Taxation: Calculation of Capital Gain Tax and Fringe Benefit Tax

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

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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

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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

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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

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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

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= 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