Taxation Law: Fringe Benefit Consequences and Capital Gain Consequences

This article discusses the fringe benefit consequences in relation to a car under the operating cost method and statutory formula method, as well as the capital gain consequences for the sale of assets. It provides an analysis of the relevant tax laws and formulas, and includes examples and calculations. The article also explains the criteria for claiming a discount on capital gains and the exemptions for main residence and personal use assets. References to relevant case law and legislation are provided.

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

1TAXATION LAW
Answer 1
The issue in this situation is to determine the Fringe Benefit consequences in relation to the
Car under both the operating cost method and statutory formula method.
The Fringe Benefits Tax Assessment Act 1986 deals with Fringe Benefit Tax in Australia. As
stated by s.136(1) of the Act an FBT is a benefit which is given at any time in a year to an
employee or associate by an employer or associate by arrangement of an employer with
respect to employment of the employee (Barkoczy 2016). This includes any rights, interest or
personal property. FBT is a tax which is to be paid by the employer and the tax year runs
from 1 April to 31 March. Type 1 benefits are those where input tax credit can be claimed by
the employer. The FBT gross up rate for year 2018-19 is 2.0802 and FBT rate is 47%.
Section 7 of the FBTAA is in relation to Car Fringe Benefits. This takes place when a Car is
given by the employer to the employee to do private use. There are two ways in which CFB
is calculated. The first way is defined under s9(1) of FBTAA as the statutory formula method
and the second way is defined under s 10(2) as the operating cost methods.
The formula for Statutory formula methods is simple. It is (0.20 * Car’s Base value *(The
number of days in the year when the CFB is given to employee/Total tax days)- Amount of
payment from recipient)
Under the operating cost methods the formula is C * (100%-BP)-R
C = operating cost for holding period, fuel, Maintenance, insurance and registration (s.10(3)
(a). BP= business percentage. R = recipients contribution. The depreciation rate under section
11 and 12 is 25%. The imputed interest rate for the year 2018-2019 under section 11 is 5.20%
(TR 2018/2)
It has been stated through TR 2011/3 that when an employee has contributed to the purchase
price of the car, the cost price for the employer is reduced by the amount of contribute made
by the employee.
In the facts it has been stated that Lucinda contributed $1,000 towards the cost of the car. In
addition the base value of the car is 18000. This means that the base value is reduced by
contribution from the employee which is $1000. Thus the base value is 17000.
The deemed depreciation for the car will therefore be as follows
Deemed Depreciation Amount

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Car Base Value
Actual
18000
Less Employee made
contribution
1000
Base Value
adjusted
17000
Depreciation rate 25%
Deemed Depreciation
(BV*25%*365)/
365
4250
The imputed interest of the car will therefore be as follows
Imputed Interest Amount
Car Base Value
Actual
18000
Less Employee made
contribution
1000
Base Value
adjusted
17000
Statutory Interest rate 5.20%
Deemed Interest
(BV*5.2%*365)/
365
884
The statutory methods will give FBT for the car as follows
STATUTORY FORMUAL METHOD
Details Amoun
t
Car Base Value actual 18000
Less Employee made contribution 1000
Base Value adjusted 17000
Statutory rate of method 20%
private use PU 365%
Total Days 365
Taxble value
(BV*20%*(PU/TD) 3400
The operating methods will give FBT for the car as follows
OPERATING COST METHOD

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Particulars Amount Amount
REPAIRS for Car 3300
Imputed INTEREST 884
Deemed Depreciation 4250
INSURANCE cost 2200
FUEL
cost
990
TOTAL OPERATING COST 11624
PRIVATE USE
TOTAL KILOMETER run 20000
WORK USE by employee 14000
PRIVATE USE by employee 6000
PERCENTAGE OF PRIVATE
USE
30
Taxable value of FBT
(TOC*PRIVATE
USE)
3487.2
Thus in conclusion it can be stated that the Statutory formula method is used
Answer 2
Section (a)
PART 1
The issue in this situation is to analyze the capital gain consequences for the sale of assets.
Capital gain is a statutory income. This requires the presence of a capital gain asset and a
capital gain event. The most common capital gain event is CGE A1 which takes place when
the capital gain asset is disposed by the taxpayer. The same is asserted under s104-10(1). The
timing of the event is also important to ascertain whether the event has taken place in the FY
in context and is the asset pre or post CGT. A post CGT asset is only considered as a CGT
asset. This means an asset which is acquired after 20th September 1985. A CGT asset includes
a house as stated under the rules of s108-5. This means that the selling of the house will
trigger CGT event A1. In the case of McDonalds v FCT (1998) it was stated that the CGT
event A1 timing is the time when the asset has been disposed or the contract is entered upon
for the sale of the asset. There Capital Gain or Loss is calculated as (CP-CB). CP= capital
proceeds which means the price which is gained when the asset is sold as per section 116.20.
This also includes the amount yet to be received. In addition, the cost base has 5 elements.

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This means the price which has been borne by the TP in relation to the asset as given under s-
110-25(1). The 1st element includes the cost price. This means that the 1st element of the cost
base for the house is $70,000 under s 110-25(2). The timing of the event is when the contract
is formed which is 29th June 2019. Thus the CP will be the amount which is to be received
and thus 865000. The $15000 given to real estate agent is to be reduced and CP is 850000.
Thus the net capital gain for Ray is 780000. He can claim discount of 50% under division
115. There are a few criteria which need to be met for this discount. These include the person
being individuals, the asset being sold after 21 Sept 99, and asset being hold for 1 year (s115-
10, 115-15 and 115-25). Thus the total CGT is 390000. However the facts provide that Ray is
living in the property for 30 years and therefore this is his main residence. The CG from the
sale of main residence is exempt for the TP as given under s 118-110. Thus Ray does not
have to pay any capital gain tax this year. The contract being forfeited and deposit being
retained by Ray are all event which takes place in the next FY so they do not have
significance.
PART 2
The most common capital gain event is CGE A1 which takes place when the capital gain
asset is disposed by the taxpayer. The same is asserted under s104-10(1). A CGT asset
includes a collectible item as stated under the rules of s108-10. In A1 Capital Gain or Loss is
calculated as (CP-CB). CP= capital proceeds which means the price which is gained when the
asset is sold as per section 116.20. In addition, the cost base has 5 elements. This means the
price which has been borne by the TP in relation to the asset as given under s-110-25(1). The
1st element includes the cost price. This means that the 1st element of the cost base for the
artistic piece of painting by Margaret Preston is $15,000 under s 110-25(2). The painting was
acquired on 20 September 1985 this means that it is a CGT asset as it is not purchased before
11:55PM 19th Sep 1985. The CP in this case is $125000 which is the price gained through the
sale. Thus the CG in this case is 125000-15000 which is $110000. There are a few criteria
which need to be met for this discount. These include the person being individuals, the asset
being sold after 21 Sept 99, and asset being hold for 1 year (s115-10, 115-15 and 115-25).
Thus the total CGT is 55000 as Ray meets all the criteria discussed above. He is an
individual, the asset is being sold after 21 Sept 99, and asset has been held for 1 year.
Part 3

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The most common capital gain event is CGE A1 which takes place when the capital gain
asset is disposed by the taxpayer. The same is asserted under s104-10(1). A CGT asset
includes personal property item as stated under the rules of s108-20(2). The luxury yacht is
considered as personal property item as it was purchased for personal enjoyment by Ray.
These assets are exempt if they cost less than $10000 as per s118-10(2). However the cost of
the luxury yacht is more so it is not exempt. In A1 Capital Gain or Loss is calculated as (CP-
CB). CP= capital proceeds which means the price which is gained when the asset is sold as
per section 116.20. In addition, the cost base has 5 elements. This means the price which has
been borne by the TP in relation to the asset as given under s-110-25(1). The 1st element
includes the cost price. This means that the 1st element of the cost base for the luxury yacht is
$110000 under s 110-25(2). The CP is $60000. This means that there is a total CL of 50000.
However as stated under s 108-20(2), CL on personal use assets is disregarded. Thus this loss
is to be disregarded as well. The cost base in this case is known is Reduced cost base.
Part 4
The most common capital gain event is CGE A1 which takes place when the capital gain
asset is disposed by the taxpayer. The same is asserted under s104-10(1). A CGT asset
includes shares as stated under the rules of s108-5. In A1 Capital Gain or Loss is calculated
as (CP-CB). CP= capital proceeds which means the price which is gained when the asset is
sold as per section 116.20. In addition, the cost base has 5 elements. This means the price
which has been borne by the TP in relation to the asset as given under s-110-25(1). The 1st
element includes the cost price. This means that the 1st element of the cost base for the shares
is $75000 under s 110-25(2). The interest on loans will not be calculated in this case even
though it is not deductible expenditure as Ray is having a capital loss and RCB does not
include the 3rd element of s110-25(4). Interest falls within the 3rd element. The 2nd element
will have $250 as stamp duty. The capital proceeds are the selling price as stated under
s.116-20. Thus the Capital proceeds in this case is $80000. This will be modified and reduced
by $750 which is the brokerage fees as ruled under s116-30. In this situation the total capital
loss is 75250-79250 which is $4000. Further there is a capital loss from the previous year on
shares which reduce the total CG by 10000.
The net CG or CL for ray in 2018-19 is as follows
House – 0
Painting – 55000

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Yacht – 50000 (disregarded)
Shares – 4000
Loss from previous year – 10000
Total capital gain is – 49000
Section (b)
In relation to a likely net capital gain in this financial year it needs to be stated that Ray has to
pay income tax on it as it is a statutory income. This gain is going to be added in a the
assessable income for Ray.
Section (c)
In relation to a likely net capital loss in this financial year it needs to be stated that Ray can
get the amount offset in the next financial year as it was done for the shares above. However
collectibles can offset only against collectibles. Personal properly asset loss cannot be offset
against loss.

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References
Barkoczy, S., 2016. Foundations of taxation law 2016. OUP Catalogue.
Fringe Benefits Tax Assessment Act 1986
Income Tax Assessment Act 1936 (Cth)
Income Tax Assessment Act 1997 (Cth)
McDonalds v FCT (1998)