017). The formula for computation of gains
requires two main aspects which are listed below (Sadiq et. al., 2015).
 The capital receipts which are resulted from the selling of a capital asset by the taxpayer
plays an imperative role while calculating the net capital gains/losses from the disposal of the
asset.
 Another crucial variable in same regards is termed as cost base which concludes five main
costs or expenses which are discussed in s. 110 (25) Income Tax Assessment Act 1997.
The difference between the time of procurement of the asset and the disposal period is termed as
holding period of the asset. When this difference is more than 1 year, then the capital gains are
named as long term capital gains and 50% discount method would be used to find the net capital
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gains or losses as indicated in s. 115-25 ITAA 1997. Furthermore, when this difference is less
than 1 year then, capital gains are short term capital gains and 50% discount method will not be
applicable. According to this method, only 50% of the computed capital gains or losses would be
used for computing CGT liability on the taxpayer as evident from the clauses of s. 115(25) ITAA
1997 (Gilders et. al., 2016).
The previous capital losses which have remained unadjusted would also be considered and
hence, would be balanced with the present capital gains as shown in s. 102(5) ITAA 1997.
Further, if taxpayer has previous capital losses but has not received and capital gains then the
capital losses will again shift to next year (Deutsch et. al., 2015).
Block of Vacant Land
Acquisition period: 2001 (After September 20, 1985)
This is visibly not a pre-CGT asset and CGT implication will be imposed on the capital
gains/losses which would be derived in the process of asset disposal. Further, the sale of asset is
CGT event and points to A1 category as defined in the provisions of s. 104 (5) ITAA 1997
(Woellner et. al., 2017). The relevant aspect defined in TR 94/29 indicates that realisation of tax
implications related to asset sale will be performed in the same income year in which the
respective taxpayer has signed the contract of sale while the payment as per the contract may
take place in next year (Nethercott, Richardson and Devos, 2016). The capital losses of last year
will also be balanced \with the capital gains resulting in the given year. Further, the difference
between the time of procurement and disposal is more than a year and thereby, capital gains will
be named as long term capital gains and 50% discount method is enforceable. According to this
method, only 50% of the computed capital gains or losses would be considered for CGT
consequences as evident from s. 115(25) ITAA 1997 (Barkoczy, 2017).
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ANTIQUE BED
Acquisition period: 1986 (After September 20, 1985)
This is visibly not a pre-CGT asset and CGT implication will be levied on the capital
gains/losses which would be derived in the process of asset disposal. Further, the sale of asset is
CGT event and belongs to A1 category as defined in the provisions of s. 104 (5) ITAA 1997.
Further, the implication of CGT will be valid when the procurement cost of collectable is greater
than $500 as stated in s. 118-10 ITAA 1997 (Reuters, 2017). Here, the procurement cost is $3500
and the antique bed is collectable. It is visibly more than $500 and hence, CGT is applicable on
any capital gains arising from asset sale. Taxpayer does not conduct the sale of antique bed but
still the antique bed would be termed as disposed because the bed has been stolen. The insurance
claim payment will be held considered as capital receipts from the disposal of asset. The various
costs payment of taxpayer will be considered as incremental costs and the cumulative effect of
these costs would contribute to the cost base. The capital losses of last year will also be
balanced \with the capital gains resulting in the given year. Further, the difference between the
time of procurement and disposal is more than a year and thereby, capital gains will be named as
long term capital gains and 50% discount method is enforceable. According to this method, only
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50% of the computed capital gains or losses would be considered for CGT consequences as
evident from s. 115(25) ITAA 1997 (Gilders et. al., 2016).
PAINTING
Acquisition period: May, 1985 (Before September 20, 1985)
This is visibly a pre-CGT asset and CGT implication will not be levied on the capital
gains/losses which would be derived in the process of asset disposal (Sadiq et. al., 2015).
SHARES
Acquisition period: After September 20, 1985
The shares are visibly not a pre-CGT asset and CGT implication will be levied on the capital
gains/losses which would be derived in the process of asset disposal. Further, the sale of asset is
CGT event and belongs to A1 category as defined in the provisions of s. 104 (5) ITAA 1997. The
50% discount would be applicable on the initial three shares which have a holding period that
exceeds one year. The discount would not be imposed on the last share as the holding period fails
of exceed one year (Deutsch et. al., 2015).
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VIOLIN
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Acquisition period: After September 20, 1985
This is visibly not a pre-CGT asset and CGT implication will be levied on the capital
gains/losses which would be derived in the process of asset disposal. Further, the sale of asset is
CGT event and belongs to A1 category as defined in the provisions of s. 104 (5) ITAA 1997
(Nethercott, Richardson and Devos, 2016). Further, the implication of CGT will be valid when
the procurement cost of personal use asset is greater than $10,000 in accordance with s. 108-
20(1) ITAA 1997 (Woellner et. al., 2017). Here, the procurement cost is $5,500 and the violin is
personal use asset (As she used to play it regularly and for her own entertainment). It is visibly
less than $10,000 and hence, CGT would not be applied on the capital gains or loss received
from violin.
Total Capital Gains
Question 2
The aim of the analysis is to find the Fringe Benefit Tax (FBT) payable on the extended fringe
benefits to employee “Jasmine” by employer “Rapid Heat Pty Ltd.”
Car Fringe Benefit
Use of car for personal work is the main aspect of car fringe benefit. According to s. 7, Fringe
Benefit Assessment Act 1986, the employer must extend an authority to employee to use the car
for personal work. It constitutes the enforceability of car fringe benefit by employer and the
associated FBT liability on employer (Barkoczy, 2017). However, the employee who is the
concerned recipient of the benefit would not be liable for any fringe benefit tax payable. The key
variables of the procedure to determine the FBT payable includes capital value of car, duration of
car availability to employee and incurred minor repairing expenses which are reimbursed by
employer (Wilmot, 2014).
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Rapid Heat has provided the right to employee Jasmine to use the car for her personal work. It
indicates that offered car for personal use is extension of car fringe benefit. Therefore, the FBT
payable will be applicable on Rapid Heat. The procurement value of car is $33,000 which is paid
by Rapid Heat. Moreover, the car has been subjected to some minor repairing which involves an
additional expense of $550 that has been paid by Rapid Heat. The car has been offered on May 1,
2017 and therefore, the total duration will be the whole FY 2018 except the 30 days of April
2017. This is because the car has issued on 1 May not on 1 April. Thus, total duration will be 335
days. Days which have been spent in minor repairing (five days) and when the car was parked at
airport (ten days) would also not be deducted from total duration (Deutsch et. al., 2015).
The FBT implication imposed on Rapid Heat which would be computed based on the total
capital value of car and total duration of availability of car for personal use of Jasmine
(Nethercott, Richardson and Devos, 2016).
Computation
Loan Fringe Benefit
Interest rate is considered a key decision variable indeciding whether the employer has doled out
loan fringe benefit or not. It is because the loan should be issued @ statutory interest rate which
is announced by Reserve Bank of Australia (RBA) for every financial year. The loan which has
been provided to employee lower than this statutory interest rate will be categorised as extension
of loan fringe benefit to employee. It implies that FBT would be payable by employer based on
the loan interest saving and period of utilization of loan by employee (Woellner et. al., 2017).
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Rapid Heat has doled a loan ($500,000) to Jasmine. No FBT would be payable when this has
been issued at statutory interest rate because in that case no loan fringe benefit has been provided
to Jasmine. Further, if loan has issued at lower rate as per the comparison of statutory interest
rate then FBT would be payable.
The set interest rate by Rapid Heat = 4.25% pa
Statutory interest rate set by RBA = 5.25% pa (TD 2017/3)
The loan has been provided to Jasmine at lower than statutory interest rate and hence, it has been
categorised as extension of loan fringe benefit to Jasmine. It implies that FBT would be payable
by Rapid Heat based on the loan interest saving and period of utilization of loan by employee
(Wilmot, 2014).
Computation
Expenses Fringe Benefit
The expenses which are of personal nature of employee must be paid by the concerned employee
only. However, there is a case on which the employer provides benefits to their employee so that
the employee can easily pay their personal nature expenses. The help of the employer is non-cash
type and is known as expenses fringe benefit as discussed in detail in s. 20, FBTAA 1986
(Reuters, 2017).
Rapid Heat manufactures electric heater and supplies to customer for a fixed price of $2,600 per
electric heater. However, the price has been reduced to $1,300 when the customer of electric
heater is Jasmine. This seems more obvious that Rapid Heat has provided less price of heater to
Jasmine so that the personal nature expenses can be decreased. This benefit to employee by
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employer would be expenses fringe benefit. The FBT implication is raised on Rapid Heat which
would be computed based on the total saving of the personal nature of Jasmine.
Computation
(b) It is apparent that Jasmine now uses the total loan amount. She has now invested the lent
amount $50,000 to buy the shares of Telstra which earlier was utilised by her husband. The
dividend income that may be received from shares will contribute to the assessable income of
Jasmine as highlighted in s. 6(5) ITAA 1997. Therefore, the s.20 FBTAA will be enforceable
and the increment deduction will be issued to the Rapid Heat on the account of $50,000
utilization for investment purposes by Jasmine (Krever, 2017).
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References
Barkoczy, S. (2017) Foundation of Taxation Law 2017. 9th ed. Sydney: Oxford University Press.
Deutsch, R., Freizer, M., Fullerton, I., Hanley, P., and Snape, T. (2015) Australian tax handbook.
8th ed. Pymont: Thomson Reuters.
Gilders, F., Taylor, J., Walpole, M., Burton, M. and Ciro, T. (2016) Understanding taxation law
2016. 9th ed. Sydney: LexisNexis/Butterworths.
Hodgson, H., Mortimer, C. and Butler, J. (2016) Tax Questions and Answers 2016. 6th ed.
Sydney: Thomson Reuters.
Krever, R. (2017) Australian Taxation Law Cases 2017. 2nd ed. Brisbane: THOMSON
LAWBOOK Company.
Nethercott, L., Richardson, G., & Devos, K. (2016) Australian Taxation Study Manual 2016. 8th
ed. Sydney: Oxford University Press.
Reuters, T. (2017) Australian Tax Legislation (2017). 4th ed. Sydney. THOMSON REUTERS.
Sadiq, K., Coleman, C., Hanegbi, R., Jogarajan, S., Krever, R., Obst, W., and Ting, A.
(2015) Principles of Taxation Law 2015. 7th ed. Pymont: Thomson Reuters.
Wilmot, C. (2014) FBT Compliance guide. 6th ed. North Ryde: CCH Australia Limited.
Woellner, R., Barkoczy, S., Murphy, S. and Pinto, D. (2017). Australian Taxation Law Select
Legislation and Commentary Curtin 2017. 2nd ed. Sydney: Oxford University Press Australia.
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