Taxation Law: Fringe Benefit Tax and Capital Gains Tax

This document discusses the Fringe Benefit Tax Assessment Act 1986 and the Capital Gains Tax. It covers the definition of fringe benefit, car fringe benefit, methods to calculate car fringe benefit, and capital gains tax events. It also provides recommendations for tax planning.

Running head: TAXATION LAW
Taxation Law
Name of the Student
Name of the University
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Table of Contents
Answer to question 1:.............................................................................................................2
Issue:.....................................................................................................................................2
Rule:......................................................................................................................................2
Application:...........................................................................................................................3
Conclusion:...........................................................................................................................5
Answer to question 2:.............................................................................................................5
Answer A:..............................................................................................................................5
Answer to B:.........................................................................................................................7
Answer to C:.........................................................................................................................7
References:..............................................................................................................................8

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Answer to question 1:
Issue:
The issue will take into the consideration the fringe benefit tax relating to the
car provided to the employee out of the employment relation during the FBT year.
Rule:
The regime of fringe benefit is regarded as the imposition of tax on wide
variety of benefits that are given by the employer to the employee. The fringe benefit
tax is useful in overcoming the inadequacies of income tax regimes which includes
imposing taxes on the non-cash benefits that cannot be converted into cash and
imposing tax on the benefits that are given to the employee’s associate. The fringe
benefit tax provision is given under the Fringe Benefit Tax Assessment Act 1986
(Cth) (Lieuallen and Shurtz 2018). The most vital differences between the income
and the fringe benefit tax is that the taxes are imposed on the employer and not on
the employee based on the provision of the fringe benefits. The fringe benefit tax
year commences from the 1st April to the 31st March which is known as the year of
taxation. Fundamental to the application of the fringe benefit tax, the term fringe
benefit is defined under the “sec 136 (1), FBTAA 1986”.
According to the “sec 136 (1), FBTAA 1986” a fringe benefit is existence
when there is a benefit given during the taxation year by the employer or the
associate or the third party arranger to the employee or the associate of employee in
relation to the employee’s employment (Schefer 2016). The term fringe benefit
comprises of the any kind of right, privilege, services or the facility that is provided
under the arrangement with respect to the performance of the work under “sec 136
(1), FBTAA 1986”. The definition of fringe benefit is exclusively wide and captures
wide variety of benefits along with the non-monetary benefits as well (Gadžo 2018).
In order to give rise to the fringe benefit the benefit is required to the be provided by
either the employer, associate of the employer or by the third party arranger.
Under “sec 136 (1)” the definition of employer includes the future employer,
current employer and the former employer. While the term associate under “sec 136
(1), FBTAA 1986” widely includes the related parties. On the other hand, an
employee is regarded as someone that receives the salary and wages and also
includes the future employee, current employee or the former employee (Clements
and Abass 2018). The definition of the fringe benefit states that there should be a
fundamental link or nexus with the employment of the employee. Under “section
136” in respect of includes that to qualify for the fringe benefit there should be a
benefit which must be given by reason of or by virtue in respect of the direct or
indirect employment. The requirement of nexus is subjected to the judiciary
consideration. As held in the case of “J & G Knowles & Associates Pty Ltd v FC
of T (2000)” there should be a sufficient and material relationship among the benefit
and the employment of the employee.
The definition of fringe benefit under “sec 136 (1), FBTAA 1986” excludes
the certain items of the fringe benefit (Malherbe 2015). This comprises of the salary
or wages, superannuation contributions, benefits given under the employee share
scheme and the employment termination payments. Rather these items are deal
under the income tax regimes.

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Under “sec 7 (1), FBTAA 1986” a car fringe benefit comes into the act when
the employer gives the car to employee for making the private use of it. “Sec 136
(1), FBTAA 1986” includes the term private use as the means where the car is not
exclusively used in the process of generating taxable income (Webley and Samuels
2015). The actual use of the car is considered irrelevant; a fringe benefit tax is
imposed only when the car is available for the use or the car is garaged at the home
of the employee.
There are two methods that are used in computing the car fringe benefits.
This includes under “section 9 of the FBTAA 1986” the statutory formula and
under “section 10, FBTAA 1986” it includes the cost basis or the log book method
to calculate the car fringe benefit. according to the “section 10 (1) of the FBTAA
1986” the statutory method or formula is applicable automatically unless the
employer decides the use the cost basis (Maisuradze 2017). The employer has the
opportunity of choosing any of the method that results in fringe benefit. The cost
basis essentially requires the maintenance of log book records and the odometer
records to be maintained under the “subsection 10A and subsection 10B”.
Application:
As evident in the current situation of Spiceco Pty Ltd the company has
provided the car to one of their employee named Lucinda. The car was provided to
Lucinda exclusively for making the private use of it. With respect to the “sec 136 (1),
FBTAA 1986” a fringe benefit is existence in the situation of Spiceco Pty Ltd since it
was provided Lucinda in relation to her employment (Black 2018). Denoting the “sec
7 (1), FBTAA 1986” a car fringe benefit has occurred in the case of Spiceco Pty Ltd.
This is because the employer gives the car to Lucinda for making the private use of
it.
Citing “section 136 (1)” it can be stated that the fringe benefit is given by
Spiceco Pty Ltd to Lucinda by reason of or by virtue in respect of the direct or
indirect employment with the company. Referring the example of “J & G Knowles &
Associates Pty Ltd v FC of T (2000)” the requirement of nexus is duly met by
Spececo Pty Ltd and Lucinda. This is because there is a sufficient and material
relationship among the benefit and the employment of the employee (Portolese and
Folloni 2018). The actual use of the car is considered irrelevant in the situation of
Lucinda. A fringe benefit tax will be imposed on Spececo Pty Ltd for making the
available for Lucinda’s private use.
The evidences gathered from the case study suggest that the car was
exclusively provided to Lucinda for both the business and private use. A total of
20,000 kilometres were travelled by Lucinda during the FBT year. Fundamental to
the application of the fringe benefit tax, the fringe benefit tax year commences from
the 1st April to the 31st March which is known as the year of taxation in the situation of
Spececo Pty Ltd. The employer here, Spececo Pty Ltd has the opportunity of
choosing any of the method that results in fringe benefit (Saad 2014). So, to
calculate the fringe benefit tax liability relating to the car both the statutory and cost
basis has been referred in the case of Spececo Pty Ltd. The computation are as
follows;
Statutory Method under “section 9, FBTAA 1986”:

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Apart from the statutory formula, the cost basis formula given under “section
10 (1), FBTAA 1986” has been used (Ksovreli 2017). With respect to “subsection
10A and subsection 10B”, the log book records and the odometer records has also
been referred as well to calculate the taxable value;
Deemed Depreciation:

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Deemed Interest:
FBT Liability:
As evident from the above stated computation it is understood that the taxable
value of car fringe benefit is lower under the statutory formula. Therefore, it is
recommended that the employer here Specico Pty Ltd must consider the statutory
formula than the cost basis for the car fringe benefit.
Conclusion:
On a conclusive note, Spececo Pty Ltd will be considered taxable for the car
fringe benefit under “sec 7 (1), FBTAA 1986” for exclusively providing the car to
Lucinda for her private use during the FBT year.
Answer to question 2:
Answer A:
The provision of capital gains tax is applied on the actual or the realised
capital gains. As per the “section 6-10, ITAA 1997” the capital gains are treated as
the statutory income and it is included into the taxable income under “sec 102-5 (1),
ITAA 1997” (Ghosh 2014). The CGT events are of different types of transactions
and events that may lead to capital gain or loss. The case study provides that Daniel
is looking forward to fund his superannuation fund. He has $1 million and intends to
invest in it. The capital gains tax treatment for each of the below stated are given
below;

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House located at Doncaster:
A house was located in suburbs of Melbourne which Daniel decided to sell for
$865,000. One buyer deposited a sum of $85,000 to purchase the property however
the buyer later decided to cancel the contract due to lack of money and the deposit
amount was forfeited by Daniel. As per “section 104-150 of the ITAA 1997” a CGT
event H1 happens when the deposit made by buyer on a perspective sale is or other
type of transaction is forfeited due to the failure of non-process of transactions (Bentil
2017). Similarly, in the case of Daniel, a CGT event H1 has happened. Daniel now
has the capital gain of $85,000 less the agent fees that is associated with the failed
transaction.
Sale of artistic piece of painting:
A CGT event A1 under “sec 104-10, ITAA 1997” happens when the CGT
asset is disposed and applies to asset that are acquired following 19th September
1985. The regime of CGT is applied on the assets that is purchased on or after the
20th September 1985. Denoting “sec 108-10, ITAA 1997” collectable is defined as
asset that is mainly kept for private use of taxpayer and it is listed in the “sec 108-
10, ITAA 1997” which includes antiques, artworks, coins or medallion etc. The case
study evidently explains that Daniel bought an artistic piece of painting on 20th
September 1985 (Jogarajan 2018). The painting should be classified as the post-
CGT asset because it was bought following the introduction of CGT regime.
Therefore, sale of painting by Daniel has given rise to CGT event A1 under “sec,
104-10 (1), ITAA 1997”. As the asset is acquired following 19th September 1985,
capital gains tax will be applicable on the painting. Citing the “section 6-10, ITAA
1997” the capital gains are treated as the statutory income and it will be included
into the taxable income of Daniel under “sec 102-5 (1), ITAA 1997”.
Sale of Luxury Yacht:
The CGT asset is the personal use asset apart from the collectable. The items
under the personal use asset include the yacht, television, vehicle etc. that is
generally kept for personal use of taxpayer (Da Silva 2016). The special rules for
personal use asset given under “sec 108-20 (a), ITAA 1997” explains that capital
loss is ignored when selling the personal use asset. A yacht was sold by Daniel on
1st June 2019 for $60,000 which was acquired in November 2004 for $110,000. As
yacht is the personal use asset, under “sec 108-20 (a), ITAA 1997” capital loss from
Yacht should be ignored by Daniel when selling the personal use asset.
Sale of Shares:
Shares in the listed company or the units in the unit trust are treated for
capital gains tax purpose in the similar manner like the other assets. Daniel reports
sale of BHP shares for $80,000 which he purchased for $75,000 in January 2019.
During the year he also reported the carry forward capital loss of $10,000 from the
AZJ shares (Keightley and Sherlock 2014). While computing the capital gains the
capital loss from the AZJ shares are offset from the BHP shares. While remaining
amount of capital loss has been carried forward to the subsequent years.

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Answer to B:
During the year Daniel reported the net capital gains of $1,19,000. The gains
mainly originated from the sale of painting and the forfeited sum from the Doncaster
house. It can be stated that Daniel should use the amount of net capital gains in his
superannuation fund.
Answer to C:
In the current financial year, a capital loss of $6,000 was left over from AZJ
shares following the offset of capital loss against the BHP shares. It is recommended
that Daniel should carry forward the capital loss to the subsequent year and can only
be offset against the capital gains made from shares.

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