Net Capital Gain/Loss and Fringe Benefits Taxation in Australia

This article discusses the estimation of net capital gain/loss for various transactions and the calculation of Fringe Benefits Tax (FBT) payable by an employer in Australia. It covers topics such as capital gains tax liability on post-CGT assets, personal usage assets, loan fringe benefits, and internal expenses fringe benefits. The article also cites relevant sections of the Fringe Benefits Assessment Act 1986 and Australian Taxation Law.

Taxation Theory, Practice & Law
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Question 1
Net capital gain/loss have been estimated for the various transactions enacted by the taxpayer
(client) during the income tax year from the disposal of her assets.
‘Vacant Land Block’
Capital gain tax would be payable on behalf of the taxpayer for the capital gains/losses incurred
on the post-CGT assets as defined in s. 149 (10), ITAA 1997. All the assets which are purchased
after 20 September 1985 are counted as post-CGT assets and are liable for CGT. Land block was
purchased in 2001 and thus, CGT liability will be levied on taxpayer. The transaction done for
sale of land is A1 event under s. 104 -5 and the capital gains/losses would be estimated after
determining the various elements of cost base of asset (Barkoczy, 2017).
As per TR 94/29, the CGT would be payable in current year CGT irrespective of the fact that
taxpayer has signed the contract in current year but will get the payment in next year. Further,
the capital gains would be found after taking away the last year capital losses (Coleman, 2016).
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Only 50% amount would be considered for capital gains as the holding period of land exceeds
one year as per s. 115-25(1).
‘Antique Bed’
Collectibles are capital assets and antique item fall in the category of collectibles as per TD
1999/40. Further, it is imperative to note that under s. 118-10(1), the income from disposal will
not raise CGT when the buying value of asset is $500 or lower than $500. Antique bed is a post
CGT asset as it has been acquired after 20 September 1985 and thus, CGT will be estimated for
the bed as buying value is higher than $500 (Reuters, 2017).
Only 50% amount would be considered for capital gains as the land is long term post-CGT asset
as per s. 115-25(1).
Painti
ng
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Capital gain tax would be payable on behalf of the taxpayer for the capital gains/losses incurred
on the post-CGT assets as defined in s. 149 (10), ITAA 1997. Painting was purchased on 2 May
1985 i.e. before 20 September 1985 and thus, CGT liability will not arise for taxpayer on account
of painting which is a pre-CGT asset (Nethercott, Richardson and Devos, 2016).
‘Shares’
The transaction to sell shares is A1 event under s. 104 -5 and the capital gains/losses would be
estimated after determining the various elements of cost base.
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Violin
Taxpayer is taking violin in private usage and entertainment. Further, violin is not a collectable
(nor antique item) and thus, CGT is valid only when the personal usage asset has been bought for
more than $10,000. Here, violin has been bought for $1,500 lower than $10,000 and hence, the
personal usage asset disposal will not contribute to the CGT (Woellner, 2016).
Net capital gains or losses (year end 30 June 2018)
Question 2
In accordance of Fringe Benefits Assessment Act 1986, employer gives benefits to employees
for their personal interest which are utilized by employees and employer would be held
responsible for the tax on the account of fringe benefits.
(a) Fringe Benefits Tax (FBT) payable for employer (year end 31 March 2018)
Employee: Jasmine and Employer: Rapid Heat
Car fringe benefits
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Rapid Heat gives car to employee for her personal use which represents that they extend car
fringe benefit to Jasmine as per s. 8, FBTAA86 (Wilmot, 2014).
5 days for which the car was taken for minor repairs will not be deducted from 335 days as the
repairs are quite minor. 10 days on which car was situated at the parking area of airport will not
be deducted from 335 days as the access of car was there but owing to not being in city, she
could not use it (Barkoczy, 2017).
Therefore, Rapid Heat has a FBT liability of value $25823.70 on the account of providing car
fringe benefits to Jasmine.
Loan fringe benefits
Lower interest rate used by employer as compared with the benchmark interest rate decided by
Reserve Bank of Australia while extending loan to their employee would be classified under loan
fringe benefits. In current scenario, Rapid Heat has extended a sum of $500,000 to Jasmine and
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the interest rate charged by Rapid Heat is 4.25%. Further, in accordance to TD 201/3, the
benchmark interest rate decided by Reserve Bank of Australia for loan is 5.25%. It is witnessed
that Rapid Heat has used low interest rate and thus, extended loan fringe benefits to her (Reuters,
2017).
Therefore, Rapid Heat has a FBT liability of value $2580.43 on the account of providing loan
fringe benefits to Jasmine.
Here, $450,000 out of $500,000 has been taken by Jasmine for purchasing a holiday home. This
loan payment ($450,000) will be tax deductible for Rapid Fire. It will happen only when the
holiday home of Jasmine would generate income for her. It means when the holiday home is not
used for deriving income, then tax deduction cannot be availed by Rapid Fire. Further, the
leftover amount of loan $50,000 would not result any deduction for Rapid Fire because it has not
been used by Jasmine rather is used by her husband to buy shares (Woellner, 2016).
Internal expenses fringe benefits
Employer has sold their manufactured product i.e. electric heater to Jasmine at lower price. It
implies that company is giving internal expense fringe benefits in the form of providing 50%
discount on normal rates (Wilmot, 2014).
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Therefore, Rapid Heat has a FBT liability of value $635.50 on the account of providing internal
expense fringe benefits to Jasmine.
(b) Here, $50,000 has been taken by Jasmine for purchasing Telstra shares. This loan payment
($50,000) will be tax deductible for Rapid Fire only for the case when shares have been acquired
by Jasmine. As a result, the total fringe benefits tax liability will be lowered for Rapid Heat.
Thus, the additional deduction due to $50,000 will take away from the fringe benefit tax liability
found in above scenario (Nethercott, Richardson and Devos, 2016).
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References
Barkoczy, S. (2017) Foundation of Taxation Law 2017. 9th ed. Sydney: Oxford University Press.
Coleman, C. (2016) Australian Tax Analysis. 4th ed. Sydney: Thomson Reuters (Professional)
Australia.
Nethercott, L., Richardson, G., and 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
Wilmot, C. (2014) FBT Compliance guide. 6th ed. North Ryde: CCH Australia Limited.
Woellner, R. (2016) Australian taxation law 2014. 8th ed. North Ryde: CCH Australia.
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