Taxation: Liability of Resident Individual on Share Trading & Employer's Fringe Benefits Tax Liability

This document discusses the liability of a resident individual in Australia on gains or loss from shared trading activities and the liability of an employer for fringe benefits provide to employees. It provides detailed answers and calculations for tax treatments and taxable income. The subject is taxation and the course code and college/university are not mentioned.

Running head: TAXATION
Taxation
Name of the Student:
Name of the University:
Authors Note:

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Contents
Introduction:....................................................................................................................................2
Answer 1:.........................................................................................................................................2
Answer 2:.........................................................................................................................................4
References:....................................................................................................................................10

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Introduction:
Earlier Income Tax Assessment Act, 1936 and now Income Tax Assessment Act, 1997,
here in after to be referred to as ITAA 1996 and ITAA 1997 respectively in this document,
contains all provisions to govern the income tax and related matters. Australian Taxation Office,
a department of the Government of Australia has the responsibility to administer the tax related
matters in the country. In this document a detailed discussion on the liability of a resident
individual in Australia on gains or loss from shared trading activities and the liability of an
employer for fringe benefits provide to employees shall be discussed here.
Answer 1:
Issue:
Having incurring loss to the tune of $50,000 from sale of shares, Simon Krupcheck, an
Australian resident, wants to know the suitable tax treatments for such loss. Hence, the issue is to
discuss the tax treatment for the loss of $50,000 from sale of shares.
Rules:
ITAA 1997 has provided that all income, except exempt income, arising to an individual must be
considered along with acceptable losses to ascertain the taxable income of such individual. As
per Section 615.50 of ITAA 1997, the tax treatment of shares depend on an individual’s nature of
transactions in relation to such shares (Snape & De Souza, 2016). Thus, whether an individual
holding the shares as an investor or as a trader to trade on such shares would be the main
contention in determining the tax implications of share related transactions.
Holding shares as investment:

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When an individual holds shares with the objectives of receiving dividend income from such
shares and availing appreciation in the capital value of these shares then, the individual is
holding such shares as investment. In such case the receipts from sale of shares are subjected to
capital gain tax and not as assessable income. Dividend and other similar receipts shall be taken
into consideration to calculate assessable income of the investor (Oates & Schwab, 2015).
Share trading business:
A person who transacts in shares with the purpose to trade in these shares, i.e. to buy and sale the
shares, to earn profit or loss from such transactions will be considered as a trader in shares. Thus,
such individual is a share trader. In such case the ordinary course of operations is to buy and sale
shares. Sale proceeds receipt from sale of shares will constitute assessable income of the share
trader. The cost of acquiring such shares along with other related and incidental expenses
including brokerage and commission shall constitute eligible expenditures of share trading
business (Almeida, Fos & Kronlund, 2016). The assessable income shall be deducted by the
eligible expenditures in share trading business to calculate net gain or loss from share trading
business. The resultant net loss or net gain from share trading operations will be considered for
computing taxable income of the share trader in a particular income year. For a trader in share
loss from share trading is a revenue loss and accordingly, should be recorded in the revenue
account for tax purposes.
Application:
Simon Krupcheck held number of junior executive positions in an Australian listed entity,
Australian Resident Life Insurance Company, and has significant experience in capital market
dealings. With his experience in capital market he invested significant amount of time on

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researching on share price movements and other important aspects to gather necessary
information to acquire shares at relatively low price with the objective of selling these when the
prices of these shares will be high (Cremers & Pareek, 2016). Obviously, it is clear from the facts
that Simon’s intention was to trade in shares and not to hold shares as investments. Thus, as par
the rules provided in the ITAA 1997 and the instructions of ATO, the gain or loss from share
trading operations of shall be taken into consideration in determination of taxable income of
share trader in an income year. For a share trader it is a revenue loss that shall be off set against
income from other sources of the trader, in case any. If the share trader does not have any other
sources of income then the loss of trading of shares can be carried forward in future periods to
set off against income from other sources in the future (Brinkley, 2018).
Conclusion:
Simon has incurred a net loss of $50,000 from share trading operations, it should be recorded in
the revenue account as it is loss from ordinary course of business to the share trader, Simon
Krupcheck.
Answer 2:
In Australia the income tax year is from July 01 of a year to the 30th June of next year
however, for tax purposes in relation fringe benefits provided by an employer to his employees
the year is from April 01 of a year to 31st March of next year. This is also referred to as FBT year
(Tang & Wan, 2015). In John Holland Group Pty Ltd v Commissioner of Taxation, The
Federal Court of Australia mentioned the importance of measuring monetary value of fringe
benefits correctly for FBT purposes.

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In this part of the document the calculation of tax liability will be divided in two equally
important parts. In the first part a simple income tax liability of the employee, i.e. Lucy shall be a
calculated. In order to calculate the income tax liability as per the Income Tax Assessment Act,
1997 (ITAA 1997) the income year of 01st of July, 2017 to 30th June, 2018 has been considered
(White & Townsend, 2018).
In the second part of the calculation the Fringe Benefits provided by the employer to Lucy shall
be considered and a detailed calculation shall be shown to calculate the taxable value of fringe
benefits provided by Contemporary Clothes Co (CCC) to its employee Lucy (Ahmad & Scott,
2015).
Calculation of income tax liability of Lucy for the income year 2017-18 is provided in the table
below:
Taxable income of Lucy for 2017-18
Particulars Amount
($)
Amount
($)
Salary from September to June (80000 x10/12) 66,666.
67
Annual leave travel allowance (20000 x 10/12) 16,666.
67
Taxable income of Lucy for 2017-18 83,333.
33

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The taxable income of Lucy for the income year 2017-18 is $83,333.33 as is calculated in the
table above after considering the following factors.
Notes:
I. Salary of $80,000 is annual salary package of Lucy in CCC. However, since she was
appointed on September 1, 2017, only the salary of 10 months for the current income
year 2017-18 has been considered to calculate her taxable income of 2017-18
(Braverman, Marsden & Sadiq, 2015).
II. Similarly the annual travel allowance of $20,000 has been proportionately reduced to
10 months to calculate the assessable allowance for calculation of taxable income of
Lucy (Hodgson & Pearce, 2015).
Income tax liability of Lucy for income year 2017-18 is calculated in the table below:
Tax liability:
Taxable income of Lucy for 2017-18 83,333.3
3
Tax liability 18,810.01
Thus, tax liability of Lucy for the income year 2017-18 is $18,810.01 after considering the
following income tax rates applicable in the country for calculating income tax liability of
individuals (Braverman Marsden & Sadiq, 2015).

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Assessable income for tax purpose Applicable rate of income tax
Up-to $18,200 Nil
$18,201 to $37,000 19c for each $1 over $18,200
$37,001 to $90,000 $3,752 + 32.5c for each $1 over
$37,000
Fringe Benefit Tax for CCC:
FBT
Particulars Amount
($)
Amount
($)
Loan of 10000
{5000 x {5.25% -3%) x 10/12} 93.
75
Car
Running costs 8,000.
00

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Total kilometre ran from September 01 to
June 30
20,000.
00
Annualized kilometre (20000 x365/212) 34,433.
96
Thus, statutory percentage relevant 11%
Base value of the car 50,000.
00
FBT {(50000 x 11% x 212/365) -1000} 2,194.
52
Value of clothes for Fringe benefit purpose 1,000.
00
Loan waived 2,000.
00
Taxable value of fringe benefits 5,288.
27
Note:

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I. For valuing taxable value of fringe benefits of loan the difference between the
statutory benchmark interest rate, i.e. 5.25% and the concessional rate, i.e. 3% of
interest on the loan provided by the employer shall be considered (Dixon & Nassios,
2016).
II. In case of loan waiver of $2,000 it has been assumed that the interest was paid by
Lucy’s husband as per statutory bench mark interest rate.
III. To calculate taxable value of fringe benefit for the statutory percentage method has
been used instead of operating cost method as this has reduced the taxable value of
fringe benefit for the car (Tang & Wan, 2015).
IV. The cloths provided by CCC shall be valued at cost to value the taxable fringe
benefit. Hence, $1,000 has been considered for calculating taxable value of fringe
benefit (Chardon, Freudenberg& Brimble, 2016).
V. In order to calculate the total number of days the car, Holden Barina was available to
Lucy for her personal use in the FBT year ending on 31st March, 2018, the following
table can be referred:
Months Days
Sept 30
Oct 31
Nov 30
Dec 31
Jan 31
Feb 28
Mar 31
Total number of days 212

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References:
Ahmad, R., & Scott, N. (2015). Fringe benefits and organisational commitment: the case of
Langkawi hotels. Tourism review, 70(1), 13-23.
Almeida, H., Fos, V., & Kronlund, M. (2016). The real effects of share repurchases. Journal of
Financial Economics, 119(1), 168-185.
Braverman, D., Marsden, S., & Sadiq, K. (2015). Assessing Taxpayer Response to Legislative
Changes: A Case Study of In-House Fringe Benefits Rules. J. Austl. Tax'n, 17, 1.
Brinkley, C. (2018). Fringe benefits: adding rugosity to the urban interface in theory and
practice. Journal of Planning Literature, 33(2), 143-154.
Chardon, T., Freudenberg, B., & Brimble, M. (2016). Tax literacy in Australia: not knowing
your deduction from your offset. Austl. Tax F., 31, 321.
Cremers, M., & Pareek, A. (2016). Patient capital outperformance: The investment skill of high
active share managers who trade infrequently. Journal of Financial Economics, 122(2),
288-306.
Dixon, J. M., & Nassios, J. (2016). Modelling the impacts of a cut to company tax in Australia.
Centre for Policy Studies, Victoria University.
Hodgson, H., & Pearce, P. (2015). TravelSmart or travel tax breaks: is the fringe benefits tax a
barrier to active commuting in Australia? 1. eJournal of Tax Research, 13(3), 819.
Oates, W. E., & Schwab, R. M. (2015). The window tax: A case study in excess burden. Journal
of Economic Perspectives, 29(1), 163-80.

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Snape, J., & De Souza, J. (2016). Environmental taxation law: policy, contexts and practice.
Routledge.
Tang, R., & Wan, J. (2015). Fringe benefits tax and fly-in fly-out arrangements: John Holland
Group Pty Ltd v Commissioner of Taxation. Australian Resources and Energy Law
Journal, 34(1), 17.
White, J., & Townsend, A. (2018). Deductibility of employee travel expenses: The ATO's
guidance. Taxation in Australia, 52(11), 608.