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

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