Computation of FBT Consequences and CGT Implications

This document provides a detailed explanation of the computation of FBT consequences and CGT implications in taxation. It covers the statutory method and operating cost method for FBT calculation. It also discusses the CGT events and their implications on assets with examples. A comprehensive guide for understanding these concepts.

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

1TAXATION
Answer 1
The concern arising from the given situation is the computation of FBT consequences
following the providing of a car to Lucinda by the Spiceco Pty Ltd under the statutory
method as well as the operating cost method in a FBT year.
The Fringe Benefit Tax Assessment Act 1986 has been enacted for the purpose of
regulating fringe benefit tax in Australia. Section 136 of the Act contains the definition of
fringe benefits. It implies a benefit that is advanced towards an employee by his employer or
to any person related to the employee including any third party as has been agreed between
the employer and employee in the furtherance of the relation of employment. Such an amount
will be taxable in the hands of the employer. This benefit may include any interest or right or
a personal property. The gross up rate for FBT is 2.0802 and the rate of FBT is 47% for FBT
year 2018-19 (Barkoczy 2016).
A car fringe benefit is said to have accrued when a car has been extended towards an
employee by an employer for being used to serve personal purpose of the employee as
defined under section 7 of the Act. The employer will be imposed with the taxation that will
be charged upon such a fringe benefit. There are two methods for the computation of fringe
benefits pertaining to the car. The statutory method of calculating fringe benefit has been
provided under section 9 (1) of the Act. The operating cost method of calculating the fringe
benefit of a car husband provided under section 10(2) of the Act (Barkoczy 2016).
Statutory method:
[0.2 * BV * (n/ tn)] - A
BV = Base value
n = no. of operating days

2TAXATION
tn = no. of days in the year of income
C = contribution of the employee
Operating cost method:
[C * ( 100% - BP)] – R
C = operating cost during the period of holding, which includes maintenance, insurance,
registration and fuel.
BP = business percentage
C = contribution of the recipient.
Depreciation rate = 25%
Interest rate = 5.20%
In the present case base value of the car is 18000. Lucinda has contributed $1000. The
reduced value of will be 18000 – 1000 = $17000.

3TAXATION
STATUTORY METHOD
STATUTORY METHOD
PARTICUALRS AMOUNT$ AMOUNT $
Car BV 18000
(-) Contribution of Lucinda 1000
Reduced BV 17000
Rate 20%
No. of days used privately 365
No. of days in an FBT year 365
Taxable value [0.2 * BV * (n/ tn)] - A 3400
OPERATING COST METHOD
OPERATING COST METHOD
PARTICUALRS AMOUNT $ AMOUNT $
Repairs 3300
Insurance 2200
Fuel 990
Deemed Depreciation (WN 1) 4250

4TAXATION
Deemed Interest (WN 2) 884
TOTAL OPERATING COST 11624
Total use 20000
Use for business 14000
Private use 6000
Private use percentage 30%
FBT liability (total operating cost * private use %) 3487.2
WORKING NOTE (WN):
WN 1
Deemed Depreciation Amount $
BV 18000
(-) contribution of Lucinda 1000
Reduced BV 17000
Rate of Depreciation 25%
Deemed Depreciation (BV*25%*365)/365 4250
WN 2
Deemed Interest Amount $
BV 18000

5TAXATION
(-) contribution of Lucinda 1000
Reduced BV 17000
Rate of Interest 5.20%
Deemed Interest (BV*5.2%*365)/365 884
Answer 2
a)
The concern arising from the present scenario is the computation of the CGT implication
resulting from the sale of the assets by Daniel Ray.
Transaction 1:
A CGT gain is required to be included within the assessable income of a taxpayer. The
existence of a CGT asset is required for attracting a CGT event. The CGT event that is mostly
evidenced is the A1 category CGT event and involves permanent disposal of a CGT asset by
way of sale. The A1 category of CGT event has been provided under section 104. 10 of the
Income ta Tax Assessment Act 1997. The exact timing of the occurrence of such an event
needs to be considered for ensuring the inclusion of the event that has occurred within the
financial year and also those assets that has been acquired following 20/09/85. Only those
assets, which are purchased on a subsequent date to that of the mentioned one will be
admitted to be assessed as a CGT asset and otherwise needs to be excluded from the
computation. Section 108.5 of the Act covers building, house or even vacant land as a CGT
asset. The sale of a house under this principle is required to be treated as a CGT event A1.

6TAXATION
The timing of the occurrence of the A1 events will depend upon the time of disposal of the
formation of the contract for the sale as has been made evident with the case of McDonald v
Commissioner of Taxation [2001] FCA 305 (Barkoczy 2016). The CGT gain or loss is to be
assessed by deducting the lower of the cost base and cost proceeds from the other one. Under
section 116.20 of the Act capital proceed implies the amount of money received by disposing
of the CGT asset. Any amount which is receivable will also be included within the capital
proceed. On the other hand cost proceed in price the amount of money that the taxpayer has
spent in relation to a particular asset as provided under section 110.25 of the Act. A cost base
consists of five elements. The first one is the in this case is the acquisition price of the house
that is 70000 dollars. The second element of the cost base of the house includes $15,000. This
totals up to give a cost base of $85,000. Timing of the transaction is 29.06.2019. the cost
proceed in this case is the amount that is receivable from the proposal that is $865000. This
gives a net CGT gain of $780000. Daniel has the option of claiming a discount of 50% under
div 115. This is because he has complied with both the requirements of claiming a discount,
the first one being the asset sold after 21st of September 1999 and the second one requires the
asset to be held for more than 1 year. This renders the total CGT gain being $39000.
Moreover, for 30 years of holding this property Daniel has been using it as a main residence.
This requires the transaction relating to this house to be treated as an exemption from the
computation of CGT. Hence Daniel will be exempted from paying tax for the house. Again
the contract for the sale has been forfeited, which renders the event to have no significance in
the subsequent financial year.
Transaction 2:
The CGT event that is mostly evidenced is the A1 category CGT event and involves
permanent disposal of a CGT asset by way of sale. The A1 category of CGT event has been
provided under section 104. 10 of the Income Tax Assessment Act 1997. Collectibles are to

7TAXATION
be considered as CGT assets as per section 108.10 of the Act. The exact timing of the
occurrence of such an event needs to be considered for ensuring the inclusion of the event
that has occurred within the financial year and also those assets that has been acquired
following 20/09/85. Only those assets, which are purchased on a subsequent date to that of
the mentioned one will be admitted to be assessed as a CGT asset and otherwise needs to be
excluded from the computation (Barkoczy 2016). The CGT gain or loss is to be assessed by
deducting the lower of the cost base and cost proceeds from the other one. Under section
116.20 of the Act capital proceed implies the amount of money received by disposing of the
CGT asset. Any amount which is receivable will also be included within the capital proceed.
On the other hand cost proceed in price the amount of money that the taxpayer has spent in
relation to a particular asset as provided under section 110.25 of the Act. The painting has
been acquired on the date of 20th September 1985, which is said to have acquired after 19th
September 1985 at the time of 11:55 pm. The cost proceed in this case is the amount that is
receivable from the sale that is $125000. This gives a net CGT gain of $110000 (125000 –
15000). Daniel has the option of claiming a discount of 50% under div 115. This is because
he has complied with both the requirements of claiming a discount, the first one being the
asset sold after 21st of September 1999 and the second one requires the asset to be held for
more than 1 year. This renders the total CGT gain being $55000. This will be included in the
net CGT computation.
Transaction 3:
The CGT event that is mostly evidenced is the A1 category CGT event and involves
permanent disposal of a CGT asset by way of sale. The A1 category of CGT event has been
provided under section 104. 10 of the Income Tax Assessment Act 1997. Personal assets are
also to be treated as a CGT for taxation purposes under 108.20 of the Act. The luxury yacht
has been purchased by Daniel for personal usage and hence needs to be taxed as CGT asset.

8TAXATION
Again for the purpose of being rendered as a CGT asset the personal asset needs to be worth
more than $10000. In this case the acquisition cost of the luxury yacht $110000. Hence, it
will be subjected to CGT computation. The CGT gain or loss is to be assessed by deducting
the lower of the cost base and cost proceeds from the other one. Under section 116.20 of the
Act capital proceed implies the amount of money received by disposing of the CGT asset.
Any amount which is receivable will also be included within the capital proceed. On the other
hand cost proceed in price the amount of money that the taxpayer has spent in relation to a
particular asset as provided under section 110.25 of the Act. The painting has been acquired
on the date of 20th September 1985, which is said to have acquired after 19th September
1985 at the time of 11:55 pm. The cost proceed in this case is the amount that is receivable
from the sale that is $60000. This gives a net CGT loss of $50000 (110000 – 60000). This
transaction accrues a loss towards Daniel and hence it will not be regarded in the CGT
computation as CGT loss arising from personal use asset is not to be regarded (Barkoczy
2016).
Transaction 4
The CGT event that is mostly evidenced is the A1 category CGT event and involves
permanent disposal of a CGT asset by way of sale. The A1 category of CGT event has been
provided under section 104. 10 of the Income Tax Assessment Act 1997. Collectibles are to
be considered as CGT assets as per section 108.10 of the Act. The transaction relating to
shares are also required to be brought under the purview of CGT event as shares are
considered to be CGT events under section 108.5 of the Act. The CGT gain or loss is to be
assessed by deducting the lower of the cost base and cost proceeds from the other one. Under
section 116.20 of the Act capital proceed implies the amount of money received by disposing
of the CGT asset. Any amount which is receivable will also be included within the capital
proceed. On the other hand cost proceed in price the amount of money that the taxpayer has

9TAXATION
spent in relation to a particular asset as provided under section 110.25 of the Act. The cost
base generally comprises of five components. In the present transaction the shares has been
purchased for a price of $75000 that depicts the first element u/s 110.25 of the Act. As the
reduced cost base does not include the third element, the interest from the loan will not be
take into consideration. The second element, which includes the stamp duty amounting to
$250 will be included. The cost proceed amounting to $80000 will further be subjected to
alteration in relation to the brokerage fee amounting to $750. This will total up to provide a
CGT loss of 79250 – 75250 = $4000. Another CGT loss amounting to $10000 has been
carried forward from the previous year, which needs to be adjusted to the CGT (Barkoczy
2016).
Net CGT Liability
Net CGT Liability
Particular Amount $ Treatment
House Nil
Painting 55000
Yacht Nil 50000 disregarded

10TAXATION
Shares 4000
Loss from previous year 10000
Net CGT 49000
Reference
Barkoczy, S., 2016. Foundations of taxation law 2016. OUP Catalogue.
Fringe Benefits Tax Assessment Act 1986
Income Tax Assessment Act 1936 (Cth)
Income Tax Assessment Act 1997 (Cth)
McDonald v Commissioner of Taxation [2001] FCA 305