Taxation Law

This document provides answers to questions related to taxation law, including tax liability of car fringe benefits and capital gains from the sale of assets. It discusses the rules and regulations surrounding fringe benefits tax and provides recommendations for calculating and paying the tax. The document also covers the taxation of capital gains from the sale of a house, a painting, a luxury yacht, and shares. It concludes with advice on using capital gains to fund retirement.

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

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Table of Contents
Answer to question 1:...................................................................................................2
Answer to question 2:...................................................................................................4
Answer to question A:...............................................................................................4
Answer to question B:...............................................................................................6
Answer to question C:...............................................................................................6
References:..................................................................................................................7

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Answer to question 1:
Issues:
The central problem that will be discussed in this segment is the tax liability of
car fringe benefit that was given to the employee here within the definition given in
the “s7 (1), FBTAA 1986”.
Rule:
The rule that is given in the fringe benefit tax legislation is that fringe benefit
must be viewed as the payment that is given to the employee but most notably those
benefits are not in the form of salary or wages (Black 2018). The legislation of the
FBT explain that the fringe benefit is generally given to the employee in relation to
the employment. One should denote that the benefit is given to the employee
because they are engaged in the employment. The liability of paying the fringe
benefit tax is generally on the employer.
An important explanation has been made in the “sec7(1), FBTAA 1986” that
the car fringe benefit is very much common when the employer is giving the car to
the employee for making his or private usage (Barry and Caron 2015). The car that
is held by them is generally regarded as the car that is owned or leased. On any
given day the fringe benefit relating to car happens when the car is not at the
premises of the employer and the employee is given the complete permission of
using the car for their private purpose. The general rule explains that using the car
for travelling purpose or making private use is regarded as the car fringe benefit.
The taxable charge of the car fringe benefit can be attained by using either of
the following method. The methods generally involve the statutory method and the
operating cost method. Under the “s9-FBTA Act 1986 (cth)” the amount of tax
relating to the car fringe benefit is computed by using the statutory rate which is later
multiplied by the base value of the car (Shiftan, Albert and Keinan 2014). On the
other hand, under the “s10-FBTA Act 1986 (cth)” the chargeable value of the car
fringe benefit under the operating cost method represents the total cost associated to
running the car throughout the fringe benefit tax year (Gutiérrez‐i‐Puigarnau and Van
Ommeren 2013). The percentage of running cost varies depending upon the actual
or the private use of the car made. It is noteworthy to denote that the lower the
incidence of actual use of the car represents the lower the taxable value of the
benefits.
Application:
The case study clearly furnishes the information that the employer here
Spiceco Pty Ltd has given the car to the employee for making the private use of it.
There were several expenses that were occurred for the car usage which ranges
from repairs, fuel and insurance. The overall business use of the car stood 70% by
the employee while the rest portion of the car was for the private purpose.
As the car has been given by Spiceco Pty Ltd the car fringe benefit has
occurred under the “s7 (1), FBTAA 1986” for the employer. The fringe benefit has
happened for the employer because it was given to Lucinda out of the employment
relationship. There was adequate amount of nexus present for the services that were
rendered by Lucinda and the benefit that was given to her (Scott, Currie and
Tivendale 2014). The tax liability of the car fringe benefit falls on Specico Pty Ltd

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since it is employer of Lucinda and the benefit was given to her out of employment
relationship. Furthermore, the statutory formula that is given in the “s9, FBTAA
1986” has been considered to calculate the tax liability of Spiceco Pty Ltd.
Statutory Formula:
Log book method:
Beside calculating the taxable value of the car fringe benefit under the
statutory method, it is also necessary to take into the account the log book method
formula given in the “s10, FBTAA 1986”. The formula takes into the account the
running cost and the proportion of private as well as business kilometres travelled
(Kraal and Yapa 2018). The computation are as follows;
The calculation that is done above shows that the log book method has lower
taxable value as compared to the statutory method. It is therefore advised the

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Spiceco Pty Ltd should make use of the log book method to pay the fringe benefit tax
relating to car.
Deemed Depreciation:
Deemed Interest:
Total fringe benefit tax:
Conclusion:
By giving the car to Lucinda a car fringe benefit has occurred for Spiceco Pty
Ltd. it is recommended that the employer here should make use of the log book
method to calculate the fringe benefit tax.
Answer to question 2:
Answer to question A:
The case study provides that the Daniel Ray is presently planning for his
retirement because he is presently in the age of late 50s. Soon he visited his
accountant and undertook the decision of contributing towards his superannuation
fund by the end of the is financial year. Daniel has provided that his has assets that
has the value of around $1 million which he is looking forward to invest in his
superannuation fund. As the plan of collecting his fund for his retirement, Daniel
during the year sold some of his assets to fund for his retirement.
Doncaster House:
It is noteworthy to denote that the information that is obtained from the case
study of Daniel suggest that he has the house located in the suburbs of Melbourne.

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He has been living in the house for thirty years and in the presently tax year he sold
the house for $865,000. A sum of $15,000 was also paid by Daniel to his real estate
agent and later a buyer agreed to purchase the house. The buyer had deposited the
amount of $85,000 for the property. But in the recent change of events the buyer
decided against the purchase of the Doncaster house. The amount that was
deposited by the buyer was eventually forfeited to Daniel.
It is worth mentioning that “sec-104-150” provides the explanation regarding
the circumstances when there is a forfeiture of deposit (Marks and Bernard 2015).
Whenever there is a forfeiture of deposit a CGT event H1 come about in scenario.
This kind of event normally occurs when the prospective buyer makes a deposit on
the prospective sale or the other transaction is forfeited since the transaction failed to
proceed further.
From the aforementioned situation the “CGT event H1” has occurred for Daniel
under “s-104-150” because the buyer that agreed to purchase the house eventually
decided against proceeding the transaction and eventually the deposit was forfeited
(Poterba and Weisbenner 2014).
Painting by Margaret Preston:
A CGT event A1 under “sec 104-10” happens when the sale of the CGT
asset happens. This is generally applicable to the sale of the assets that is
purchased following 19/09/1985 (Poterba 2014). The taxpayers should denote that in
order to originate the CGT event A1 the CGT asset should be disposed to the
another entity. It is noteworthy to denote that the collectables are something that is
kept by the taxpayer for their personal purpose and enjoyment. There are items that
are listed in the s108-10 which includes, antiques, works of art, jewellery,
manuscripts and rare stamps. It is also necessary to denote that the taxpayers are
required to declare the capital gains that is made by them for taxable purpose in their
assessable income. According to the sec 6-10 the capital gains are considered
taxable as the statutory income and the gains are considered taxable as income
under “sec 105-5(1)”.
The evidence that is gained from situation of Daniel here it is understood that
the artistic piece of painting by Margaret Preston was kept under his possession.
The painting was mainly held by Daniel for his use and enjoyment purpose. Later in
the year 2019 the painting was sold by Daniel for $125,000 in the auction which he
originally purchased on the sept 20 1985 for an acquisition value of $15,000. It is
worth mentioning that the painting should be treated as the post-CGT asset because
it was bought after the scheme of CGT was introduced.
There is a CGT event A1 under “sec 104-10” when Daniel sold the painting.
It is noteworthy to denote that the painting is categorized as the collectable under
“s108-10” because it was Daniel personal enjoyment purpose. The capital gains
that is earned from the painting will be considered as the statutory income and the
gains is considered taxable as income under “sec 105-5(1)”.
Luxury Yacht:
In an attempt to fund for his retirement fund Daniel has a luxury yacht. The
information furnished suggest that the Yacht has the acquisition value of $110,000
while the sales was conducted by him for $60,000. Personal use asset can be

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classified as the type of asset under “s108-20” that is different from the collectables
and these assets are under the ownership of the taxpayer for their private enjoyment
purpose (Jin 2016). Some examples include the television, boats, yacht, electronic
items etc. It is noteworthy to denote for the taxpayers that under the legislation of
“s108-20(1)”, the capital losses that is suffered by the taxpayer from selling the
personal use assets are considered to be simply ignored. This is because capital
loss from the personal use assets is not allowed for offset against any other gains.
The aforementioned examples explain that the yacht is the personal use asset
under “s108-20” (Burman 2013). The disposal of yacht led Daniel to suffer loss.
Therefore, it is advised that the Daniel should simply ignore the capital loss from the
sale of the personal use asset under the legislative provision of “s108-20 (1)”.
BHP shares:
Daniel also in a bid to fund for his retirement fund has decided to sale the
shares that he has kept under his ownership. The shares are from the mining
company named BHP. The acquisition value of the shares stood $75,000 during the
January 2019. On the other hand, the sales value stood $80,000 5 June 2019. There
were some added expenses that has happened during the acquisition and the sale
of shares. This include the stamp duty that was paid while purchasing the shares
and the brokerage cost while selling the shares.
The stamp duty is added to the cost base of the asset while the brokerage
represents the cost of selling the asset and the same has been subtracted. On
selling the BHP shares there was a capital gain for Daniel. While Daniel apart from
the BHP shares also had shares in AZJ company. The shares were the only asset
that was sold by Daniel in 2017 and thereby he suffered a loss of $10,000 from that
shares. It is noteworthy to denote that the carry forward loss from the AZJ shares
can be permitted for offset from the BHP shares. Similarly, the left over amount of
capital gains can be carry forward to the future year by Daniel which can be offset
against the future gains made from the sale of shares.
Answer to question B:
The occurrences from the case study suggest that Daniel reported the capital
gains from the personal use asset namely the painting that he has sold and the
capital gains from the forfeited deposit of his Melbourne house. The capital gains
that is reported by Daniel should be used by him to fund the retirement fund and will
contribute further towards his goal of $1 million super fund.
Answer to question C:
The disposal of yacht led Daniel to suffer loss. Therefore, it is advised that the
Daniel should simply ignore the capital loss from the sale of the personal use asset
under the legislative provision of “s108-20 (1)” (Poterba 2015). In addition to this, it
is noteworthy to denote that the carry forward loss from the AZJ shares can be
permitted for offset from the BHP shares. Similarly, the left over amount of capital
gains can be carry forward to the future year by Daniel which can be offset against
the future gains made from the sale of shares.

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References:
Barry, J.M. and Caron, P.L., 2015. Tax regulation, transportation innovation, and the
sharing economy. U. Chi. L. Rev. Dialogue, 82, p.69.
Black, C., 2018. Fringe benefits tax and the company car: aligning the tax with
environmental policy. Environmental and Planning Law Journal, 25(3), pp.182-195.
Burman, L.E., 2013. The labyrinth of capital gains tax policy: A guide for the
perplexed. Brookings Institution Press.
Gutiérrez‐i‐Puigarnau, E. and Van Ommeren, J.N., 2013. Welfare Effects of
Distortionary Fringe Benefits Taxation: The Case of Employer‐provided
Cars. International Economic Review, 52(4), pp.1105-1122.
Jin, L., 2016. Capital gains tax overhang and price pressure. The Journal of
Finance, 61(3), pp.1399-1431.
Kraal, D. and Yapa, P.W., 2018. The impact of Australia's fringe benefits tax for cars
on petrol consumption and greenhouse emissions. Austl. Tax F., 23, p.191.
Marks, B. and Bernard, M., 2015. Understanding Fringe Benefits Tax in Australia.
CCH Australia.
Poterba, J.M. and Weisbenner, S.J., 2014. Capital gains tax rules, tax‐loss trading,
and turn‐of‐the‐year returns. The Journal of Finance, 56(1), pp.353-368.
Poterba, J.M., 2014. Capital gains tax policy toward entrepreneurship. National Tax
Journal, 42(3), pp.375-389.
Poterba, J.M., 2015. Venture capital and capital gains taxation. Tax policy and the
economy, 3, pp.47-67.
Scott, R.A., Currie, G.V. and Tivendale, K.J., 2014. Company cars and fringe benefit
tax: understanding the impacts on strategic transport targets.
Shiftan, Y., Albert, G. and Keinan, T., 2014. The impact of company-car taxation
policy on travel behavior. Transport Policy, 19(1), pp.139-146.