Taxation: Calculation of Capital Gain Tax and Fringe Benefit Tax

This article explains the calculation of capital gain tax and fringe benefit tax in Australia. It covers the calculation of capital gain tax on sale of assets such as vacant land, antique bed, painting, shares, and violin. It also explains the calculation of fringe benefit tax on providing car to an employee for personal use.

Running head: TAXATION
Taxation
Name of the Student:
Name of the University:
Authors Note:

1
TAXATION
Contents
Answer 1:.........................................................................................................................................2
(a) Block of vacant land:........................................................................................................2
(b) Antique bed:......................................................................................................................3
(c) Painting:............................................................................................................................6
(d) Shares:...............................................................................................................................6
(e) Violin:.............................................................................................................................11
Answer 2:.......................................................................................................................................12
Sub part (a):...............................................................................................................................13
Sub part (b):...............................................................................................................................17
References:....................................................................................................................................19

2
TAXATION
Answer 1:
(a) Block of vacant land:
The Australian Taxation Office (ATO) provides that sale of capital assets would attract capital
gain tax if such assets is not for personal use and it was purchased on or after 20th September,
1985, the date on which capital gain was introduced in the country. The capital Gain Tax (CGT)
event gives rise to capital gain to the seller as on the date of entering into the contract to sale the
asset (Dai et. al. 2015). The date of settlement is not of any relevance in determining the liability
of the taxpayer in relation to the CGT. Capital gain is charged in the income year in which the
contract is entered into. It is immaterial whether the payment has received in current income year
or not but the capital gain tax liability will arise in the year of contract.
Capital gain or loss on the sale of vacant land is calculated in the tabular format:
Details Amount
($)
Amount
($)
Proceeds from sale 320,000.
00
Less: Cost deductions
Acquisition cost 100,000.
00
Tax paid to Local council 20,000.
00

3
TAXATION
Gross capital gain before CGT
discount
120,000.
00
Capital gain before discount 200,000.
00
Less: CGT discount (200000 x 50%) 100,000.
00
Long term capital gain 100,000.
00
The client has the option to also use indexation method to calculate the capital gain however,
ATO allows tax payers to select the method that minimizes their tax liability. Considering CGT
discount method will minimize the amount of capital gain tax thus, it has been chosen to
calculate CGT of the client from sale of vacant land (Yagan, 2015).
(b) Antique bed:
The client had an antique bed which has been stolen. Insurance company has accepted the
claim but the payment received was much lower than the market value of the bed determined by
the expert. ATO provides that in case of insurance claim received for destruction to the property
due to any of the following reasons then the insurance claim shall be considered for the purpose
of capital gain. In this case the insurance claim has accepted the claim with a payment of
$11,000 for the theft of antique bed (Faccio and Xu, 2015). Since the claim has been received in
the current tax year hence, the same will be taxable in the current tax year. As per ATO in case
of destruction or loss of assets due to natural calamities such as flood, hurricane, earthquake, or
civil unrest, riot, accident, exposition or even loss due to threat, if the insurance company accepts

4
TAXATION
any insurance claim then such payment made by the insurance company shall be considered to
calculate capital gain tax in the income year in which the claim was paid by the insurance
company (Chung, 2017).
In this case the insurance company has accepted the claim and has paid $11,000 as insurance
claim for the loss of antique bed to the client. The payment has been made in the current tax year
and it will be accordingly, considered for calculation of capital gain tax in the current tax year.
Capital gain tax allows indexation of cost and expenditures incurred provided these were made
prior to 1999 and at the time of sale of the assets it was with the seller for more than 12 months.
In this case the client purchased the antique bed on July 21, 1986 at a cost of $3,500 and also
incurred additional $1,500 on October 29, 1986 for alterations to the antique bed (Clark, 2014).
Both cost and development expenditures were incurred prior 1999 and since the asset was with
the client for more than 12 months before it was stolen thus, indexation can be used to inflate the
cost base and development expenditures for the asset.
Accordingly, index cost of improvement shall be:
CPI for Quarter Ending 30 June 2018
* Cost of Improvement
CPI for Quarter Ending 30 October 1986
=
113.0
* $1500
44.4

5
TAXATION
= Cost of Improvement will be 3817.56
The cost of acquisition of the assets after indexation will be as following:
CPI for Quarter Ending 30 June 2018
* Cost of Acquisition of Investment
CPI for Quarter Ending 31st July 1986
=
113.0
* $3500
43.2
Cost of Acquisition will be 9155.09
The insurance company has accepted the insurance claim and paid only $11,000 in the current
tax year. Thus, the net capital gain or capital loss from involuntary disposal of the assets is
calculated in the table below:
Details
Amount
($)
Amount ($)
Sales Consideration $11000
Less: Transfer expenses Nil
Net sale consideration $11000.00
Less: Indexed cost of Acquisition 3817.56

6
TAXATION
Less: Indexed cost of Improvement 9155.09 12,972.65
Long term capital Loss (1972.65)
(c) Painting:
ATO has made it clear that capital gain tax applies only on assets that were purchased on or after
20th September, 1985. Anny asset purchased prior to the date of introduction of capital gain tax in
the country, i.e. in Australia does not attract capital gain tax. Thus, irrespective of the amount of
gain from sale of an asset, it will not attract capital gain tax if the seller acquired the asset before
20th September, 1985 (McGee, Devos and Benk, 2016).
Here, the client has sold a painting at $125,000 in the current tax year. The painting was brought
from a well-known artist for merely $2,000 on May 2, 1985, i.e. before capital gain tax came into
force in the country. Subsequent to the death of the painter the price of the painting soared. In the
current tax year the client sold the painting for a consideration of $125,000. However, since
capital gain is not imposed on sale of assets that were purchased by the seller before September
20, 1985 as in this case, no capital gain tax will be paid on the sale of the painting (Mumford,
2017).
Thus, the capital gain from sale of the painting by the client is not taxable in the hands of the
seller. No liability in respect of capital gain tax shall arise to the seller for sale of the painting.
(d) Shares:
Again for long term assets that owner has held for a period in excess of 12 months he has the
option using either indexation or CGT discount method. The seller has the right to choose any

7
TAXATION
method that reduces his liability for capital gain tax. Considering CGT discount method will
reduce the capital gain tax liability of the tax payer. Hence, CGT discount method has been used.
In case of individuals a flat 50% discount on gross capital gain is allowed. Accordingly, the net
capital gain of the client has been calculated in the table below (James, Sawyer and
Wallschutzky, 2015).
Details $ $ $
Proceeds from sales of commonwealth bank
shares
47,000
.00
Less: Brokerage on sale proceeds 55
0.00
Net sale proceeds 46,450
.00
Less: Cost base
Acquisition cost (1000 x 15) 15,000
.00
Stamp duty 75
0.00
15,750

8
TAXATION
.00
Net capital gain 30,700
.00
Proceeds from sale of PHB Iron Ore Ltd
shares
62,500
.00
Less: Brokerage on sale proceeds 1,000
.00
Net sale proceeds 61,500
.00
Less: Cost base
Acquisition cost (2500x 12) 30,000
.00
Stamp duty 1,500
.00
31,500
.00
Net capital gain 30,000
.00

9
TAXATION
Proceeds from sale of young Kids Learning
Limited
60
0.00
Less: Brokerage on sale proceeds 10
0.00
Net sale proceeds 50
0.00
Less: Cost base
Acquisition cost (1200x 5) 6,000
.00
Stamp duty 50
0.00
6,500
.00
Net capital gain (6,000
.00)
Total long term capital gain before using
CGT discount
54,700
.00
Less: CGT discount (54700 x 50%) 27,350
.00
Long term capital gain from shares 27,350

10
TAXATION
.00
Proceeds from sale of Share Build Limited 25,000
.00
Less: Brokerage on sale proceeds 90
0.00
Net sale proceeds 24,100
.00
Less: Cost base
Acquisition cost (10000x 1) 10,000
.00
Stamp duty 1,100
.00
11,100
.00
Short term capital gain from shares 13,000
.00
(e) Violin:
As per the instruction of the Australian Taxation Office (ATO), capital gain is exempted on sale
of personal assets if it costs less than $10,000 to seller at the time of buying. Thus, all the assets

11
TAXATION
that are used for personal purpose by the taxpayer would not be liable to capital gain tax
provided if the cost of these assets were less than $10,000 (Braverman, Marsden and Sadiq,
2015).
The client used to play the violin before deciding to sale it for $12,000. The client brought it at a
cost of $5,500 on 1st of June, 1999. Though violin has not been mentioned specifically as a
personal asset by the ATO however, it is fulfilling all the requirements of a personal asset.
Hence, the sale of the asset will not resulted in capital gain or capital loss as it was for personal
use of the client and it also costs less than $10,000 (Tang and Wan, 2015).
Hence, from the sale of violin no capital gain or capital loss shall arise to the client as it is a
personal asset.
Net capital gain of the client for the current tax year ending on June 30, 2018 is as following:
Net capital gain
Details $ $
Gross capital gain from vacant land 200,000.
00
Gross capital gain before applying CGT
discount
54,700.
00
Gross capital gain 254,700.
00

12
TAXATION
Less: CGT discount (240700 x 50%) 127,350.
00
127,350.
00
Capital loss from antique bed (1,972.
65)
125,377.
35
Less: Brought forward Capital loss 8,500.
00
Net long term capital gain 116,877.
35
Net short term capital gain (Shares of Young) 13,000.
00
Answer 2:
Sub part (a):
Employer often provides employees with some non-monetary benefits in addition to the
wages and salaries. Fringe benefit tax (FBT) is payable by the employer for such non-monetary

13
TAXATION
benefits as per the instruction given in the official website of the ATO. In order to calculate the
FBT for providing car to an employee, if such car was available to the employee for his or her
personal use, the following formula shall be used:
Taxable value of Fringe Benefit = (A*B*C)/D-E
A = Car base value.
B= Statutory applicable percentage.
C= No. of days in the FBT year when the car is available or used for employee private purpose.
D= No. of Days in the FBT year.
E= Contribution of Employee.
Applicable statutory percentages are based on the number of kilometres the car ran during the
period when it was provided to the employee. Here is the table showing statutory percentages for
different kilometres (Shields and North-Samardzic, 2015).
Kilometres travelled Relevant
statutory
percentages
15000 km or less 26%
15000 km – 24999 km 20%
25000km – 40000 km 11%
Above 40000 km 7%

14
TAXATION
Based on the statutory percentage method the taxable value of fringe benefit for the car would
be:
Statutory percentage method
Particulars Amount
($)
Car value for the purpose 33,000
.00
Kilometre ran 10,000
km
Statutory percentage applicable
26%
Taxable value of fringe benefit
{(33000 x 26%) x 320/365}
7,552
.19
Thus, the taxable value of Fringe benefits for the car is $7,552.19.
Note:
In calculating the number of days that the car was available for personal use of the employee the
number of days when the car was parked at the airport and the number of days when Jasmine

15
TAXATION
was interstate for work purpose was excluded. The number of days have been calculated in the
following ways (Nijland and Dijst, 2015).
Number of days’ car was available for personal use of Jasmine in FBT year.
Month Days
May 31
June 30
July 31
August 31
September 30
October 31
November 30
December 31
January 31
February 28
March 31
335

16
TAXATION
Less: Number of days car was not available for personal
use (10 +5)
15
320
Fringe benefit tax for loan provided by an employer to his employee at zero percent or
concession rate of interest:
In this case Rapid Heat has provided a loan of $500,000 to Jasmine at an interest of 4.25%. The
taxable value of fringe benefit in case of loan provide to an employee is the difference between
statutory bench mark interest and the concessional rate of interest charged on such loan by the
employer (Chung, 2017).
Details ($) ($)
Amount of loan provided 500,000.
00
Taxable value of fringe benefit
Statutory interest rate 5
.25%
Interest provided at 4
.25%
Taxable value for FBT {500000 x (5.25% - 4.25%)} x 2,916

17
TAXATION
7/12 .67
Though $50,000 was used for acquiring income producing assets however, it was not by Jasmine
rather by her husband. Thus, entire loan has been considered for calculation of taxable value of
fringe benefit.
Sub part (b):
Instead of providing the balance loan to her husband if Jasmine would have used the fund
to acquire income producing asset by herself then only $450,000 would have used for calculation
of taxable value of Fringe benefit (Eslake, 2015).
The taxable value of fringe benefit in case the balance $50,000 is used by Jasmine to acquire
income producing asset:
Particulars Amount
($)
Amount
($)
Amount of loan 500,000.
00
Holiday home acquired 450,000.
00
Share acquired (Income producing assets) 50,000.
00

18
TAXATION
Taxable value of fringe benefit
Statutory interest rate 5.25%
Interest provided at 4
.25%
Taxable value for FBT {4500000 x (5.25% - 4.25%)}
x 7/12
2,625
.00
Hence, use of $50,000 by Jasmine would have resulted in reduction of taxable value of
fringe benefit to $2,625 from $2,916.67 (Jacob, 2018).

19
TAXATION
References:
Braverman, D., Marsden, S. and Sadiq, K., 2015. Assessing Taxpayer Response to Legislative
Changes: A Case Study of In-House Fringe Benefits Rules. J. Austl. Tax'n, 17, p.1.
Chung, E., 2017. The absolute beginner's guide to capital gains tax. REIQ Journal, (May 2017),
p.35.
Chung, E., 2017. The absolute beginner's guide to capital gains tax. REIQ Journal, (May 2017),
p.35. [Online] Available from:
https://search.informit.com.au/documentSummary;dn=865667655444649;res=IELBUS
[Accessed 30 September 2018]
Clark, J., 2014. Capital gains tax: historical trends and forecasting frameworks. Economic
Round-up, (2), p.35.
Dai, M., Liu, H., Yang, C. and Zhong, Y., 2015. Optimal tax timing with asymmetric
long-term/short-term capital gains tax. The Review of Financial Studies, 28(9), pp.2687-2721.
Eslake, S., 2015. Reforming the Australian taxation system: a principled approach. Australian
Financial Review Tax Reform Summit. [Online] Available from:
https://www.smh.com.au/cqstatic/gjsp9o/Saul-Eslake-AFR-Tax-Summit-2015.pdf [Accessed 30
September 2018]
Faccio, M. and Xu, J., 2015. Taxes and capital structure. Journal of Financial and Quantitative
Analysis, 50(3), pp.277-300.
Jacob, M., 2018. Tax regimes and capital gains realizations. European Accounting
Review, 27(1), pp.1-21. [Online] Available from:

20
TAXATION
https://www.tandfonline.com/doi/abs/10.1080/09638180.2016.1203811 [Accessed 30 September
2018]
James, S., Sawyer, A. and Wallschutzky, I., 2015. Tax simplification: A review of initiatives in
Australia, New Zealand and the United Kingdom. eJournal of Tax Research, 13(1).
McGee, R.W., Devos, K. and Benk, S., 2016. Attitudes towards tax evasion in Turkey and
Australia: A comparative study. Social Sciences, 5(1), p.10.
Mumford, A., 2017. Taxing culture: towards a theory of tax collection law. Routledge.
Nijland, L. and Dijst, M., 2015. Commuting-related fringe benefits in the Netherlands:
Interrelationships and company, employee and location characteristics. Transportation Research
Part A: Policy and Practice, 77, pp.358-371.
Shields, J. and North-Samardzic, A., 2015. 10 Employee benefits. Managing Employee
Performance and Reward: Concepts, Practices, Strategies, p.218.
Tang, R. and Wan, J., 2015. Fringe benefits tax and fly-in fly-out arrangements: John Holland
Group Pty Ltd v Commissioner of Taxation. Australian Resources and Energy Law
Journal, 34(1), p.17.
Yagan, D., 2015. Capital tax reform and the real economy: The effects of the 2003 dividend tax
cut. American Economic Review, 105(12), pp.3531-63.