Taxation in Theory and Practice

Taxation Theory,
Practice

Table of Contents
INTRODUCTION...........................................................................................................................1
QUESTION 1...................................................................................................................................1
a. Block of vacant land................................................................................................................1
b. Antique bed.............................................................................................................................2
c. Painting....................................................................................................................................3
d. Shares......................................................................................................................................4
e. Violin.......................................................................................................................................7
QUESTION 2...................................................................................................................................8
a. Advise Rapid Heat on FBT consequences..............................................................................8
b. Variation in ascertainment of FBT consequences..................................................................9
CONCLUSION................................................................................................................................9

INTRODUCTION
Taxation is a process of levying tax on organisations which governmental authority
imposes on individuals and organisations. Main aim of this project report is to build an
understanding about the concept of tax and taxation practice in Australia. In this project report,
various assets are analysed in order to determine their tax liability and taxable income. Several
appropriate rules and regulations are applied in this report such as capital gains tax, fringe benefit
tax and index number taxation. As a tax consultant in Mayfield, NSW tax liability of certain
clients are ascertained. Taxation law of Australia is examined in this report in order to facilitate
various clients (Cato, 2012).
QUESTION 1
In this case scenario, tax liability of a client which is a antique collector is needed to be
ascertained by examining client's various assets and collections. As a tax consultant in Mayfield,
NSW tax liability of client is determined. From the given scenario, it has been observed that
client is an investor and antique collector which does not carrying any business. Due to which all
the tax liabilities will be imposed as an individual and tax law of Australia will be applied.
a. Block of vacant land
Case Scenario:
According to the given scenario, client decided to sell their block of vacant land and
signed a contract on 3 June for 320000 dollars. Client has acquired this land in January 2001 for
$100000 and incurred 20000$ in local council, water and sewerage rates and land taxes. The
signed contract states that client will be provided 20000 dollars at the signing date and remaining
amount will be payable to her when change of ownership will be registered (Dafflon, 2015).
Related regulations and laws:
According to rules and regulations of Australian taxation office, vacant land (either for
private purpose or as an investment) it's usually considered a capital asset which is subject to
capital gains tax (CGT) when anyone sell land in Australia. Expenses incurred while acquiring
the land and ongoing expenses such as council rates and loan interest these expenses can't be
claimed as an income tax deduction because the land does not generate income. Instead these
expenses can be added to the cost base of land for the purpose of calculating capital gain or loss
when client actually sells it. Law which is applicable in this case is Income tax assessment act
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1997 of Australia and regulations are implied of capital gains. According to section 104(35) of
ITA act 1997, ascertainment of tax liability which should be implied on client is determined
below by considering indexation base and related tax slab (Kaplow, 2011).
Calculation of Cost base on 3/06
Acquisition Cost of Vacant land 100000
Add Statutory Rates And taxes 20000
Non indexed Cost Base 120000
Calculation of Sale Proceeds
Particulars Amount
Sale income from land 320000
Less: Index Cost of acquisition 120000
Gain for next year 200000
Justification and Interpretation:
From the above calculation it has been ascertained that gain which is considered to be
received in the next year is determined as 200000. this amount is calculated by comparing
indexation cost base of acquisition of land and value of land which is sold.
b. Antique bed
Case Scenario:
According to the given case, it has observed that client has an antique bed valued as
25000 dollars which was purchased at 3500 on 21 July 1986 and has incurred few expenses
amounting as 1500 on 29 October 1986. This antique bed was stolen from her house due to
which client lodged claim for insurance. Due to nature of insurance policy, client only received
claim of 11000 dollars as household content policy.
Related rules and legislations:
According to Australian taxation office, ancient bed is considered as capital gain which is
taxable under capital gain taxes. CGT started from 20 September 1985 and this asset was
purchased on 21 July 1986. As this asset was acquired before 1999, indexation tax rate will be
applicable. Despite of the fact this asset was stolen, still tax will be applicable to the amount
which is received by Insurance company as insurance claim (Molle, 2017). This tax is applicable
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