Taxation Law

This document provides an analysis of taxation law, specifically focusing on the tax liability for fringe benefits provided by employers to employees. It discusses the rules and regulations surrounding fringe benefit tax, the calculation of taxable value for car fringe benefits, and the application of capital gains tax. The document also includes a case study on the tax treatment of various assets, such as a house, artistic painting, yacht, and shares. It provides answers to specific questions related to capital gains tax and recommendations for the taxpayer.

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 A:.........................................................................................................................4
Answer to B:.........................................................................................................................7
Answer to C:.........................................................................................................................7
References:..............................................................................................................................8

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Answer to question 1:
Issues:
The central issue that is surrounding this case is the tax liability for the fringe
benefit that has been provided by the employer to the employee.
Rule:
The regimes of the fringe benefit tax are regarded as the tax that is applied on
the wide range of the benefits given to the employer to the employee. The provision
of the fringe benefit that is given in the “FBTAA 1986” lay down the key differences
amid the fringe benefit tax and the income tax (Hemmings and Tuske 2015). The key
points to remember is that taxes are levied on the employer and the employee does
not have to pay the tax on the provision of the fringe benefits. The rate of tax that is
implied is the personal marginal tax rate of the 45% along with the Medicare levy of
2%. Hence, the 47% for fringe benefit is applied at the end of the year.
Referring to “s, 136-(1), FBTAA 1986” the main fundamental that is involved
in the application of the fringe benefit tax is the benefit that is existent under this
definition (Eichfelder and Vaillancourt 2014). As explained in “s, 136 (1), FBTAA
1986” the fringe benefit that is existent includes the fringe benefit that is provided
during the year of taxation by the employer to the associate of the party arranger to
the employee in relation to the employment of the employee.
The benefit generally includes the rights or the privilege of the services that is
given to the employee under the arrangement in respect of the performance of the
work under “s, 136 (1), FBTAA 1986”. Under the “s, 136 (1), FBTAA 1986” the
term benefit generally involves the employer, associate of the employer or the third
party arranger (Daley, McGannon and Hunter 2014). It is noteworthy to denote that
there should be a connection among the employment and the benefit. A benefit
qualifies as the fringe benefit when it is provided to the employer by virtue of the
direct or indirect relation of employment.
The court in “J & G Knowles & Associates Pty Ltd v FCT (2000)” held that
the nexus requirement in relation to the employment and benefits provided is
important to establish the link with the fringe benefits (Schellekens 2016). Under the
“s, 7 (1), FBTAA 1986” the car fringe benefit happens when the employer provides
the car to the employee for their personal usage. The personal usage generally
means that the car is not wholly in the course of generating the assessable income
under “s, 136 (1), FBTAA 1986”.
To calculate the taxable value of the fringe benefits for the car there are two
important formulas. This involves the statutory formula under “s, 9, FBTAA 1986”
and the cost method under “s, 10, FBTAA 1986”. Under the statutory formula the
cost of the car is multiplied with the statutory rate (Hodgson and Pearce 2015). While
the cost basis of calculating the fringe benefit tax for the car is mainly related to the
records of the odometer and the log book records of the running cost of car.
Application:
The employer here Spiceco Pty Ltd has provided the car to the employee
named Lucinda for her making personal use of it. The car travelled the 20,000
kilometre and 70% of the car use was for the business purpose. Lucinda however

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contributed $1,000 for the cost of the car. The car that is provided to Lucinda by the
employer has given rise to the car fringe benefit under “s, 7, FBTAA 1986”
(Edmonds 2015).
By referring to the “s, 136 (1), FBTAA 1986” the car has been given to the
employee because of the employment with the Spiceco Pty Ltd. Raising the verdict
given in the “J & G Knowles & Associates Pty Ltd v FCT (2000)” the nexus
requirement in relation to the employment and benefits in relation to the employment
of the employee (Braverman, Marsden and Sadiq 2015). It can be stated that the
sufficient and material relationship is existent between Spiceco Pty Ltd and Lucinda.
In addition to this, references have also been made to the statutory and cost
method to calculate the fringe benefit tax.
As evident from the above stated calculation it is noted that the net amount of
taxable value under the “s, 9, FBTAA 1986” stands $2600. On the other hand, the
net taxable value under the operating cost method stands $3,580 (Shields and
North-Samardzic 2015). As understood from the above stated calculation it can be

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stated net taxable value under the statutory method is lower than the operating cost
method. The taxpayer here Spiceco Pty Ltd is required to consider the statutory
method than the operating cost method.
Calculation of the Deemed Interest:
Calculation of the Deemed Depreciation:
Calculation of the Fringe Benefit Tax:
Conclusion:
The analysis that evidently explains that there was the sufficient relation
among the employer and the employee. The benefit originated in respect of the
employment relationship. The car was exclusively provided to Lucinda for making the
private use of it.
Answer to question 2:
Answer to A:
A gain that is characterised as the capital will not be the subject of income tax
within the ordinary meaning. The capital gains tax began on 20th September 1985
and takes into the consideration the capital receipts in the tax base. The income tax
liability of the taxpayer also includes the net amount of capital gains that are made
(Barkoczy 2017). The capital gains tax is not the distinct tax and it is integrated in the
income tax regimes. As defined in the “sec 102-5, ITAA 1997” the net capital gains
for the income year is the assessable as the statutory income. The liability to capital

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gains is determined on the basis of whether the taxpayer has made capital gains or
loss and also involves working out the net amount of capital gains or loss (Kenny,
Blissenden and Villios 2018). To ascertain whether the net capital gains or capital
loss has been made by the taxpayer it is necessary to determine whether the CGT
event has taken place to the taxpayer and whether the asset is the CGT asset. It
also includes whether the any exception or exemption is applicable. Under “sec,
102-20, ITAA 1997” a taxpayer only makes the capital gain or the loss if the CGT
event takes place.
The case study here provides that the Daniel Ray who is planning for
retirement has decided to make the contribution to his superannuation fund prior to
the end of this year. With the objective of collecting $1 million for his superannuation
investment, Daniel has sold some of his asset during the year. The tax treatment for
the assets are given below;
House located at Doncaster:
The case here provides that Daniel has decided to sale the house in which he
has lived for thirty years. He formed a sales agreement with one of the buyer who
decided to sale the house for a sales price of $865,000. The taxpayer also got a
buyer who deposited sum of $85,000 for the house. However, with the shortage of
money the buyer decided against the purchase and as a result he forfeited the
money to Daniel.
The CGT event H1 is well-defined in “s,104-150, ITAA 1997” which clarifies
that where the deposit on the potential sale or the other forms of transactions is
forfeited due the transaction did not proceed then this event takes place. Likewise,
the above rule, the money that was deposited by the prospective buyer and the
forfeiture of the deposit upon the cancellation of contract has given rise to CGT event
H1 (Barrett and Veal 2016). Under the “s, 104-150” Daniel has a capital gain of
$85,000 less the fees paid to the agent for the transaction that was failed.
Artistic Painting:
Collectable as explained in “s, 108-10 (2)” take account of artwork, jewellery,
an antiques or the manuscript or the postage stamp. These assets are mainly for the
personal use as well as enjoyment of the owner (Raftery 2019). The case study of
Daniel explains that the collectables in the form of artistic painting has been
purchased on 20 September 1985. The asset is used mainly for Daniel personal
enjoyment. However, he sold it for $125,000 in the current tax year. It can be stated
that the painting is the post-CGT asset since it was acquired following the
introduction of CGT regime. The sale of painting has given rise to CGT event A1
under “sec,104-10 (1), ITAA 1997” (Prince 2016). Therefore, the capital gains that
is made from the collectable will be included into the Daniel assessable income with
respect to “sec 102-5, ITAA 1997”.
Sale of Yacht:
The definition that is given in “s108-20 (2), ITAA 1997” for the personal use
asset involves those assets such as television, mobile phone, a bicycle or the yacht
that is owned by the taxpayer for their personal enjoyment and usage (D'Ascenzo
2017). The private use is different from that of the collectables and it excludes the
landing and building. An important rule that surrounds personal use asset include the

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capital loss that are suffered by the taxpayer from the private use assets. This
includes that the taxpayer should simply ignore the capital loss that is made from the
personal use asset.
Situations from the case study explains that a luxury yacht was owned by
Daniel for his personal enjoyment and use. He bought it for $110,000 but he had
sold it for a loss of $50,000 with the eventual selling price of $60,000. As a loss has
been occurred by Daniel from selling the yacht, Daniel is required to disregard the
loss from his yacht since it is private use of asset.
Sale of Shares:
During the year Daniel has also reported the shares in the BHP which he
bought for $75,000 in January 2019. The shares in BHP was eventually sold by
Daniel for $80,000. Similarly, the sale of shares has given rise to the CGT event A1
under “s, 104-10 (1), ITAA 1997” (Black 2018). The taxpayer here Daniel also
reported the capital loss that he has carried forward from the previous year. The
capital loss is from the AZJ shares that amounts to $10,000. Similarly, for Daniel he
is required to offset the loss against the capital gains from BHP shares since the loss
is not permitted to be deductible. The net loss will be carried forward to the
subsequent year by Daniel.

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Answer to B:
As evident from the above stated computation it is understood that net capital
gains that is earned from the sale of the above stated asset stands $1,19,000. As a
result of this, the net capital gains that is earned must be invested by Daniel in his
superannuation fund for his retirement purpose.
Answer to C:
As evident from the above stated computation and case analysis, it is
understood that Daniel during the year suffered loss upon disposing the personal
use asset. In other words, he suffered losses from the sale of Yacht. He also has the
remaining amount of his carry forward loss from the AZJ shares following the offset
against the BHP shares. It is recommended that Daniel should carry forward the left
over loss to next year and he is only allowed to offset those from the future gains that
would be made from the sale of shares.

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Barkoczy, S., 2017. Core tax legislation and study guide. OUP Catalogue.
Barrett, J.M. and Veal, J.A., 2016. Tax Rationality, Politics, and Media Spin: A Case
Study of the Failed ‘Car Park Tax’Proposal. Centre for Accounting, Governance and
Taxation Research Working Paper, (102).
Black, C., 2018. Taxation of Intellectual Property Under Domestic Law and Tax
Treaties: Australia. Taxation of Intellectual Property under Domestic Law, EU Law
and Tax Treaties", IBFD: Amsterdam.
Braverman, D., Marsden, S. and Sadiq, K., 2015. Assessing Taxpayer Response to
Legislative Changes: A Case Study of In-House Fringe Benefits Rules. J. Austl.
Tax'n, 17, p.1.
Daley, J., McGannon, C. and Hunter, A., 2014. Budget pressures on Australian
governments 2014. Grattan Institute.
D'Ascenzo, M., 2017. Academia as an Influencer of Tax Policy and Tax
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Edmonds, R., 2015. Structural tax reform: What should be brought to the
table. Austl. Tax F., 30, p.393.
Eichfelder, S. and Vaillancourt, F., 2014. Tax compliance costs: A review of cost
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Hemmings, P. and Tuske, A., 2015. Improving Taxes and Transfers in Australia.
Hodgson, H. and Pearce, P., 2015. TravelSmart of Travel Tax Breaks: Is the Fringe
Benefits Tax a Barrier to Active Commuting in Australia. eJTR, 13, p.819.
Kenny, P., Blissenden, M. and Villios, S., 2018. Australian Tax 2018.
Pearce, P. and Pinto, D., 2015. An evaluation of the case for a congestion tax in
Australia. The Tax Specialist, 18(4), pp.146-153.
Prince, J.B., 2016. Tax for Australians for Dummies. John Wiley & Sons.
Raftery, A., 2019. 101 Ways to Save Money on Your Tax-Legally! 2019-2020. Wiley.
Schellekens, M., 2016. Global Corporate Tax Handbook 2016. Internat. Belasting
Documentatie.
Shields, J. and North-Samardzic, A., 2015. 10 Employee benefits. Managing
Employee Performance and Reward: Concepts, Practices, Strategies, p.218.