Taxation Law

This document provides answers to questions related to taxation law, including fringe benefits and capital gains. It discusses the rules and regulations surrounding fringe benefits and provides examples of how to calculate taxable values. It also explains the taxation implications of selling assets such as real estate, shares, and collectibles. The document concludes with information on how to report capital gains and losses and how to use them for retirement planning.

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

1TAXATION LAW
Table of Contents
Answer to question 1:...................................................................................................2
Answer to question 2:...................................................................................................5
Answer to question A:...............................................................................................5
Answer to question B:...............................................................................................7
Answer to question C:...............................................................................................7
References:..................................................................................................................8

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Answer to question 1:
Issues:
Whether or not giving the car to the employee throughout the employment will
be considered as the fringe benefit under
“s, 136 (1)”?
Rule:
The legislation of FBTAA 1986 says that fringe benefit is a type of benefit or
the payment that is paid to the employee but it is not the same as the wages or the
salaries that are paid to employees (Royalty 2015). The legislation of the FBTAA
1986 says that an employer only gives the employee with the fringe benefit during
the course of the employee’s employment. This successfully represents that the
benefit is given to the person since they are held as the employee.
The definition of employee entails that a person who is or will be entitled to
get the salary or wages or the benefits in lieu wages and the salaries. The word
benefit and the fringe benefit have larger meaning for the fringe benefit tax purpose.
benefit generally includes the privileges, rights and the services (Cooper 2018). The
fringe benefit tax liability falls on the employer. A person will be considered employer
for the purpose of fringe benefit tax if they make the payment to the employee,
company director or the office holder that will be subjected to the withholding
obligations or if they provide the benefit in lieu of such payments. As the employer,
they are required to pay the FBT irrespective of the whether they are the sole trader,
trustee or the partnership etc. This is irrespective of whether the employee or the
another party offers the fringe benefit. The fringe benefit tax is payable whether or
not they are liable to pay the other types of taxes namely the income tax.
Denoting the explanation that has been made in the
“s, 7-1, FBTAA 1986” that
the car fringe benefit commonly happens when they make the car they hold available
for the employee’s private usage or the car is being held as the available for the
employee’s private usage (Soled and Thomas 2016). A car they hold generally
implies that the they car are having under the ownership. The employer provides the
car to the employee for their private usage during any day of the employment that
the car is actually provided to the employee for their private purpose by the employer
or the car is made available to the employee for their private usage. A car is only
allowed to the private usage of the employee only when the car is not at their
premises and the employee is permitted to make the private use of the car (Barry
and Caron 2015). A car is said to be under the private ownership of the employee if
the car is garaged at the home of the employee.
As the common rule, travel from the place of work to the place of home is
considered as the private use of the vehicle. A car that is garaged at the employee
home is being held as being available for the private usage of the employee
irrespective of whether they are having permission of using the car for private
purpose (Briegel 2019). The taxable value of the car fringe benefit can be calculated
based on the statutory formula method or the operating cost method. With respect to
the statutory formula the statutory rate is multiplied with the car base value. On the
other hand, operating cost method explains that the taxable value of the car fringe
benefit represents the percentage of total cost of operating the car during fringe
benefit tax year.

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Application:
Upon learning the case facts, it is noted that a car was given by the Spiceco
Pty Ltd to the Lucinda for making the personal usage of car. It can be stated that the
car was given to Lucinda due to her employer and employee relationship.
Furthermore, the employer and employee relationship has been clearly satisfied by
Lucinda and Spiceco Pty Ltd. Under
“s, 7 (1), FBTAA 1986” the car fringe benefit has
originated for the Spiceco Pty Ltd since the car was given to Lucinda during the
course of the employment so that she can make the private use of the car (Givati
2015).
The employer here has exclusively made the car available for the Lucinda’s
personal usage when she was allowed to use it both travelling for the business as
well as employment purpose. The criteria of nexus among the benefit given to the
employee by the employer here is also satisfied (Vail 2016). As the guide to the
determine the taxable value of the car fringe benefit it is necessary to ascertain the
formula that needs to be applied in the case Spiceco Pty Ltd. Reference to the
“s, 9,
FBTAA 1986” has been made to compute the chargeable value of the fringe benefit
tax under the statutory formula for Specico Pty Ltd (Argente and García 2015). To
calculate the fringe benefit tax the statutory rate is applied and the rate is multiplied
with the base value of the car less the employee’s contribution made towards the car
during the year of FBT.
As evident from the above stated computation it is understood that the taxable
value of the car fringe benefit arises under statutory formula is $2,600. On the other
hand, the operating cost method has also been referred in the case of Specico Pty
Ltd where the records of log books and odometer reading of the car is referred to
calculate the taxable value of car fringe benefits.

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Deemed Depreciation:
Deemed Interest:
Fringe benefit tax liability:

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The calculation that is done above clearly shows that the under the statutory
method the net taxable amount of fringe benefit is $2,600. On the other hand, the net
taxable value of the fringe benefit under the operating cost method is $3,580.5.
Therefore, it can be stated that the statutory method should be used as the amount
of tax payable is lower under the statutory method.
Conclusion:
The case can be concluded by stating that the employer here Spiceco Pty Ltd
will be considered taxable for the value of car fringe benefit provided to Lucinda
during the course of the employment. The employer here is taxable under
“s, 7 (1),
FBTAA 1986”.
Answer to question 2:
Answer to question A:
If an individual sells the capital asset in the form of real estate or the shares,
they generally make the capital gains or the loss (Heim, Lurie and Simon 2015). This
represents the differences between what it cost to an individual to acquire the asset
and what they receive when they deposit the asset. An individual taxpayer is
required to report the capital gains and the losses in their income tax return and
should pay tax on the net capital gains. Even though it is referred as the capital gains
tax this is usually treated as the part of their income tax and not the separate tax.
When an individual makes the net capital gains, it is added into the taxable
income and might significantly increase the taxes they need to pay (Knepper 2018).
As the tax is not withheld for the capital gains purpose, an individual might want to
work out how majority of the tax that is owed and set aside the sufficient amount of
fund to cover the relevant amount.
Sale of Doncaster Property:
The CGT event H1 takes place if the deposit that is paid to the owner of the
property is forfeited due to the prospective sale or the other transactions that does
not proceed. Under the
“s-104.150, ITAA 1997” the forfeiture of deposit might include
the giving the property (Yagan 2015). The case facts that is obtained suggest that
Daniel has decided to sell the house in which he has lived for thirty years. Prior to
entering in the contract the prospective has paid Daniel a sum of $85,000 as the
deposit. The negotiations between Daniel and the prospective purchaser has failed
and the deposit is ultimately forfeited. The amount that is forfeited should be viewed
as capital gain for Daniel under
“s, 104.150, ITAA 1997” (Li, Lin and Robinson 2016).
The forfeiture of deposit by the prospective buyer has given rise to CGT event H1
and the amount is included into the assessable statutory income for Daniel.
Sale of Painting:
The CGT assets also includes the collectables. Under
“s, 118-10 to 108-17
ITAA 1997” a collectable is regarded as one of the item that is listed in
“s, 108-10
(2)” which is basically used or kept for the own use of taxpayer (Meidner, Hedborg
and Fond 2017). The collectables include the items such as antiques, artworks,
coins, rare stamps etc. While
“s, 118-10, ITAA 1997” explains that the capital gain or
the capital loss that is made by the taxpayer from the collectable is required to be
ignored if the first element of cost base is below $500. Daniel has the artistic painting
which he purchased in 1985 for $15,000. In the current tax year of 2019, Daniel sold

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the painting during the auction for $125,000. Consequently, it can be stated that the
painting has been classified as collectable under
“s, 108-10 (2)” (Faccio and Xu
2015)
. A CGT event A1 has happened when the painting was sold. So the capital
gain that is made from the painting will be liable for assessment within the provision
of capital gains tax.
Luxury Yacht:
A luxury yacht was sold by Daniel which he purchased back in 2004 for
$110,000. This should be noted that the yacht was sold by Daniel for $60,000 and
this has resulted in capital loss. The subdivision 108-C explains that the personal
use asset is mainly kept or used by the taxpayer for their own enjoyment. As per
“s,
108-20, ITAA 1997” the items of the personal use asset also include the boats,
furniture, and the household items (Alpanda and Zubairy 2016). On the other hand,
in the event of selling the personal use asset and incurring a capital loss, then the
taxpayers is not permitted to offset the capital loss against the capital gains. Under
the
“s108-20(1), ITAA 1997” the taxpayers are required to simply ignore the loss.
The taxpayer here Daniel has reported the capital loss from the Yacht which
is classified as the personal use asset under the
“s, 108-20, ITAA 1997” (Sikes and
Verrecchia 2016). Additionally, under
“s108-20(1), ITAA 1997” Daniel is required to
simply ignore the loss.
Sale of Shares:
Daniel held the shares of BHP that he has sold for $80,000. He additionally
incurred the brokerage fees on the shares. He bought it for $75,000 with stamp duty
paid of $250. The stamp duty will be included into the cost base of the shares. While
Daniel is required to subtract the brokerage fees from the sales value of shares. The
sale of BHP shares has yielded Daniel a capital gain. Furthermore, a capital loss is
bought forward from AZJ shares. The capital loss amounts to $10,000. The capital
loss is offset against the BHP shares while the rest of the capital loss is carried
forward to future years and it is only permitted for reduction from capital gains when
the future capital gains is reported from the sale of shares.

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Answer to question B:
The total amount of capital gains that is reported by Daniel is $1,19,000. The
capital gains are mainly from the sale of painting and the Doncaster property. As
Daniel is looking forward to fund his retirement plan he can be use the net amount of
capital gains in his retirement fund as the contribution to his superannuation.
Answer to question C:
Daniel upon selling the Yacht which is the personal use asset is required to
ignore it completely under the legislation of
“s108-20(1), ITAA 1997”. On the other
hand, the capital loss that is left over from the AZJ shares must be carried forward
for the future years and the loss of AZJ shares is only allowed for setoff against the
capital gains from shares.

8TAXATION LAW
References:
Alpanda, S. and Zubairy, S., 2016. Housing and tax policy.
Journal of Money, Credit
and Banking,
48(2-3), pp.485-512.
Argente, D. and García, J.L., 2015. The price of fringe benefits when formal and
informal labor markets coexist.
IZA Journal of Labor Economics,
4(1), p.1.
Barry, J.M. and Caron, P.L., 2015. Tax regulation, transportation innovation, and the
sharing economy.
U. Chi. L. Rev. Dialogue,
82, p.69.
Briegel, J., 2019. The Effects of the Tax Cuts and Jobs Act on Small
Businesses.
Journal of Financial Service Professionals,
73(1).
Cooper, R., 2018. Recent changes to fringe benefits.
TAXtalk,
2018(71), pp.52-55.
Faccio, M. and Xu, J., 2015. Taxes and capital structure.
Journal of Financial and
Quantitative Analysis,
50(3), pp.277-300.
Givati, Y., 2015. Googling a Free Lunch: The Taxation of Fringe Benefits.
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69, p.275.
Heim, B., Lurie, I. and Simon, K., 2015. The impact of the affordable care act young
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29(1), pp.133-157.
Knepper, M., 2018. From the Fringe to the Fore: Labor Unions and Employee
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Li, O.Z., Lin, Y. and Robinson, J.R., 2016. The effect of capital gains taxes on the
initial pricing and underpricing of IPOs.
Journal of Accounting and Economics,
61(2-
3), pp.465-485.
Meidner, R., Hedborg, A. and Fond, G., 2017.
Employee investment funds: An
approach to collective capital formation. Routledge.
Royalty, A.B., 2015. Tax preferences for fringe benefits and workers’ eligibility for
employer health insurance.
Journal of Public Economics,
75(2), pp.209-227.
Sikes, S.A. and Verrecchia, R., 2016. Aggregate corporate tax avoidance and cost of
capital.
Work in progress, University of Pennsylvania.
Soled, J.A. and Thomas, K.D., 2016. Revisiting the Taxation of Fringe
Benefits.
Wash. L. Rev.,
91, p.761.
Vail, S.J., 2016. Slapping the Hand at the Dinner Table: A Practical Tax Solution to
Employer-Provided Meal Benefits.
U. Ill. L. Rev., p.689.
Yagan, D., 2015. Capital tax reform and the real economy: The effects of the 2003
dividend tax cut.
American Economic Review,
105(12), pp.3531-63.