Taxation Law

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Running head: TAXATION LAW
Taxation Law
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1TAXATION LAW
Table of Contents
Answer to question 1:.................................................................................................................2
Answer to question 2:.................................................................................................................6
Answer to A:..........................................................................................................................6
Answer to question B:............................................................................................................8
Answer to question C:............................................................................................................9
References:...............................................................................................................................10

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Answer to question 1:
A fringe can be better known as the payment which the employer makes to the
employee but it is different from the usual salaries or wages (Cooper, 2018). As stated under
the fringe benefit tax legislation, a fringe cam be defined as the benefit that is given to the
employee in relation to the employment. This effectively implies that the benefit that is
provided to someone because they are treated as employee.
As defined under the “section 7 of the Fringe Benefit Tax Assessment Act 1986” a
car fringe benefit generally happens when the employer makes the car for the private usage of
the employee (Hodgson and Pearce 2015). The car is being treated as being available for the
private use of the employee. It is noteworthy to denote that the car one usually holds the car
one generally lease. An employer makes the available for the employee’s private use during
any day either;
a. The car is usually used for the private purpose of the employee
b. The car is available to the employee for making private use
Furthermore, a car is treated to be available for the private use of the employee when
the car is garaged at the employee’s home. Correspondingly, where the place of employment
and the residence are treated as same then the care is considered to be available for the
employee’s private use.
According to the “section 9, of the FBTAA 1986” the methods for computing the
taxable value of the car fringe benefit has been explained under this legislation (Briegel
2019). In order to calculate the taxable value of the fringe benefit of the car either the
statutory formula method or the operational cost method is used. By using the statutory
method, the taxpayers can compute the taxable value of the car fringe benefit by considering
the cost base of the car provided to employee for his private use.

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On the other hand, “section 10A and section 10 B of the FBTAA 1986” is largely
associated with the determination of the taxable value of the car fringe benefit under the
operating cost method (Barrett and Veal 2016). While computing the taxable benefit of the
car fringe benefit under the operating cost method the total operating cost incurred is taken
into the consideration to compute the taxable value of the car fringe benefit.
Case facts:
In the current it is noticed that Lucinda is the employee of Spiceco Pty Ltd. Lucinda is
provided with the car on 1st April to make the private use of it. The evidences from the case
study suggest that the total kilometres travelled by Lucinda stood 20,000 km while 70% of
the total kilometres were attributed for business purpose while remaining 30% of the total
distance was related to the private purpose. Providing of car to Lucinda by Spiceco Pty Ltd
constitute a car fringe benefit under “section 9, of the FBTAA 1986” (Braverman, Marsden
and Sadiq 2015).
To calculate the fringe benefit there are two methods that has been referred in the case
of Spiceco Pty Ltd. The methods include the statutory formula method and the operating cost
method. As total amount of kilometres travelled by Lucinda stands 20,000 therefore a
statutory rate of 20% has been considered to calculate the car fringe benefit. In the current
case of Lucinda, the statutory rate of 20% has been multiplied with the base value of the car
to ascertain the taxable value of the fringe benefits. The proportion of private use of the car
made by the employee is not taken into the consideration while computing the taxable value
of fringe benefit (Schreiber 2017).
On the other hand, to compute the taxable value of the fringe benefit car under the
operating cost method the total running cost incurred by Lucinda is taken into the
consideration. The total running cost is separated from the private use and taxes is only levied

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on the total business kilometre used or travelled by Lucinda to determine the taxable value of
the fringe benefit.
Calculation of Fringe benefit using statutory method:
Statutory method
Taxable value of fringe benefits
Particulars Amount ($) Amount ($)
Base value of the car 18000
Statutory rate 20%
Car Available for Private use (Days) 365
Number of days in the FBT year 365
Gross Taxable Value of the Car Fringe benefit 3600.00
Less: Employee Contribution 1000
Net Taxable Value of fringe benefits 2600.00
Calculation of Taxable value of car fringe benefit under operating cost method
Operating cost method:
Taxable value of fringe benefits
Particular Amount ($) Amount ($)
Repairs 3300
Deemed Depreciation 4500
Deemed Interest 945
Fuel 990
Insurance 2200
Total operating cost 11935
Proportion of use for private purpose:
Total kilometre run 20000
Work related 14000
Private purpose related 6000
Percentage of private use 30%
Gross Taxable value of fringe benefits 3580.5
Less: Employee Contribution 1000
Net Taxable Value of fringe benefits 2580.5

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Calculation of fringe benefit tax for the year ended 2018/19
Calculation of FBT
For the year ended 2018//19
Particular Amount ($) Amount ($)
Taxable value of car fringe benefts $3,600.00
Taxable value of total fringe benefits $3,600.00
FBT rate 49%
Fringe Benefit Taxable Amount $7,058.82
Fringe Benefit Tax $3,458.82
Calculation of Deemed Depreciation:
Calculation of Deemed Depreciation
Particulars Amount ($)
Base value of car $18,000.00
Depreciation rate 25%
Deemed Depreciation $4,500.00
Calculation of Deemed Interest:
Calculation of Deemed Interest
Particulars Amount ($)
Base value of car $18,000.00
Statutory Interest rate 5.25%
Deemed Interest $945.00
As evident from the above stated computation the deemed interest is computed in
accordance with the formula stated under the section 11 (2) while the deemed interest stands
5.25% for the year 2018/19. As the taxable value of the fringe benefit of the car is less under

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the operating cost method, it is advisable that Spiceco Pty Ltd should use the operating cost
method as this will help in minimising the fringe benefit tax liability.
Answer to question 2:
Answer to A:
Gains that are characterised as capital are not treated as income under the ordinary
concepts. Capital gains tax began on 20 September 1985 and takes into the account the
capital receipts under the tax base. The net income tax liability of the taxpayer includes the
net amount of capital gains as well. Under the “section 102-20 of the ITAA 1997” a taxpayer
generally makes the net amount of capital gains or loss if the CGT event happens
(Burkhauser, Hahn and Wilkins 2015). A CGT event A1 under “section 104-10 (1) of the
ITAA 1997” happens when the asset is sold by the taxpayer. As held in the case of “FCT v
Sara Lee Household (2000)” a CGT event only happens when a taxpayer enters into the
contract (Evans, Minas and Lim 2015).
Case facts:
As understood in the current case of Daniel he is planning for his retirement and as
the plan to collect $1 million for investment in super fund he sold certain assets during the
year. The capital gains tax treatment for each of the asset is given below;
Sale of Main Residence:
Daniel during the year sold his main residence which is used for dwelling purpose.
The house was under his ownership for the period of 30 years and was his main residence.
Daniel sold the house for $865,000 and the property was purchased for $70,000. According
to the “section 118-110 (1) of the ITAA 1997” a taxpayer is allowed to claim main residence
exemption from the capital gains made from the CGT asset (Feld et al. 2016). However, it
must be noted that the taxpayer should use the house for residential purpose only to gain the

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main residence exemption and should not use the house for producing income. As evident in
the current case of Daniel, the house was used as his main residence all through the period of
his ownership. The capital gains that would be made from the sale of house by Daniel will be
considered as the exempted capital gains.
Sale of painting:
As per the “section 108-10 (2) of the ITAA 1997” collectibles mainly include the
artwork, jewellery or coin etc. that is mainly kept by the taxpayer for their personal
enjoyment and usage (Chardon, Freudenberg and Brimble 2016). There are certain special
rules that are applicable to the collectibles. This includes that capital gains or capital loss that
is made from the collectible must be disregarded if the cost base of the collectible is below
$500. Furthermore, capital losses from the collectible can only be used to lower the capital
gains from the collectibles.
Here, Daniel made a capital gain of $55,000 from the sale of collectibles. Therefore,
the sale of collectible resulted in the CGT event A1 under “section 104-10 (1) of the ITAA
1997”. The collectible is a post CGT asset because it was bought on 20th September 1985 and
hence the sale of collectible has given to rise capital gains.
Sale of Luxury Yacht:
“Section 108-20, ITAA 1997” explains that personal use assets are those assets apart
from collectibles that are mainly kept by the taxpayer for their own benefit and enjoyment. It
mainly includes, bicycle, yacht for personal use purpose (Davidson and Evans 2015). Capital
loss made from the collectible must be disregarded. As understood in the case of Daniel, the
sale of yacht has resulted in capital loss. However, as yacht is the personal use asset the
capital loss made by Daniel from the sale of yacht should be disregarded.

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Sale of shares: Daniel during the year reported capital loss from the sale of shares that were
held in the BHP. The sale of shares resulted Daniel a capital loss of $1,000 for the current
year of 2018/19. Furthermore, Daniel also reports the loss of $10,000 from the sale of AZJ
shares. As the sale of BHP shares has resulted in capital loss therefore the previous year
capital loss cannot offset in this case because both shares resulted a capital loss (Jacob 2018).
Computation of net capital gains of Daniel Ray for the year 30 June 2019:
Calculations of Capital Gains Tax
For the year ended June 2019
Particulars Amount ($) Amount ($)
Net Capital Gains on Sale of Painting
Proceeds from sell of Painting 125000
Cost base 15000
Gross Capital Gains (proceeds less cost base) 110000
50% CGT Discount 55000
Taxable Capital Gains 55000
Capital gains on sale of shares
Gross Proceeds from Shares in BHP 80000
Less: Brokerage Fees 750
Net Proceeds 79250
Cost base
Less: Acquisition Cost 75000
Add: Stamp Duty on Purchase 250
Add: Interest on Loan 5000
Total Cost Base 80250
Capital Loss -1000
Net Capital gains 55,000
Answer to question B:
As understood from the situation of Daniel the capital gains made from the sale of
main residence is held as exempted from capital gains tax. Daniel also reported capital gains
from the sale of painting being the collectible. Therefore, in an attempt to collect $1 million
for super fund these capital gains can be invested by Daniel into his super fund.

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Answer to question C:
During the year Daniel reported a capital loss from the sale of yacht being the
personal use assets and he also reported the capital loss from the sale of BHP shares. Daniel
also has the previous year capital loss of $10,000 from the AZJ shares. It is advised that as
Daniel has not reported any capital gains from the personal use asset neither has he reported
capital gain from the sale shares. The capital loss should be carried forward by Daniel as the
same cannot be offset against the capital gains that is made by Daniel from the sale of main
residence and paintings.

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References:
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).
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.
Briegel, J., 2019. The Effects of the Tax Cuts and Jobs Act on Small Businesses. Journal of
Financial Service Professionals, 73(1).
Burkhauser, R.V., Hahn, M.H. and Wilkins, R., 2015. Measuring top incomes using tax
record data: A cautionary tale from Australia. The Journal of Economic Inequality, 13(2),
pp.181-205.
Chardon, T., Freudenberg, B. and Brimble, M., 2016. Tax literacy in Australia: not knowing
your deduction from your offset. Austl. Tax F., 31, p.321.
Cooper, R., 2018. Recent changes to fringe benefits. TAXtalk, 2018(71), pp.52-55.
Davidson, P. and Evans, R., 2015. Fuel on the fire: Negative gearing, capital gains tax &
housing affordability. ACOSS Papers, p.29.
Evans, C., Minas, J. and Lim, Y., 2015. Taxing personal capital gains in Australia: an
alternative way forward. Austl. Tax F., 30, p.735.
Feld, L.P., Ruf, M., Schreiber, U., Todtenhaupt, M. and Voget, J., 2016. Taxing away M&A:
The effect of corporate capital gains taxes on acquisition activity.

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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.
Jacob, M., 2018. Tax regimes and capital gains realizations. European Accounting
Review, 27(1), pp.1-21.
Schreiber, S., 2017. Boston Bruins Can Deduct Full Cost of Meals for Team's Away Games:
The Meals Were Provided by the Employer for Its Convenience, the Tax Court
Holds. Journal of Accountancy, 224(4), p.61.