Taxation Law

This document provides an analysis of the FBT liability imposed on Spiceco Pty Ltd for providing a car to an employee. It discusses the methods of FBT computation and suggests the most appropriate method to minimize the FBT liability. It also includes a case study on the determination of the net CGT gain imposed on Daniel Ray during the income year 2019 and the management of CGT gain and loss in relation to the given transactions.

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

1TAXATION LAW
Answer 1
In the concerning circumstances, the issue is the determination of the FBT imposed
pertaining to Spiceco Pty Ltd with respect to the car that they have extended to Lucinda
during the FBT year 2018/19. The computation of the FBT liability through the various
methods of FBT computation and the suggestion of the most appropriate method that ensures
the minimisation of the FBT liability pertaining to Spiceco Pty Ltd.
U/s 136 of the FBTAA86, any value that has been extended by an employer to an
employee or any person related with the employee or any other third person who has been
extended with the value under any arrangement between the employer and the employee, in
the furtherance or by virtue of the employment in a particular income tax year is required to
be termed as the fringe benefit. The value that has been extended may be of several forms. It
can come in the form of a right or even an interest that has been extended pertaining to the
real or a personal property. It can also be extended in the form of a facility or a perquisite that
has been advanced towards the employer will also be included in this form of benefit.
However, when any such value extended by the employer the needs to be subjected to
taxation within the assessable income of the employer only. This imposes upon an employer
a fringe benefit tax for the fringe benefit that has been extended to the employee. The fringe
benefit may accrue with respect to any value that has been extended to the towards any past,
present as well as future employee (Barkoczy 2016).
A fringe benefit that has been accrued to an employer with respect to a car that he has
provided to the employee for being used by the employee in a private capacity is required to
be treated as a car fringe benefit u/s 7 of the FBTAA86. The car fringe benefit would likewise
be included in the tax liability of the taxpayer.

2TAXATION LAW
The FBTAA86 provides for two methods for the calculation of a car fringe benefit. U/s
9(1) of the FBTAA86, the statutory method for the computation of the car fringe benefit has
been provided. The formula is:
[0.2 * BV * (n/ tn)] - A
BV = Base value
n = no. of operating days
tn = no. of days in the year of income
C = contribution of the employee
U/s 10(2) of the FBTAA86, the operating cost method for the computation of the car
fringe benefit has been provided. The formula is:
[C * ( 100% - BP)] – R
C = operating cost during the period of holding, which includes maintenance, insurance,
registration and fuel.
BP = business percentage
C = contribution of the employee.
The FBT needs to be calculated in relation to the car fringe benefit by applying the FBT
rate to the taxable value calculated.
In the present situation, Spiceco Pty Ltd has provided a car towards Lucinda for the
purpose of being used for private purpose. This needs to be considered as a fringe benefit that
has been extended to Lucinda who has been employed with Spiceco Pty Ltd and the same
will be taxable in the hands of Spiceco Pty Ltd. This is because u/s 136 of the FBTAA86, any
value that has been extended by an employer to an employee or any person related with the

3TAXATION LAW
employee or any other third person who has been extended with the value under any
arrangement between the employer and the employee, in the furtherance or by virtue of the
employment in a particular income tax year is required to be termed as the fringe benefit. The
benefit has been provided in form of a car and the same needs to be treated as car fringe
benefit. This is because a fringe benefit that has been accrued to an employer with respect to
a car that he has provided to the employee for being used by the employee in a private
capacity is required to be treated as a car fringe benefit u/s 7 of the FBTAA86.
The Base Value of the car was $18000 and the contribution that Lucinda has paid towards
the car was $1000. The other expenses in relation to the car are an insurance of $2200, fuel of
$990, repairs of $3300. The percentage used for business purpose is 70%.
Operating Cost Method
Particulars Amount $ Amount $ Amount $
Total operating cost 11264
Interest 884
Repairs 3300
Insurance 2200
Fuel 990
Depreciation 4250
Private Use
Total Kilometre 20000
Work Use 14000
Private Use 6000
Private Use Percentage 30

4TAXATION LAW
Operating Cost * Private use % 3487.2
(-) contribution of the employee 1000
Taxable value 2487.2
Working Note 1
Deemed Depreciation Amount $ Amount $
Base Value 18000
(-) contribution of the employee 1000
Net Base Value 17000
Depreciation rate 25%
Deemed Depreciation 4250
Working Note 2
Deemed Interest Amount $ Amount $
Base Value 18000
(-) contribution of the employee 1000
Base Value 17000
Statutory rate of interest 5.20%
Deemed Depreciation (BV*5.2%*365)/365 884

5TAXATION LAW
STATUTORY METHOD
Particulars Amount $ Amount $ Amount $
Base Value 18000
(-) Employee contribution 1000
Net Base Value 17000
Statutory Rate 20%
No. of days operated 365
No. of days of FBT year 365
Total taxable value (BV*20%* 365/365) 3400
Operating cost method is better as the taxable value under this method is less than that of
the other one.
Taxable value = 2487.2*47%*2.082 = $ 2433.82
Answer 2
In the concerning circumstances, the issue is the determination of the net CGT gain that
will be imposed upon Daniel Ray during the income year 2019. The management of the CGT
gain and CGT loss incurred in relation to the given transactions with respect to the CGT
assessment of Daniel Ray in the given income year.
The accruing of a CGT gain as well as a CGT loss depends upon the occurrence of a CGT
event. Again, a CGT event is said to have occurred, if a transaction involving a CGT asset
has taken place u/s 104-5 of the ITAA97. Again, any CGT asset that has been purchased on a
date preceding the date of 20-09-1985, will not be regarded as the CGT asset any proceed
from the transaction of the same will be included as a component in the CGT computation.
Any CGT asset that has been acquired subsequent to this date is required to be treated as a

6TAXATION LAW
CGT asset and the transaction of the is required to be treated as CGT event. There are two
instances that needs to be established to claim a gain or loss to be assessed as a CGT loss or a
CGT gain. The first instance in this respect is the presence of a transaction involving a CGT
asset. The second instance in this respect is the occurrence of a CGT event that has been
accrued the CGT loss or gain. Both the instances if present can render a situation to be have
incurred a CGT loss or a CGT gain.
The disposal of a CGT asset by way of sale is required to be treated as a CGT event and
the assessment of the same is required to be made u/s 104-10of the ITAA97. The CGT gain
or loss is required to be calculated by deducting the cost proceeds from the cost base or vice
versa depending upon the situation (the lower of the two needs to be deducted from the
other). However, the effect of CGT event is only assessable, when there is an actual transfer
of ownership or there is a contract being effected ensuring the ownership (Woellner et al.
2016).
The main residence when disposed of by the taxpayer earns a proceed that is required to
be treated as an exempt from the computation of CGT liability as per section 118-10 of the
ITAA97. The possession of the property by the taxpayer as a main residence is required to be
established and the giving it on rent will not suffice.
Collectible is permitted to be computed as a CGT liability when the value of same has
been above the threshold, which is $500. The value when fall below that limit needs to be
allowed as a deduction u/s110-10 of the ITAA97.
As per section 108-5 of the ITAA97, a CGT asset can be a right, which is legal as well as
equitable and it covers shares, options, lands, building, contractual rights, foreign currency
and debts that are recoverable. U/s 110.55 of the ITAA97, the transactions relating to shares
also can accrue CGT gain. When a loan has been availed for the purpose of acquiring shares

7TAXATION LAW
and an interest has been made payable with respect to the same, such an interest needs to be
excluded from the cost base of the shares so that the profit does not changes to loss even if
the transactiojn has been proved to be a gain.
The anticipated sale of the house that has been used by Daniel as a residence for thirty
years, has been projected to earn a proceed of $865000. However, such a house has been
acquired to by Daniel for a price of $70000. The payment to the real estate agent for an
amount of $15000 and a deposit of $85000 has also been made. However, after 14 days of
this the sale has been cancelled by the buyer. This needs to be extended from being
considered as a CGT component as the effect of CGT event is only assessable, when there is
an actual transfer of ownership or there is a contract being effected ensuring the ownership.
The sale of the painting by Daniel has been made for a price of $ 125000 and the
acquisition of the same has been made for a price of $15000 and in the date of 20.09.1985.
This will be treated as a CGT event and the proceed of the same needs to be computed as a
CGT gain or loss. As the cost base is lower than the cost proceed, the same needs to be
treated as a CGT gain.
The sale of the luxury yacht has been sold by Daniel for a price of $60000. The acquisition
cost of the same was $110000. As the cost proceed in this case is lower than the cost base, the
transaction has incurred a loss to the taxpayer.
The sale of the shares has been effected for a price of $80000 and the date of the same has
been January 2019. The acquisition of the share has been made for a price of $75000 and the
acquisition of the same has been made on June 2019. This will be computed as a CGT event
coming under the A1 category. But the discount of 50% will not be permitted as the shares
were not held by Daniel for period in excess of 12 months. Moreover, a loan availed for the
purchase of the share has accrued an interest to be payable. This will not be included in the

8TAXATION LAW
cost base. However, the stamp duty of $250 and the brokerage fee of $750 is required to be
included in the cost base. The computation of the Net CGT gain is as follows:
Particulars Amount $ Amount $
CGT gain from painting (1) 110000
Cost Proceed of painting 125000
(-) Cost Base of painting 15000
CGT gain from shares (2) 4000
Cost Proceed of shares 80000
(-) Reduced Cost Base of shares
(75000+750+250)
76000
CGT loss from yacht (3) 50000
Cost Base of Yacht 110000
(-)Cost proceed of Yacht 60000
Net CGT Liability (1) + (2) – (3) 64000

9TAXATION LAW
Reference
Barkoczy, S., 2016. Foundations of taxation law 2016. OUP Catalogue.
The Fringe Benefits Tax Assessment Act 1986 (Cth)
The Income Tax Assessment Act 1997 (Cth)
Woellner, R., Barkoczy, S., Murphy, S., Evans, C. and Pinto, D., 2016. Australian Taxation
Law 2016. OUP Catalogue.