Computation of Net Capital Gains/Losses and Fringe Benefits Tax Assessment

This article explains the computation of net capital gains/losses for the income received from disposed capital assets and fringe benefits tax assessment. It covers the relevant sections of the Fringe Benefits Assessment Act 1986 and Goods and Service Acts 1999. It also includes examples of car fringe benefit, loan fringe benefit, and expense fringe benefit. The subject is taxation theory, practice & law and the course code is not mentioned. The college/university is not mentioned.

Taxation Theory, Practice & Law
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Question 1
The computation of net capital gains/losses for the income received from disposed capital assets
of the taxpayer is the main objective. All the transactions of the taxpayer have derived capital
receipts since the transactions are non-business in nature and thus, would be liable for Capital
Gains Tax (CGT) treatment.
Capital Asset 1: Sale of Block of Vacant Land
The asset has been purchased well after September 20, 1985 and therefore, the block of vacant
land is not named as pre-CGT asset of client as mentioned in details in s. 149 (10) ITAA 1997
(Barkoczy, 2017). Hence, the application of CGT will be valid on the proceeds of the disposal
for the calculation of capital gains or losses. Also, as per the underlying clauses of s. 104 (5)
ITAA 1997, the type of transaction for disposing the block of land is a capital gains tax event
(CGT event) of A1 type (Wilmot, 2014). According to this sub class, the capital gains or capital
losses could be determined by subtracting the cost base of asset and the capital receipts received
from the disposal. Hence, based on the above, it is essential to determine the cost base of asset
whose constituent elements are highlighted in s. 110(25) ITAA 1997 and in details in the
subsection of s. 110(25)-1 ITAA 1997 (Sadiq, et.al., 2015).
The enactment of contract for the sale is an imperative aspect because the provisions of TR
94/29, defines that capital gains or losses derived from asset sale will be considered for CGT
application in contract enactment year only while the payment of the contract may or may not be
received in the same financial year (Woellner, 2017). In present case also, the taxpayer would
have receive the contractual payment for the sale of land in FY2018/19 while the contract of sale
has been conducted in FY 2017/18. However, the sale proceeds will be used for capital
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gains/loss calculation in FY 2017/18 only. The taxpayer has kept the asset for more than a year
and thus, the capital gains will be long term and 50% concession will be provided to taxpayer as
provided under the aegis of s. 115-25 ITAA 1997 (Reuters, 2017). Moreover, before applying
50% concession the previous capital losses will also be balanced from the derived capital gains
as outlined in relevant clauses of s. 102(5) ITAA 1997 (Nethercott, Richardson and Devos,
2016).
Capital Asset 2: Sale of Antique Bed
The asset has been purchased well after September 20, 1985 and therefore, the antique bed is not
named as pre-CGT asset of client as mentioned in details in s. 149 (10) ITAA 1997. Hence, the
application of CGT will be valid on the proceeds of the disposal for the calculation of capital
gains or losses (Krever, 2017). Also, as per the underlying clauses of s. 104 (5) ITAA 1997, the
type of transaction for disposing the antique bed is a capital gains tax event (CGT event) of
A1.type. According to this sub class, the capital gains or capital losses could be determined by
subtracting the cost base of asset and the capital receipts received from the disposal. The
taxpayer has kept the asset for more than a year and thus, the capital gains will be long term and
50% concession will be provided to taxpayer under the aegis of s.115-25 ITAA 1997
(Hodgson,Mortimer and Butler, 2016). Moreover, before applying 50% concession the previous
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capital losses will be balanced from the derived capital gains as outlined in the relevant clauses
of s. 102(5) ITAA 1997 (Barkoczy, 2017). However, the imperative factor before executing the
computation is that antique bed is a type of collectable and therefore, the condition required for
CGT treatment of collectable must be met.
Condition: The antique item must be procured for a sum amount higher than $500 as indicated in
s. 118-10 ITAA 1997 (Krever, 2017).
Test for Antique Bed: The taxpayer has procured the bed for a sum of $3500 which is fairly
higher than $500 and thus, the CGT will be applied as highlighted above.
Capital Asset 3: Sale of Painting
The asset has been purchased earlier than September 20, 1985 and therefore, the painting is
named as pre-CGT asset of client as mentioned in details in s. 149 (10) ITAA 1997. Hence, the
application of CGT will not be valid on capital gains or losses which will be computed from the
proceeds of disposal of painting.
Capital Asset 4: Sale of Shares
The shares have been purchased well after September 20, 1985 and therefore, it is not named as
pre-CGT asset of client. Hence, the application of CGT will be valid on capital gains or losses.
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Also, as per s. 104 (5) ITAA 1997, the type of transaction for disposing the shares is a capital
gains tax event (CGT event) of A1 type. The capital gains or capital losses could be determined
by subtracting the cost base of asset and the capital receipts received from the disposal. The
taxpayer has kept the three companies shares for more than a year and thus, the capital gains will
be long term and 50% concession will be provided to client while it is not true for one company
share (i.e. Built Ltd.) as it is a short term capital gains.
Capital Asset 5: Sale of Violin
The asset has been purchased well after September 20, 1985 and therefore, the violin is not
named as pre-CGT asset of client as mentioned s. 149 (10) ITAA 1997. Hence, the application of
CGT will be valid on the proceeds of the disposal for the calculation of capital gains or losses.
However, the imperative factor before executing the computation is that violin which has been
sold is not a type of collectable and instead is an example of personal use item of taxpayer. This
is apparent from the facts that she plays violin daily for her own satisfaction and entertainment
and also, has keen interest in playing it well. Therefore, it is essential the condition required for
CGT treatment of personal use item must be met.
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Condition: The personal use item must be procured for a sum amount higher than $10,000 in
accordance with.ss.108-20(1) ITAA 1997 (Gilders, et. al., 2015).
Test for violin: The taxpayer has procured the violin for a sum of $5,500 which is fairly lower
than $10,000 and thus, the CGT will not be applied here.
Net Capital Gains/Losses
Question 2
Employer may extend benefits (non-cash type) to employee which are visibly of personal type
and are termed as fringe benefits. The liability of resultant tax arising on account of giving fringe
benefits is charged on employer and not on the beneficiary employee (Deutsch, et.al., 2015). The
various provisions of these fringe benefits are mentioned in Fringe Benefits Tax Assessment
Acts 1986.
Car Fringe Benefit
The relevant section of Fringe Benefits Assessment Act 1986 which defines the aspects of car
fringe benefits is s.7 FBTAA 1986 (Wilmot, 2014). According to this, any employer will be
accountable and have to make the payment of FBT liability when they make a car available to
employee for their personal work. Further, it is also true when the employer extends the
permission to employee to use the office car for her/him own purposes then also car fringe
benefit is enforceable and the extend of utilization of car by employee for personal work will be
taken into account. There are some key factors that must be computed for the FBT liability of
employer (Sadiq, et.al., 2015).
 Capital value (buying cost and the capital expenses)
 Duration of usage of car for personal interest (days)
 Total days in the assessment year
 Gross up factor
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 Fringe benefit tax rate
1) The fringe benefit amount would be calculation by using capital value, durations of usage of
car for personal interest of employee, total days in the assessment year (Gilders, et. al.,
2015).
2) Taxable value of fringe benefit would be the multiplication of the two variables one is fringe
benefit amount and the second is gross up factor based on the underlying type of benefit
(Coleman, 2016).
3) Fringe Benefit Tax Liability (FBT Liability) is multiplication of taxable value of the fringe
benefit and the applicable fringe benefit tax rate. This amount would have to pay on the part
of employer in order to fulfil the FBT liability. Further, no FBT liability is imposed on
employee (Woellner, 2017).
Rapid Heat Pty Ltd (also known as Rapid Heat) has issued their car which they purchased for a
net amount of $33,000 to Jasmine who is an employee of Rapid Heat. This is considered as car
fringe benefit because Rapid Heat has provided the permission to Jasmine to utilize the car for
her own personal works. The total amount spent by Rapid Heat on the minor repairs on car will
also be deducted from net amount of procurement which is the capital value of car.
Car has offered to Jasmine on May 1, 2017 not on April 1, 2017 and therefore, the total duration
till the assessment year ending which is March 31, 2018 comes out to be 335 days.
The imperative factor in relation to the car availability duration for Jasmine is that during the
financial year car has sent to garage for five days (minor repairing) and also, 10 days when car
has parked at airport and Jasmine was not in city. However, these two periods will not be
deducted from 335 days as the availability of car for employee is not impacted. Moreover, car is
a type I good as mentioned in Goods and Service Acts 1999. The gross up factor in this case will
be 2.0802 for FY2018.
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The applicable percentage FBT rate (FY2017/18) for finding the FBT payable is 47%.
Loan Fringe Benefit
This fringe benefit is provided in terms of providing financial support to employee so as the
respective employee can utilize the amount to fulfil their personal need of buying assets or home
or to make investment (Reuters, 2017). The loans ideally must be offered at benchmark interest
rate which is decided by the Reserve Bank of Australia for every financial year. The benchmark
interest rate of loan for FY 2017/18 is 5.25% p. a. which represents that it is essential that the
loan should be given at the rate of 5.25% p.a. in year FY 2017/18 (Krever, 2017). When the
employer who wants to provide financial support to employee has decided a rate of interest
which is below this benchmark interest rate, then it leads to extension of loan fringe benefit. The
objective of the employer is to reduce the total interest payable of the employee by giving the
loan at concessional interest rate (Hodgson,Mortimer and Butler, 2016).
Rapid Heat Pty Ltd has issued loan of a net amount of $500,000. This is considered as loan
fringe benefit because Rapid Heat has provided concessional interest rate (4.25% p.a.) on the
aforesaid loan. The net saving of the interest payment would be considered for computation.
Loan has offered to Jasmine on September 1, 2017 and therefore, the total duration till the
assessment year ending which is March 31, 2018 comes out to be 212 days.
Moreover, loan is a type II good as mentioned in Goods and Service Acts 1999. The gross up
factor in this case will be 1.8868 for FY2017/18.
The applicable percentage FBT rate (FY2017/18) for finding the FBT payable is 47%.
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Jasmine uses 90% of loan to purchase the holiday home and lent 10% of loan to offer to husband
for share purchase. If the holiday home becomes the source of assessable income of Jasmine,
then the employer can claim deduction on interest proceeds derived from 90% of loan. Further,
employer cannot claim deduction on interest amount which has been received from 10% of the
loan which has been used by her husband as deduction rule highlights deduction for usage only
by the employee and not by any related associate.
Expense Fringe Benefit
This benefit is given to employee when the employer has made the payment of expenses which
are personal from the perspective of employee (Coleman, 2016). The expenses that are paid for
the owned product of the company will be categorised under internal expenses fringe benefit.
The net expenses that have been borne by employer will be considered for the FBT liability
computation (Nethercott, Richardson and Devos, 2016).
Rapid Heat sells electric heater to public for $2600. Further, Jasmine has purchased same heater
from Rapid Heat and the offered price is mere $1300. It is evident that Rapid Heat has given
rebate on the price of heater so as to limit the personal expense liability of Jasmine. Therefore,
the FBT burden on Rapid Heat is calculated.
Moreover, heater is a type I good as mentioned in Goods and Service Acts 1999. The gross up
factor in this case will be 2.0802 for FY2017/18.
The applicable percentage FBT rate (FY2017/18) for finding the FBT payable is 47%.
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(b) Earlier Jasmine used 100% of loan to in such a way that 90% of loan will be used to purchase
the holiday home and lent 10% of loan to purchase share to husband. Now the share purchase is
also being carried out by Jasmine instead of her husband. In this situation, the dividend amount
that results from shares will also be part of assessable income of Jasmine and thus, employer can
potentially claim deduction on interest amount which would be received from 10% of the loan
which has been used by her. The deduction from 10% of loan which is $50,000 will be used to
decrease the net fringe benefit tax payable of Rapid Heat. The increase in deduction available to
the employer is exhibited thorough the following working.
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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.
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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