Taxation: Calculation of Capital Gain and Fringe Benefits Tax Liability

This article discusses the rules and regulations of the taxation system in Australia, including the calculation of net capital gain or loss for the current tax year. It also covers the FBT consequences and calculation of FBT Liability for the year ending 31 March 2018. The article provides a detailed analysis of various types of assets, such as land, antique bed, paintings, shares, and violin, and how to calculate capital gain tax on them. The article also explains the different types of fringe benefits and how to calculate the FBT liability on them.

Taxation 1
Running Head: Taxation
Taxation

Taxation 2
Executive Summary:
The taxation system in Australia has been subject to various rules and regulations while
concentrating on the various emerging reforms affecting thesystem. In order to assess the
correct taxable incomeof assesse use of theprovisions contained in Income Tax Assessment
Act 1997 and 1936 has been taken while identifying the mandatory requirements to be
fulfilled. The taxation problems will be associated with identifying the assessability of
various items concerned with the transactions entered into by the assesse during a particular
year. The technical announcements and various legislations that have been issued should be
taken into consideration while calculating the taxation liability of the assesse. The various
types of incomes forming part of the total income of assesse will be aggregated and has to be
analysed for the purpose of calculating correct amount of income as per the applicable
legislations.

Taxation 3
Table of Contents
Executive Summary:..................................................................................................................2
Introduction:...............................................................................................................................4
Question 1..................................................................................................................................5
Calculation of net capital gain or loss of the client for the current tax year ending on 30
June.........................................................................................................................................5
Question 2................................................................................................................................11
(a) FBT consequences and calculation of FBT Liability for the year ending 31 March 2018
..............................................................................................................................................11
(b) If Jasmine used $50,000 to purchase shares herself rather than lending to husband......15
Conclusion:..............................................................................................................................17
References:...............................................................................................................................18
Appendices:..............................................................................................................................19

Taxation 4
Introduction:
The task is carried out in the context of taxation theory, law and practice. This task manages
the ideas of capital gain and fringe benefits tax that identifies with the pay of taxpayers in
diverse scenarios in Australia. The capital gain tax has been figured for a customer who is an
individual taxpayer. The capital gain for various sorts of benefits, for example, land, shares,
antique bed, paintings, violin and so forth are incorporated into this task. These estimations
are made under various situations keeping in mind the end goal to apply an assortment of
ideas and matters of capital gain. The fringe benefits tax counts identify with the
organizationfewer than two unique situations. The task will be providing an overall learning
on the taxation theories.

Taxation 5
Question 1
Calculation of net capital gain or loss of the client for the current tax year ending on 30
June
At the time when a taxpayer sells a capital asset that is produced by him capital gain or loss
arises. Capital gain or loss is the measure of distinction between the sum paid on the securing
of the advantage and the sum got on the transfer of the benefit. A person is required to
incorporate the capital gain or loss in his Income Tax return and make good on the tax
obligation appropriate on such sum. The capital gain charge is a piece of Income tax. At the
point when a person brings about capital gain, it is included the aggregate pay and, in this
way, expands the taxation rate of the person. On the off chance that person acquires capital
loss, it can't be set off against another salary yet can be utilized to lessen the measure of
capital gain whether in present or future years (Harding, 2013). Every one of the advantages
procured after 20 September 1985 is qualified for CGT barring individual resources and
depreciable resources held for tax purposes. If there should arise an occurrence of individual
person capital gain rebate of the half on capital gain is accessible sue to which the capital
gain charge risk of the individual is decreased to half. This markdown is 33.33% for SMSF
and there is no such rebate for organizations. Anyway, indexation technique is likewise
accessible for resources obtained before 21 September 1999. The person can receive any
strategy which gives him the best expense results. Likewise, the rebate strategy and
indexation technique can't be connected to resources held for under a year prior to the deal
(Australian taxation office, 2018).
a.Block of vacant land
For this situation, the block of empty land was sold for $320,000 on 3 June of current year
which was gained on 1 January 2001 for $100,000. The acquirer likewise caused extra costs

Taxation 6
adding up to $20,000. The store was payable to the person on 3 January of one year from
now, however, the agreement was marked on 3 January of the current year (Buchan, Olesen,
and Carberry, 2013).
Capital gain tax is accounted for in the year in which the person goes into the agreement of
offer independent of whether the sum is gotten later. In this manner, the capital gain on a
block of empty land will be accounted for in the present year. The benefit was procured after
30 September 1999; consequently, indexation technique for ascertaining capital gain can't be
connected to the land. The customer is an individual; in this way, half rebate rate can be
connected to her capital gain. The capital gain on the offer of a block of empty land can be
figured as takes after:
Working notes:
1. The measure of repairs of $20,000 is added to the expense of procurement since the costs
were brought about for the securing of land and are perpetual in nature.
b. Antique bed
For this situation, the person bought an antique bed on 21 July 1986 and acquired expense of
changes adding up to $1500 on 29 October 1986. Amid the present duty year, the bed was
stolen and was esteemed for protection reason for a measure of $25,000.
Anyway,theinsurance agency paid the customer a measure of $11000 for the stolen bed under
her approach conditions (Burkhauser,Hahn, and Wilkins, 2015).

Taxation 7
The bed was procured by the customer before 30 September 1999, in this manner indexation
technique is pertinent. Additionally, the customer is an individual; along these lines,therebate
strategy is likewise relevant. We will choose the strategy which results in impose reserve
funds for the customer. The capital gain can be figured as takes after:

Taxation 8
Indexation method
Working note:
1. The indexed cost of purchase of bed would be $3500*68.7/43.2 = $5565.97
2. The indexed cost of alteration of bed would be $1500*68.7/44.4 = $2320.95
Discount method
The net capital gain is less under discount method, in this manner discount technique would
be utilized for announcing the capital gain on an antique bed. In this case, discount method
will be applied and therefore capital gain will be $3000 and the capital gain recognized in the
indexation method will not be considered as the same is excessive from the assesse.
(c) Painting

Taxation 9
In the provided case, customer obtained painting from a craftsman on 2 May 1985 for $2,000
and sold it in workmanship sell-off amid the present expense year for $125,000. Since the
canvas was obtained by the customer before 20 September 1985, the capital gain tax won't be
qualified on such painting. Capital gain tax in Australia began on 20 September 1985 and in
this manner, resources obtained before this date doesn’t go under the ambit of capital gain
impose 9in Australia (Burkhauser, et. al., 2015).
(d) Shares
For this situation,thecustomer has an arrangement of four distinct classes of offers. Every one
of these offers was obtained after 30 September 1999 and accordingly indexation technique
won't be material on the estimation of capital gain marked down of these offers. The capital
gain at a bargain of offers can be figured as takes after:
Working notes:
1. The capital gain loss of $6000 on offers of Young Kids Learning Ltd can be set off
against the capital gain of the present year.

Taxation 10
2. The half discount on shares of shareBuild Ltd isn't accessible since these shares were
held for a time of under a year prior to the deal.
(e) Violin
For this situation,acustomer sold a violin from her melodic accumulations for $12,000 to his
neighbour on 1 May of the present expense year (Lignier and Evans, 2012). This violin was
gained by her on 1 June 1999. Since the violin was procured for an estimation of $500 or
more, in this way it won't be excluded from capital gain impose. Likewise, shower indexation
and rebate strategies are accessible. The capital gain can be computed as takes after:
Working note:
1. The indexed cost of purchase of violin will be $5500*68.7/68.1
Discount method
The capital gain is less under discount method, in this manner the discount method would be
used for reporting the capital gain of the violin. The relevant laws in this aspect confirm the

Taxation 11
case where the discounting method will be adopted where the capital gain is recognized as
less while applying the discount method.

Taxation 12
Calculation of total capital gain
Question 2
(a) FBT consequences and calculation of FBT Liability for the year ending 31 March
2018
Fringe benefits tax is a type of taxthat is forced by the Australian taxation office on the
citizens inside the Australian tax system. This assessment is forced with respect to non-
monetary benefits given by the business to their workers out of the business understanding or
authoritative course of action. These incorporate the advantages given to the family or
partners of the workers also. These advantages are other than the measure of pay paid in real
money frame, anyway, they can either shape Some portion of compensation or compensation
or be notwithstanding the yearly pay or wages paid. The tax ascertained on the aggregate sum
of assessable Fringe benefits tax is known as FBT. The fringe benefit taxationwill be a
statutory tax calculated for the assesse during the relevant year. The same will include all
types of residual benefits, expenses benefits and other benefits which are extended to the

Taxation 13
assesse additionally in respect of his or her basic salary. This will allow the taxation authority
to charge correct taxation on assesse.
In the given case an organization Rapid Heat Pty Ltd gave a car to its worker Jasmine for her
part of venturing out to workplaces. Anyway, the car was likewise utilized by her for a
private reason (Burkhauser, et. al., 2015). The expense of a car as on 1 May 2017 was
$33,000 including GST. Amid the year finishing 31 Walk 2018, Jasmine voyaged add up to
10,000 km and brought about repair costs adding up to $550, repaid by the organization. The
car was not being used amid 15 days amid the year. The organization likewise gave a loan
adding up to $500,000 to Jasmine on 1 September 2017 at a loan fee of 4.25%. Out of this
sum, she utilized $450,000 to buy a private occasion home and loaned $50,000 to her better
half for the buy of offers. Aside from this Jasmine additionally bought a heater from the
organization at a measure of $1300 which was sold for $2600 to the overall population. The
assembling cost of the heater to the organization was $700 (Lignier& Evans, 2012).
Car fringe benefit
The car given by the organization to the worker is secured under the car fringe benefit
classification and accordingly, incidental advantage impose is pertinent on the car fringe
benefit sum. In the given case there are no points of interest in the level of private utilize.
Consequently,thestatutory formula method would be connected. The fringe benefits in case of
car will include the reimbursement of expenditures and other facilities extended to the assesse
in relation to the car provided during the year. The same will be aggregated and the tax will
be calculated accordingly. The carbenefit could be computed utilizing the statutoryformula
technique as takes after:

Taxation 14
Expense payment benefit
Jasmine acquired a cost on the repair of car adding up to $550 which was repaid by the
organization. This is considered asan expense payment fringe benefit which is excluded
fringe benefit and consequently not taxable. The expense payment fringe benefit will be
associatedwith fringe benefit recognized while an expense has been incurred by the company
in relationto reimburse the employees.
Loan fringe benefit
The organization gave a loan adding up to $500,000 to Jasmine at the rate of 4.25%. The loan
fringe benefit is taxableif the rate of interest on which the loan is given is lesser than the
market rate of interests on loans winning in the nation at the season of loan dispensing. In the
given case the land was given at 4.25% through the notional interest rate is 5.25% which is
higher than the rate of intrigue charged from Jasmine by Rapid Heat. The notional interest
rate is the statutory interest rate which has been given by ATP as 5.25% for the year 2017-18
under TD 2017/3. Along these lines, the distinction in the rate of intrigue charged and the
statutory rate of intrigue is an incidental advantage (Lanis and Richardson, 2012).
While computing the measure of fringe benefit, the finding for private costs isn't permitted
and along these lines, the measure of $450,000 utilized for the buy of private home won't be

Taxation 15
deducted. Anyway, the sum utilized for producing salary is deductible however the rest of the
$50,000 was loaned by Jasmine to her better half and in this way, this sum won't be deducted.
In this manner, the measure of incidental advantage will be ascertained as takes after:
Loan fringe benefit = $500,000*(5.25 -4.25) % = $5,000
Residual fringe benefit
The organization gave a heater to Jasmine to $1300 which was sold to the overall population
at $2600. Since the share of the heater to a representative was not made on a safe distance
cost, along these lines the distinction in the sum will be viewed as the fringe benefit to the
worker. The way that the expense of assembling the heater to the organization is $700 will
have no impact (Buchan et. al., 2013)In this manner, the measure of taxable fringe benefit
WOULD be,
According to the Australian tax laws, for ascertaining the Taxable estimation of fringe
benefit, the measure of advantage which is comprehensive of GST will be touched base at the
gross rate of 2.0802 and the sums which are selective of GST will be earned up at the rate of
1.8868 (Lanis& Richardson, 2012). Accordingly, the aggregate taxable estimation of fringe
benefit would be ascertained as takes after:

Taxation 16
(b) If Jasmine used $50,000 to purchase shares herself rather than lending to husband
On the off chance that Jasmine utilized $50,000 to buy the offers herself as opposed to
loaning the sum to her better half, this will be viewed as the utilization of credit sum for
creating salary and along these lines, this sum would be deducted while computing the
assessable fringe benefit for the loan sum (Lignier& Evans, 2012). In this manner, for this
situation the measure of assessable loan fringe benefit would be computed as takes after:
Along these lines, FBT liability of Jasmine would be diminished and hence Jasmine should
buy the shares herself instead of loaning the sum to her better half. The fringe benefit liability
will thus represent the amount chargeable and taxable as statutory benefit provided by the

Taxation 17
assesse to his employees. The chargeability in respect to various laws and regulations has
amounted to the tax liability of $10192.08.

Taxation 18
Conclusion:
The better understanding of tax laws and ideas can be created by comprehending the
distinctive cases and circumstances under this task. The capital gain and loss have been
computed for various kinds of capital resources for a customer and correspondingly fringe
benefits tax outcomes and risk has been ascertained for an organization under two distinct
conditions which includes diverse classifications of fringe benefits, for example, loan benefit,
car benefit and so on. It very well may be additionally inferred that the tax laws and
enactments help the taxpayers in precisely surveying their tax obligation and lodging income
tax return in a compelling way. The task overall provides leanings for the taxation laws and
practices.

Taxation 19
References:
Australian taxation office. (2018). I. [Online] Retrieved from:
https://www.ato.gov.au/Individuals/Income-and-deductions/Income-you-must-
declare/Amounts-not-included-as-income/
Buchan, H., Olesen, K. and Carberry, H., (2013). Fringe benefit tax on motor vehicles:
Complexity and compliance cost. New Zealand Journal of Applied Business
Research, 11(2), 59.
Burkhauser, R.V., Hahn, M.H. and Wilkins, R., (2015). Measuring top incomes using tax
record data: A cautionary tale from Australia. The Journal of Economic
Inequality, 13(2), 181-205.
Harding, M., (2013).Taxation of dividend, interest, and capital gain income.
Lanis, R. and Richardson, G., (2012). Corporate social responsibility and tax aggressiveness:
a test of legitimacy theory. Accounting, Auditing & Accountability Journal, 26(1), 75-
100.
Lignier, P. and Evans, C., (2012). The rise and rise of tax compliance costs for the small
business sector in Australia.

Taxation 20
Appendices:
Calculation of capital gain:
Fringe Benefits:

Taxation 21