Taxation Theory, Practice & Law: Capital Gains Tax and Fringe Benefits Tax Calculation

This article explains the calculation of Capital Gains Tax and Fringe Benefits Tax with applicable provisions and working notes. It covers the eligibility criteria for different methods of calculating capital gain and the taxable value of fringe benefits. The subject is Taxation Theory, Practice & Law and the course code is not mentioned. The article is relevant for students pursuing courses in accounting, finance, and taxation. The college/university is not mentioned.

Taxation Theory, Practice & Law

Table of Contents
Question 1.......................................................................................................................................3
Applicable Provisions..................................................................................................................3
Calculation of long-term capital gain...........................................................................................4
Calculation of the short-term capital gain...............................................................................5
Calculation of the net capital gain...........................................................................................5
Working notes..........................................................................................................................5
Question 2.......................................................................................................................................7
Applicable Provisions..................................................................................................................7
Calculations of fringe benefit tax.................................................................................................9
Calculations of fringe benefit tax...............................................................................................11
References.....................................................................................................................................14

Question 1
Applicable Provisions
Capital Gains Tax (CGT) in relation to the Australian Taxation System, refers to a tax levied on
the capital gain made subsequent to sale/disposal of an asset, with a series of particular
exemptions, the most considerable being the family home. Rollover provisions are applicable to
certain disposals, one of the most notable of which is a transfer made to beneficiaries on death
(Littlewood & Elliffe, 2017).
CGT works by regarding net capital gains as taxable income in the tax year in which the asset is
disposed or sold. If an asset is kept for a minimum of one year, then any gain will first be
discounted by 50% for an individual taxpayer, or by 33.3% for superannuation funds. Capital
losses could be offset against CG. The net capital loss in one tax year cannot be balanced against
regular income but could be carried forward any number of times.
Capital gain/loss needs to be determined for every CGT event that happens to an asset during the
taxable year. Plus, if a person/entity has earned both capital gain and loss, then they have to
determine net capital gain/loss for that year (Edmonds, Holle & Hartanti, 2015). There are three
techniques of calculating capital gain. The assessee may select any method which best suits
him/her.
CGT Discount method – The assessee may use the discount method for computing the capital
gain on the majority of the assets they have owned for a year or more. The eligibility for this
method is that the assessee must be an individual, complying superannuation fund or trust. Plus,
the CGT event occurred to their asset after 11:45am on 21 September 1999. Moreover, they
acquired the asset in question at least a year before the CGT event. Lastly, they did not select to
use the indexation method. This method usually is not applicable to companies, though it may
apply to some capital gains made by life insurance firms. The discount percentage is the
proportion by which the assessee will reduce their capital gain (Jacob, 2018). They can reduce
the capital gain only once they have applied every capital loss for the tax year and any unapplied
net loss from previous years. The discount percentage is 50% for trusts and individuals, and
33.33% for complying superannuation funds and qualified life insurance firms. For foreign
residents, the 50% discount has been eliminated or decreased on gains made after 8 May 2012.

Indexation method – The assessee can utilize the indexation technique to compute CGT if a) a
CGT even occurred to an asset they obtained before 11:45 am on 21 September 1999, and b)
they owned the asset for a year or more. If the assessee is not a company but satisfies the two
criteria, and they want to employ indexation, they may do so. Otherwise the discount technique
will apply by default. If the assessee is a company and the and the gain satisfies the two criteria,
they must employ the indexation technique to compute the CGT (Evans, Minas & Lim, 2015).
Under this method, the assessee will increase every amount covered in a component of the cost
base by an indexation factor. This indexation factor is determined by to utilize the consumer
price index (CPI).
Other method – As per the research performed by Woellner and et al., (2016), this method is
used for assets that have been acquired for less than a year before the occurrence of the CGT
event. Under this case, the basic technique of reducing cost base from the sale amount is applied
for ascertaining capital gain/loss.
Davidson, & Evans (2015) claimed that setting the timing of CGT is also crucial as the reason
behind this is that it informs the assessee that in which year the gain or loss is to be reported and
perhaps has an impact on how a person calculates the tax liability. If an individual is disposing of
a CGT asset, then the event normally happens at the time when the person enters into the
contract of disposal. For example, in the case of real estate, CGT event normally occurs at the
time when a person enters into the control and not when a person settles.
Calculation of long-term capital gain
Particulars Working note Capital gain or loss
Amount (in $)
Block of vacant land 1 200000
Antique Bed 2 6000
Painting 3 123000
Profit/loss from shares 4
Common bank shares 29500
PHB Iron Ore Ltd 30000
Young Kids Learning (6000)
Violin 5 6500

Total 389000
Taxable long-term capital
gain
389000*50% $194500
Calculation of the short-term capital gain
On shares Amount (in $)
Shares Build Ltd 4 13000
Calculation of the net capital gain
Particulars Amount (in $)
Total taxable long-term capital gain 194500
Total short-term capital gain 13000
Total taxable capital gain 207500
Deduction- setoff of capital loss of the prior
year
(1500)
Net capital gain during the current year 206000
Working notes
1. Block of vacant land
Block of Vacant Land Amount (in $)
Amount received on sales 320000
Less: Acquisition cost (100000)
Less: Local council expense (20000)
Long term Capital gain 200000

2. Antique Bed
Antique Bed Amount (in $)
Amount received on sales 11000
Less: buying cost (3500)
Less: expenses on modification (1500)
Long term Capital Gain 6000
3. Painting
Painting Amount (in $)
Amount received on sales of painting 125000
Less: acquisition cost (2000)
Long term Capital Gain 123000
4. Profit/loss on shares
Workings Amount (in $)
Common Bank Share
Amount received from the sale of shares (1000*$47) 47000
Cost of purchase (1000*15) (15000)
Brokerage Fees (1000)
Stamp duty (1500)
Long-term Capital Gain 29500
PHB Iron Ore Ltd
Amount received from the sale of shares (2500*$25) 62500
Cost of purchase (2500*12) (30000)
Brokerage Fees (1000)

Stamp duty (1500)
Long-term Capital Gain 30000
Young Kids Learning Ltd.
Amount received from sale of shares (1200*$0.5) 600
Cost of purchase (1200*$5) 6000
Brokerage Fees (1000)
Stamp duty (1500)
Long term Capital loss (6000)
Share Build Ltd
Amount received from sale of shares (10000*$2.5) 25000
Cost of purchase (10000*$1) (10000)
Brokerage Fees (900)
Stamp duty (1100)
Short-Term Capital gain (since the shares were held
for less than 12 months)
13000
5. Violin
Violin Amount (in $)
Sale proceeds 12000
Less: buying cost (5500)
Capital Gain 6500
Question 2
Applicable Provisions
Fringe benefits are a crucial component of business and could be a helpful means of
drawing quality employees. Nonetheless, if a company is going to offer fringe benefits to its
staff, it ought to be mindful of its tax obligations. Fringe Benefits Tax (FBT) refers to the tax
payable by employers for benefits given to a worker in place of wages or salary. This is different

than income tax and is computed on the taxable amount of the benefits given. To obtain the best
employees, employers often have to appeal to them with non-income related benefits (Barkoczy,
2018). A worker can get fringe benefits in the form of:
 Low-interest loans,
 A car,
 Free car parking,
 Entertainment
 Living away from home allowance
 Payment of personal expenses
FBT on car
Car fringe benefit emerges in the situation when the company gives the car for private use to a
worker. Hence, if an employer makes a car it owns or leases available for the personal use of its
staff, then it is said to be provided as a fringe benefit. For the purpose of FBT, a car is any of the
below mentioned:
 A station wagon or sedan
 Any other vehicle which carries goods with a carrying capacity of not more than one ton.
 Any other carrying vehicle built to carry less than 9 passengers (CCH Australia Ltd.
2011).
To compute fringe benefit on the car, the employer should determine the taxable value of the
benefit utilizing either:
 The legal formula technique based on the cost price of the car; or
 The operating cost technique based on the cost of using the car
The employer can pick whichever technique produces the lowest taxable value, irrespective of
which technique was utilized in the preceding year. However, if the employer has not maintained
needed documentation for the operating cost technique, then it must employ the legal formula.
Under the statutory formula, a single rate, i.e. 20% is used irrespective of the distance travelled.
This rate is applicable in all cases except in the case where a pre-established commitment is
present to give the car for private use (CCH Australia Ltd. 2011). Under the operating cost
formula, a fringe benefit is determined as the percentage of total cost of using the car during the

taxable year. Plus, the percentage is assessed based on the degree to which car has been utilized
for personal use. The greater the actual personal use, the higher the taxable value.
FBT on loan
Fringe benefit pertaining to loan arises in the event where a loan is given to an employee, and the
interest rate is less than the normal industry rate. Plus, the loan must not be exempt for taxation
purposes. Fringe benefit pertaining to loan is available every year in which the employee is
obligated to pay either complete or part of the loan. Plus, the interest rate is less than the industry
standard. The statutory interest rate is worked out as per the standard variable rate pertaining to
owner-occupied housing loans of major banking institutions. This is also published the Reserve
Bank of Australia before the beginning of the new financial year (Wilmot, 2012).
FBT on other benefits
The provision of FBT is applicable if fringe benefit during the taxable year is above $2,000.
Hence, a worker is obligated to report the gross value of taxable fringe benefit given to him/her
in the way of a summary for the relevant income year. The rate at which FBT is taxable for the
financial year ending 31 March 2015 is 47%. A further tax on the same is paid by the employer.
Taxation rate of 47% includes 45% of marginal IT and 2% of the medical charge (Deutsch et al.,
2017). This rate is applicable to grossed-up value of all benefits that are obtained by the
employee reduced to the degree of contribution given by the employer.
Calculations of fringe benefit tax
Total taxable fringe benefit tax
Particulars Working note Amount (in $)
Fringe benefits tax on Loan 1 7000
Fringe benefits tax on car 2 5055
Fringe benefits tax on Heater 3 611
Total taxable fringe benefit
tax
12666

1. Calculation on FBT on Loan
Loan acquired by Jasmine $ 500000
Interest paid by jasmine to the employer 4.25%
standard interest rate 5.65%
Allowances on interest rate 5.65 %−4.25 % 1.4%
Therefore the FBT on loan $ 500000∗1.4 % $7000
It has been considered that the whole amount of loan taken by jasmine is used.
2. Calculation on FBT on Car
The purchase price of the car $33000
After adjustment the number of days car used 310 days*
The taxable value of the car fringe benefit $5605**
Less: Amount paid by Jasmine (550)
Fringe benefit on the tax $5055
*Calculation of the number of days in which car is not used by Jasmine
Total days 365
Total number of days when jasmine was
interstate
(10)
Annual repairing days (5)
Car acquired by jasmine for May 2017 to
March 2018 (not for a whole year)
(30)
Number of days car was used by jasmine 310

** By using statutory formula (33,000*20%*310/365)
3. FBT on the electronic heater
The purchase price of the heater $2600
Amount paid by jasmine ($1300)
Benefit $1300
Taxable rate on FBT 47%
Taxable value on FBT (1300*47%) $611
Part (B)
Calculations of fringe benefit tax
Total taxable fringe benefit tax
Particulars Working note Amount (in$)
fringe benefits tax on Loan 1 4875
fringe benefits tax on car 2 5055
fringe benefits tax on Heater 3 611
Total taxable fringe benefit
tax
10541
1. Calculation on FBT on Loan
Loan acquired by Jasmine $ 500000

Interest paid by jasmine to the employer 4.25%
standard interest rate 5.65%
allowances on interest rate 5.65%-4.25% 1.4%
Therefore the FBT on loan $500000*1.4% $7000
Interest paid to the company for the
invested amount
$50000*4.25% $2125
Taxable value of fringe benefit tax ($7000-$2125) $4875
It has been considered that the whole amount of loan taken by jasmine is used.
4. Calculation on FBT on Car
The purchase price of the car $33000
After adjustment the number of days car used 310 days*
The taxable value of the fringe benefit of car $5605**
Less: Amount paid by Jasmine (550)
Fringe benefit on the tax $5055
*Calculation of the number of days in which car is not used by Jasmine
Total days 365
Total number of days when jasmine was
interstate
(10)
Annual repairing days (5)
Car acquired by jasmine for May 2017 to
March 2018 (not for a whole year)
(30)
Number of days car was used by jasmine 310
** By applying statutory formula (33,000∗20 %∗310/365)
5. FBT on the electronic heater

The purchase price of the heater $2600
Amount paid by jasmine ($1300)
Benefit $1300
Rate of tax on FBT 47%
Taxable value on FBT(1300∗47 % ) $611

References
Barkoczy, S. (2018). Core Tax Legislation and Study Guide 2018. OUP.
CCH Australia Ltd. (2011). FBT Compliance Guide 2011. CCH Australia Ltd.
Davidson, P., & Evans, R. (2015). Fuel on the fire: Negative gearing, capital gains tax & housing
affordability. ACOSS Papers, 29.
Deutsch, R., Friezer, M., Fullerton, G., Hanley, P. & Snape, T. (2017). Australian Tax
Handbook: Tax Return Edition 2017. Thomson Reuters.
Edmonds, M., Holle, C., & Hartanti, W. (2015). Alternative assets insights: Super funds-tax
impediments to going global. Taxation in Australia, 49(7), 413.
Evans, C., Minas, J., & Lim, Y. (2015). Taxing personal capital gains in Australia: an alternative
way forward. Austl. Tax F., 30, 735.
Jacob, M. (2018). Tax regimes and capital gains realizations. European Accounting
Review, 27(1), 1-21.
Littlewood, M. & Elliffe, C. (2017). Capital Gains Taxation: A Comparative Analysis of Key
Issues. Edward Elgar Publishing.
Wilmot, C. (2012). FBT Compliance Guide 2012. CCH Australia Ltd.
Woellner, R. (2016). Australian Taxation Law 2016. OUP.