Taxation Consequences on Disposal of Assets and Fringe Benefit Tax Calculation

TAXATION
STUDENT NAME/ID
[Pick the date]

Question 1
Issue
The issue is to extend advice to client (taxpayer) about her taxation consequences based on the
type and nature of the transactions which have been done in regards to disposal of selected few
assets.
Law
Classification of Receipts
The derived receipts from disposal of an asset can be either capital receipt or revenue receipt.
The determination of type of receipt is an imperative factor because if the receipt is categorised
as revenue receipts, then the relevant taxation consequences applied on the receipts would be
under s. 6(5), ITAA 1997. However, when the receipts are capital receipts, then the relevant tax
legislation is Capital Gains Tax (CGT) (Sadiq, et.al., 2015). The main aspect to draw the exact
type of receipt is the source and intention of the taxpayer while disposing the assets. If the
taxpayer is running a business which includes trading assets, then the receipts will be revenue
receipts and business transaction will be deriving ordinary income (Barkoczy, 2017). Further,
when the taxpayer does not engage in business based on trading assets and disposes the capital
assets then the derived sale proceeds will result in either capital gains or capital losses which will
be taxed as per CGT (Nethercott, Richardson and Devos, 2016).
CGT Applicability
The CGT would be applied on those assets which are not pre-CGT asset (purchased before
September 20, 1985) as these belong to the period which is after the CGT legislation was
implemented. This would be the first step to check the whether the disposed asset is pre-CGT or
not (Hodgson, Mortimer and Butler, 2016).
There are some cases where CGT will not be applicable even though they are not pre-CGT asset.
Likewise, if an asset is collectable of the taxpayer then CGT will be enforceable only if the total
amount spent by taxpayer for procuring the asset is higher than $ 500 as described in s. 118(10)
ITAA 1997 (Sadiq, et.al., 2015). Also, if an asset is personal use asset of the taxpayer then CGT
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will be enforceable only if the total amount spent by taxpayer for procuring the asset is higher
than $ 10,000 as described in s. 108-20(1) ITAA 1997.
Computation Essentials
The capital assets disposal (for the given case) is termed as a CGT event and falls under A1
event and therefore, the formula has been taken for A1 event only under s. 104(5) ITAA 1997
(Nethercott, Richardson and Devos, 2016). This implies that cost base of asset and income from
disposed assets constitutes the two main factors for capital gains or losses computation. The cost
base comprises five elements which are listed below under s.110 (25) ITAA 1997 (Wilmot,
2014) (Gilders, et. al., 2015).
Elements of Cost Base
 The income from disposal will be held realised for computation in the same financial year in
which it has been formed despite the factor that payment will not be received in that financial
year as explained under TR 94/29 (Reuters, 2017).
 Any previous capital losses or derived capital losses must be balanced with capital gains
received under s. 102-5 ITAA 1997. If no gains are derived, then the capital losses which are
unadjusted will be carried forward to next tax year (Hodgson, Mortimer and Butler, 2016).
 Holding period of asset that exceeds duration of 1 year will result in long term capital gains
when disposed. In such case, only 50% of capital gains or losses will be contributed in the
net capital gains or losses for CGT (Sadiq, et.al., 2015).
Application
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For the given scenario, the applicable tax legislation is CGT as the taxpayer has capital assets
which she has disposed. Also, she has not carried any business activity by engaging in asset sale.
Whether the asset is pre-CGT or not is represented in the table given below.
Land Block: Block of land has been sold in year 2017/18 but taxpayer will be able to receive
the sale proceeds in 2018/19 and thus, as per TR 94/29, the expected CGT consequences will be
realised in 2017/18 only. The capital losses which are carried forward from last year would be
cancelled from the produced capital gains. Further, as indicated from the above, the holding
period of asset is higher than a year and 50% discount will be provided as exhibited below.
Antique Bed: CGT will be enforceable only if the total amount spent by taxpayer for procuring
the asset (collectable) is higher than $ 500. It is apparent that the procuring amount is $3500 for
antique bed. It indicates that the requisite condition is met and thus, CGT will be applicable.
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