Capital Gains Tax and Fringe Benefit Taxation

This report provides a comprehensive overview of capital gains tax (CGT) and fringe benefit tax (FBT) in Australia. It explains the concept of CGT, including the types of assets that are subject to tax, and the rules for calculating taxable income. The report also covers FBT, including the types of benefits that are subject to tax and the rules for calculating taxable value. Specific examples are provided to illustrate the application of these taxes, including a calculation of tax liability for a loan. The report concludes by summarizing the key points and providing references to relevant literature.

TAXATION THEORY,
PRACTICE

Table of Contents
INTRODUCTION...........................................................................................................................1
QUESTION 1...................................................................................................................................1
Evaluation of net Capital gain or loss for the Client...................................................................1
Adjustment of capital loss...........................................................................................................7
QUESTION 2...................................................................................................................................7
a) Advise for assessment of Fringe benefit tax...........................................................................7
CONCLSION...................................................................................................................................9
REFERENCES..............................................................................................................................10

INTRODUCTION
Australian Tax office is the main legislative authority that operate the revenue in
Australia. Rules, guidelines, statutory procedures and provisions are given related to assessment
of tax for individual, organisations and firms. Concept of taxable capital gain and losses subject
to different capital goods whether short term and long term purpose are defined in this report
(Bjornlund, Wheeler and Rossini, 2013). In this report, tax liability is counted regarding various
capital goods as block of land, antique bed, painting, shares, violin for short term and long term
purpose in first question. Assessment of Fringe benefit tax provided to employees evaluated in
another question. As a tax consultant in Mayfield, NSW legal solutions and provisions are
advised to clients.
QUESTION 1
Evaluation of net Capital gain or loss for the Client
a) Block of Vacant land
Acquired vacant land for the purpose of investment and private and on this land calculate
capital gain tax for selling. But if purchase vacant of land for the use in a business or for profit
making, that sales are treated as ordinary income. So that time need to register in goods and
service tax (GST). If buy vacant land for the purpose to build a rental property on it, so you are
able for claim tax deductions for expenses obtain in keeping the land (Tran, 2015).
 If selling the land that was treated as trading stock and received assessable income
through sales proceeds. According to income tax purpose land may be treated as landing
stock. And dealing of land for the business activity. And also resale the holding land.
 During deal we can including some business activities -
◦ For selling, developing and subdividing to acquire land
◦ Many purpose for acquiring land such as selling the developed property, building a
dwelling and commercial property.
Land acquired on January 2001, for $100,000 and in local council, sewerage rates, water
and during ownership of the land taxes paid that all are incurred $20,000. she sell out this land on
3 June, amount 320000 and she receive final amount on 3 January.
According to section 104(35) of ITA act 1997 have contractual rights of assets
Cost base Calculation on 3/06
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Acquisition Cost of Vacant land 100000
Add Statutory Rates And taxes 20000
UN-indexed Cost Base 120000
Calculation of Sale Proceeds
Particulars Amount
Sale income from land 320000
Less Index Cost of acquisition 120000
Gain for next year 200000
Rendition: The sale of land is advised as capital gain tax event, and the asset capital gain
tax covered by under section s 108-5 for the sale of land. In the contract selling amount of vacant
land $320000 and paid sale price in next year related to case $20000. The total cost base is
$120000. Calculating tax on the basis of these information -
 $100,000 this cost related to particular section under sec 110-25 (2)
 $20,000 this amount related to particular section of rate and land taxes under s 110-25(4)
according to land acquire after 20 August 1991
We getting taxable amount is $320000 - $120000 = $200000, under the section of capital gain
115-25(1)
b) Antique bed
Calculation of index cost of bed
Particulars Amount Indexation Factor Net Amount
Cost of acquisition of Antique bed 3500 1.59 5565
Add Index cost of improvement
Additions
1500 1.55 2319
Indexed Cost Base 5000 7884
Index factor for cost of acquisition and cost of improvement as per Index reference base –
2011–12
Index value Year
Cost of bed 77.6 Quarter ending September 1986
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Additional cost 79.8 Quarter ending December 1986
Index when bed was
stolen
123.4 On September ending 1999
Computation of taxable insurance claim
Particulars Amount ($)
Claim from Insurance Company 11000
Less: Indexed Cost bed -7884
Net Capital Gain/loss 3116
Rendition: Long term capital gain computed through difference between cost of
acquisition and the sales proceeds. With the help of cost of acquisition we can getting present
value and that will be calculated by multiplying of the original cost of acquisition and give notice
cost inflation index to related selling year and dividing by the cost inflation index related to
purchase year (McDonald, Mayes and Pini, 2012). For the improvement of the antique bed
change to restoring and any capital expenditure, for the calculation will be including
improvement of indexed cost. Form the above calculation the index cost of stolen bed was
counted as 77.6 for Quarter ending September 1986 and 79.8 for Quarter ending December
1986. Taxable capital gain was calculated as 3116.
c) Painting
On short term capital gain taxed with ordinary income rate and on long term capital gain
taxed the rate of 28% maximum (Mackenzie and McKerchar, 2014). In the element of sales costs
the sale of your painting has the potential to generate a hefty tax bill.
The above case is related to sale of movable capital goods. The sale of the painting will
be considered in this head under section 104-A.
Calculation of taxable capital gain or loss of painting
Particulars Amount
Sale proceeds from painting 125000
Less: Cost base -2000
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Particulars Amount
Net capital gain/loss for next year 123000
Rendition: According to question, client purchased painting on 2 May 1985 for $2000
from a well-known Australian artist and sold that painting for $125000 on 3 April in current year
at art auction after the death of artist as value of that painting suddenly rise up. This painting will
not be put in the category of collectible because it was purchased as investment rather than for
enjoying purpose. This disposal event of CGT asset will fall under section A1(s 104-10(1)).
According to this section capital gain would be: $125000- $2000= $123000, but this painting
was purchased before 20 September 1985 denoted as Pre-CGT asset according to section 104-
10(5) and does not attracts capital gain.
d) Shares.
(i)Trade of Common Bank Ltd Shares
Purchase Cost of shares
Particulars Amount
Cost of Purchase per shares(a) 15
No. of shares purchased(b) 1000
Add Stamp cost on purchases(c) 750
Net purchase cost d=(a*b)+c 15750
Proceeds from sale of Shares
Particulars Amount
Sale Price per share (a) 47
No. of shares sold(b) 1000
Less Brokerage Paid(c) 550
Net sales value e=(a*b)-c 46450
Net Capital gain/Loss
Particulars Amount
Gain/Loss (e-d) 30700
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Interpretation
In the scenario of Capital gain tax asset under s 108-5, the shares of selling will change
share's owner in the event of s 104-10(1) (Haycock, 2013). shares sold on 4 July and change
ownership. As per the statement on the base of cost share, indexation does not apply because
share purchased after 21 September 1999.
Total amount receiving for the tax $47*1000=$47000 and taking $16300 is total cost
base. So calculation according to these sections -
 $15*1000=$15000 ( cost base according to acquisition cost under s 110-25(2))
 $550 ( on the basis of brokerage fees under s 110-35)
 $750 ( on the basis of stamp duty cost under s 110-35)
So here is the capital gain according to under s 115-25 (1), capital gain amount is
$47000- 16300= $30700.
(ii)Trade of PHB Iron Ore Ltd
Purchase Cost of Shares
Particulars Amount
Cost of Purchase per shares(a) 12
No. of shares purchased(b) 2500
Add Stamp cost on purchases(c) 1500
Net purchase cost d=(a*b)+c 31500
Proceeds from Sale of Shares
Particulars Amount
Sale Price per share (a) 25
No. of shares sold(b) 2500
Less Brokerage Paid(c) 1000
Net sales value e=(a*b)-c 61500
Net Capital Gain/Loss
Particulars Amount
Gain/Loss (e-d) 30000
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Interpretation
This statement of the company is capital gain tax asset under s 108-5, and after selling on
14 February changing ownership of shares (Chye, 2017). On these shares indexation not apply if
purchased after 21 September 1999. capital takings are $25*2500=$62,500 and the total cost
base is $32,500. calculate following amounts :
 $12*2500=$30000 ( Acquisition cost under s 110-25(2))
 $1000 (brokerage fees under s 110-35)
 $ 1500 (stamp duty cost under s 110-35)
capital gain is $62500- $32500 = $30000. this amount as per the section of capital gain under s
115 – 25 (1).
(iii)Trading of Young Kids Learning Ltd
The case study is mainly related to the CGT Event A1 covered under (s104-10(1)). The
case scenario indicates towards the change in ownership of shares and securities (Lim and Perrin,
2014). As the shares are purchased after 21 September 1999, so that the indexation cost will not
be applicable to the cost of shares (Guan, 2012). The calculation of cost of base is based under
section 110-25 (2) and the section under section 110-35.
Calculation for net capital gain/loss
Particulars Amount ($)
Sale proceeds as per current tax year 0.5*1200 600
Less: Cost of base ($5*1200) -6000
Less: Brokerage cost -100
Less: Stamp Duty -500
Net Capital Gain/loss -6000
There is a capital loss occurred of $6000 for the client.
(iv)Trading of Build Ltd.
Calculation for net capital gain/loss
Particulars Amount ($)
Sale proceeds as per current tax year 2.5*10000 25000
Less: Cost of base ($1*10000) -10000
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Less: Brokerage cost -900
Less: Stamp Duty -1100
Net Capital Gain/loss 13000
Interpretation
Above case scenario was related to transfer of shares that comes under capital gain head
and taxes under section 104-10 (1). Client received the capital gain head that is $13000 in above
case will not be considered as eligible discount gain under section 115-40 because the purchase
was made in July of the current tax year and sold in January, it does not meet the criteria of
minimum holding period of 12 months.
e) Violin
Calculation for net capital gain/loss
Particulars Amount ($)
Sale proceeds form sale of Violin 12000
Less: Cost of base -5500
Net capital gain/loss 6500
Interpretation
As per the statement violin ownership change of capital gain tax event A1 under section s
104-10(1). cost acquisition of violin was $5500 less than to $10000and there is specific rule
apply that capital gain is $12000- $5500 = $6500.
Adjustment of capital loss
Section 995-1 and contain the steps to be carried out for taxable income for client.
Current year loss which is not eligible for 50% discount under section 115-25 (1) (Lim and
Perrin, 2014). Therefore the capital loss of $6000 will be adjusted with the capital gain earned
from share build shares of $13000 used to set off. Net capital gain will be $7000.
Particulars Amount ($)
Capital gain form shares 13000
Less: Capital loss -6000
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Capital gain for tax 7000
Total taxable liability
Particulars Amount ($)
Capital gain form sale of land (200000*50%) 100000
Antique bed (4500*50%) 2250
Capital gain from sale of common bank shares (30700*50%) 15350
PHB iron shares (30000*50%) 15000
Net capital gain tax 132600
QUESTION 2
a) Advise for assessment of Fringe benefit tax
According to this question, Rapid-Heat Pty Ltd manufacturer of Electric Heaters
provided car to one of its employee named Jasmine. Jasmine used car not only for work, also for
personal chores. Rapid Heat purchased car for $33,000 (including GST).
Car provided by employer is included under FBT (Fringe Benefit Tax) and this tax is
payable by employer for benefits provided by them to employees or beneficiary. FBT is different
from income tax and taxable year for FBT starts from 1 April to 31 March (Macniven, Kelly and
King, 2014).
There are many types of fringe benefits provided by employer but this FBT counts in car
fringe benefit. Fringe Benefit Tax Assessment Act 1986 is applicable on FBT (De Zilva, 2018).
For FBT purpose, car should fulfil any of the below conditions:
 any sedan or station wagon
 any four-wheel drive vehicles, or any other goods carrying vehicle having carrying
capacity of less than one tonne
 any passenger carrying vehicle having seating capacity not more than nine passengers.
Car will be taken as private use by employee if he/she uses it for private purpose or
allowed to use for private purpose by employer. If car is garaged at employee's residence or near
it then it will be considered to be available for private use even for safety reasons (Walpole and
Salter, 2014). Later for the period, date on which car was provided 1 May 2017 to the year ended
31 March 2018 total days are 335 days for which FBT need to be calculated. Jasmine travelled
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10000 km from car and incurred expenses of about $550 on minor repairs and later reimbursed
by Rapid-Heat.
Car was parked at the airport for 10 days which will not be counted in calculating FBT as
this will be considered as personal use but car scheduled for annual repairs will not be counted as
for personal use.
Calculation of FBT liability for the year ending 31 March 2018 is as follows:
Total number of days for which FBT is calculated are 335 days but duration of 5 days for repairs
will reduce so number of days during the year on which car fringe benefit tax provided by
employer are 330 days.
Formula for the purpose of car fringe benefit tax is:
= (0.2 * base value of car * number of days during that year of tax on which the car fringe
benefits were provided by the provider / number of days in that year of tax) – Amount if any paid
by recipient
= [(0.2 * 33000 * (330/365)]
Particulars Amount
Base value $33,000
Number of days for FBT 330
Number of days in that year 365
FBT liability for the taxable year 6057.53
As given in the question, loan worth $500,000 @4.5% has been provided to Jasmine, but
Jasmine purchased holiday home of $450,000 and rest $50000 gave to her husband to purchase
interest free shares. If the recipient of loan benefit is an employee not associate of employee,
then taxable value of loan fringe benefit will be deducted according to 'otherwise rule'.
According to this rule, if an employee uses loan to purchase interest bearing investments then
taxable value for this loan fringe benefit would be nil. Loan fringe benefits are not affected by
GST (Hodgson and Pearce, 2015). Taxable value of loan fringe benefits will be the difference
between interests of:
 interest that would accrued if statutory interest rates applied on remaining balance of loan
 interest that actually accrued
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So, FBT will be charged on loan fringe benefit only if loan is utilized for any income bearing
investment and if company provides loan at lower amount of interest than statutory rate
prescribed by Reserve Bank of Australia.
Next situation is that Jasmine purchased an electric heater worth $1300 but Rapid Heat
manufacture it at a cost of $700 and its selling price for general customers is $2600. Calculation
for FBT liability is as follows:
Particulars Amount
Purchase price of electric heater for Jasmine $1300
Manufacturing cost for Rapid-Heat $700
Actual selling price of electric heater $2600
Fringe benefit tax rate 47.00%
Amount on which Fringe benefit tax will be levied (2600-1300-700) $600
Fringe benefit tax liability ($600*47%) $282
All the calculations are done assuming that Rapid-Heat is entitled for input tax credit in relation
to GST inclusive acquisitions also called GST credit which can be claimed on the price of goods
and services buy for a business.
b) If $50000 invested to acquire shared for Jasmine
If Jasmine used the share of loan amounting $50000 for purchasing shares for herself
instead of lending to her husband then FBT will be charged because loan was used to purchase
income generating shares so FBT liability would be:
Particulars Amount
Actual interest rate levied by employer 4.25%
Statutory interest rate as prescribed by Reserve Bank of Australia 5.50%
Amount of which shares are purchased $50000
Time duration of loan for which interest need to be charged ( 1 September 2017 to 31
March 2018) 212 days
Total FBT liability for loan ($50000 * 5.50%) - ($50000 * 4.25%) * 212/365 $363
CONCLSION
The above report summarise the concept of capital gain and losses and fringe benefit
taxation for a particular duration. Tax is calculated for different type of items which are
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purchase and sell by investor over the period of time. Application of different laws of taxation
aid in identification of actual amount of tax which is required to pay by investor as CGT.
Regulations related to indexation is also undertaken for the properties which acquired before
1999. Tax amount is calculated after completion of all the procedures related to indexation.
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