Taxation Theory Practice and Law - Assignment

Taxation Theory
Practice and Law

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
QUESTION 1...................................................................................................................................1
Analysing net capital gain and losses of client as on 30th June 2017..........................................1
QUESTION 2.................................................................................................................................10
Car provided to employee.........................................................................................................10
Fringe Benefit as Loan..............................................................................................................11
FBT charged on goods sold to Jasmine at low cost..................................................................12
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................14

INTRODUCTION
Taxation in an economy plays main role for the growth, development and bringing capital
stability in global market. Thus, it is necessary that one country must have a well-managed and
governed taxation office. In the present report, there will be discussion based on various tax
consequences such as Capital Gains Tax (CGT) and Fringe benefit Tax (FBT) which were being
analysed for determining the income tax. Thus, it has been imposed by federal government on
the taxable income from organisation or citizens in Australia. Moreover, after analysing taxable
determination, there will be suggestions and advices will be presented to clients for claiming
exemptions and reducing the taxable liabilities.
QUESTION 1
Analysing net capital gain and losses of client as on 30th June 2017
Capital Gain Tax:
Capital Gains Tax (CGT) is generally applied to capital gain which is prepared for asset's
disposal in context of specific exemptions. It has been operated through treating capital gains as
income which is taxable in tax year where asset is disposed of or sold. The losses could be easily
offset but not in favour of capital gains (Edmonds, 2015). The net capital losses in specific tax
year could not be offset against income (normal) but might be carried forward.
Moreover, this is a gain which has been obtained by an individual with respect to
acquisition and disposing of any asset. Thus, the costs of purchasing an asset as well as make
them sell on different amount will bring the gain or losses through such transaction. Thus, it can
be analysed and levied on various assets such as real estate property, personal and capital assets,
etc. There have been various provisions and norms which were being awarded by Australian
Taxation office which have reflected the positive outcomes (Burkhauser, 2015). In addition,
these gains will be charged and payable by an individual as these are the part of income tax.
Moreover, CGT in Australia will be comprised of 3 methods such as:
Indexation Method:
This provision was made on 21st September 1999 that reflects if an asset which was being
purchased after this date and will be disposed-off after completing period of 12 months than it
will be charged on indexation basis. It will be by increasing the cost base as applicable in the
indexation factor that has been based on consumer price index till September, 1999.
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Discount Method:
This method will be applicable on assets which were being hold by an owner more than
the period of 12 months (Evans, 2015). In this, the gain of losses derived after disposing off an
asset will be 50% discounted. Therefore, on this, an individual has to make payments of 33.33%
of taxable liabilities.
Other method:
Calculation has been levied on the assets which were hold by an owner for less than 12
months of period as this took cost base away from the sale price (tax, 2018).
With reference to sell real estate, shares and properties where capital losses and gains are
directly listed on return of income tax are identified. All taxes were identified and beneficial for
appropriate administration of losses and gains. The provision of 20th September 1985 has
influenced for insisting about not levying any charges on personal asset. Hence, there are various
exemptions such as home, car and furniture for personal application. It will not be providing any
allowances on the basis of asset's depreciation along with fittings and furniture associated with
rental property. In the same context, items are listed below and different analysis of CGT tax are
identified with different assets such as bed, violin, shares and land.
(a) Block of Vacant Land
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Interpretation: Analysing the taxable adjustments in the above listed table represents the
capital gain from block of vacant land. However, it was being purchased in 2001 at a cost of
$100000 with additional sewerage rate on land taxes which was charged to the costs of purchase
as $20000. Moreover, the cost base unindexed has been analysed from this measurement
amounted to $120000.
Land was sold in current year at the price of $320000. Thus, to analyse the total capital
gained by client over this asset, there will be reduction of cost based unindexed. It has brought
the total gain as $200000 on which 50% of CGT discount. Thus, this provision has been awarded
in this case for making adequate changes and operational variations which start from 20th
September 1985. However, it states that the asset which was being bought by an individual after
1985 will be discounted 50% on their total capital gain. In addition, the taxes will be payable by
them on 50% of capital gain i.e. $100000 will be taxable.
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(b) Antique bed
Interpretation: The above listed table that represents tax consequences incurred for
capital gains over antique bed. Bed was bought by her at the cost of $3500. However, in this
case, asset is being treated under provision made for assets which are being used for personal
purpose. Similarly, it is stated in CGT norms that the asset which is less than $10000 will be
disregarded for CGT purpose and thus, on this rate 2.90%, it was analysed which brought total
amount of bed as $10157.22 with additional value of cost made for improvements such as $1500.
It was charged at the rate of 2.67% and total amount had been payable by them as
4011.88. Thus, it brought total cost base unindexed as $14169.09. Moreover, the bed was being
stolen and client has claimed insurance of it. Insurance company has made payment of $11000
that will be reduced in her total gain. Thus, the overall net capital loss was -$3169.09.
(c) Painting
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Interpretation: On the basis of above table, it can be interpreted that client has bought
painting in 1985 which was at the cost of $2000. Therefore, it will also be treated under the
personal use asset as it is denoted as furniture. However, with considering the provision in CGT
indexation on rates, this asset is cost below $10000. Thus, it can be treated disregarded under
CGT. Moreover, there will be implication of rate of 2.97% on this painting which brings the total
amount of $5941.945 as taxable amount. Moreover, it was sold at the cost of $125000. Overall,
capital gain acquired by the client was $119058.05. Along with this, the CGT norm states that
assets which were being bought after June, 1985 will be taxed on their capital gain on 50% of the
total cost of painting. Thus, in this case, painting was bought 1 month earlier and so, there will be
no benefits awarded and it will be fully taxable.
(d) Shares
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6

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Interpretation: On the basis of above listed analysis, it can be said that Client has bought
4 shares on different rates and time. 1000 shares of commonwealth have been bought by her at
the rate of $15 per share which was amounted to $15000. This share has been charged
additionally with the stamp duty of $750 that brought the total purchase cost of this capital asset
as $15750. Moreover, these shares were being sold at the rate $47 which were amounted to
$47000. There has been reduction of $550 as the brokerage cost. Total selling cost was of
$46450 which was being analysed for making the adequate operational determination. Thus, total
gain on the sale on these shares was $30700.
In relation with this, PHB Iron Ore Ltd 2500 shares were purchased at the rate of $12.
Therefore, it was amounted to $30000 on which stamp duty has been paid by her of $1500.
Moreover, total net cost on the purchase on these shares was $31500. These shares were sold by
her at the rate of $25 amounted to $62500 with reducing brokerage fees paid by her as $1000.
Further, the overall net gain on these shares was $30000.
On the other side, 1200 shares of Young Kids Learning Ltd at the rate of $5 per share
was amounted at $6000. The stamp duty has been paid by her amounted to $500 which brought
total purchasing cost of $6500. Moreover, it was sold at the loss for $0.5 and thus, total amount
of shares was sold as $600 on which she had paid the brokerage fee of $1000 which defined net
loss at the sale amounted to -$400. In relation with analysing the outcomes, it insists that there
was total capital loss of -$6900.
There were 10000 marketable securities of Share Build Ltd which have been purchased at
the cost of $1 along with the stamp duty amounted to $1100. Therefore, net purchase cost of
these shares was 11100. These were sold by her at the rate of $2.5 each which was amounted to
$25000. She has made payment of $900 as brokerage fees on these shares and therefore, the total
capital has been collected on these shares was $23000.
However, as per summing up overall gains and losses made on these shares were $53800.
Thus, as per considering provision or norms stated under CGT is that taxes will be levied on 50%
of the total gains retained by an individual on a particular asset which were being bought after
1985. Thus, in this case, share was being sold by her within 12 months of period which
determines total gain of $26900. It had been sold by her at the amount of $24100 that brought
total cost of $13000. However, with considering such provision, total capital gain over these
shares was $39900.
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(e) Violin
Interpretation: By considering the above listed adjustments, client has bought a violin at
cost of $5500 which has been denoted as personal use of asset. Thus, the cost of violin is below
$10000 which is degraded in CGT norms. Moreover, it will be charged taxable on the rate of
1.65% that amounts to $9093.98. It was sold at the amount of $12000. Moreover, the total capital
gain has been analysed on this asset as $2906.02 respectively.
Total capital gain tax analysis:
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Interpretation: In relation with analysing capital gains and losses incurred by purchasing
and selling assets of client in current year. After analysing individual indexation of earnings, the
total gains derived from all assets was $158694.98, capital gain from collectables are amounted
to $118794.98 which were being set off and carried forward. Moreover, there was loss on such
assets amounted to $7000 and the collectable losses of amount $1500.
As per analysing the total taxable gain which will be paid by client in current year were
being analysed. Capital gains from collectables has been analysed as $118794.98 which was
adjusted in terms of reducing the set off capital losses from collectables amounted to $1500.
Thus, the total amount that has been analysed here was $117294.98. Thus, after setting off
collectables, the total capital was $157194.98. To analyse the net capital gains obtained by
individual in current years was analysed after reducing set off capital losses from past year such
as $7000. Net gains earned on such assets were amounted to $150194.98.
QUESTION 2
Car provided to employee
(a)
There is manufacturer of Electric Heater known as Rapid Heat Pty Ltd. who has been
providing Fringe Benefits to employees. They are providing different benefits to employee
which are chargeable to Fringe Benefit Tax Act 1986.
Section 7 of FBTA states that any motor vehicle that has been provided as benefit to
employee will not be treated for business use if vehicle has not been parked in business premises
and had parked in the house of employee. The definition of motor vehicle has been provided
under this act:
1. Motor cars, Station Wagons, Vans, etc.
2. Vehicle that is having goods carrying capacity should not be more than 1 tonne.
3. Car must not carry passengers more than 9.
The Fringe Benefit Tax act provides different methods to calculate chargeable FBT:
1. Cost Method: It states that actual value will be shown as gross taxable value.
2. Statutory Method: Gross taxable value will not be shown as actual value as fringe
benefits
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Section 9 of Fringe Benefit Tax states that any expenses related to car which includes
repairs, maintenance are fuel are based on holiday period and if documentary evidence of that is
given to employer than it will be reimbursed by employer.
The case study given states that Jasmine is an employee of Rapid Heat Pty Ltd and car
has been provided to her which is not restricted only for business use (Godber, 2017).
In this case study, motor vehicle has been scheduled for repairs and maintenance that will
not be deemed for the private use.
Statutory Method
It this method, FBT act provides flat statutory tax rate of 20% for chargeable fringe
benefits. There is no need for the calculation of distance that has been travelled as fringe benefit
is provided after 1st April 2014.
Calculation of Fringe Benefit tax is as follows:
Calculation of Period of chargeable FBT, that is, from 1/05/2017 to 31/03/2018 is
No. of Days in this period 335 days
Less for repairs and maintenance 5 days
No. of Days for chargeable FBT 330 days
So net calculation of FBT is as follows-:
Value of Motor Vehicle 33000
Statutory Tax Rates 20%
No. of Days 330 days
Calculation of FBT 5967.13
(33000*20%)*330/365
Interpretation
So, net FBT payable for benefit of Car will be $5967.13 for period that, it has been given
as benefit.
Fringe Benefit as Loan
Jasmine had been provided with loan from Rapid Heat Pty Limited of $550000 at an
interest rate of 4.25%
FBT act states that any loan provided by employer and interest charged on that should not
be more than rates that are prescribed by Reserve Bank of Australia and if there is difference in
these rates than it will be chargeable to FBT (White, 2018).
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It is also been mentioned in act that if loan is provided by employer and used for
purchasing income bearing assets than only it will be chargeable for FBT.
Interpretation
In this case, loan that was provided had been used in purchase of a holiday home assumed
as for residential purpose so, it will not be chargeable to FBT.
FBT charged on goods sold to Jasmine at low cost
Calculation of FBT
Cost of electric heater for Jasmine 1300
Manufacturing Cost 700
Cost for Market 2600
Fringe Benefit 600
FBT @ 47% 282
Interpretation
The FBT payable on Electric Heater that is sold to Jasmine is $282.
GST act 1999 provides that input credit will be available on the expenses that are
incurred for business. In this case, Input Credit of GST will be on Expenses related to car and
cost of it, as they both are used in business (Hodgson, 2015).
(b) Loan which is provided is used to purchase income bearing activities so that FBT will be
chargeable:
Rate of Loan provided by Rapid Heat 4.25%
Statutory Rate of Reserve Bank 5.50%
Difference in Rates 1.25%
No. of days loan provided 212 days
1/09/2017 to 31/03/2018
Loan that had been used for income bearing securities 50000
FBT payable is (50000*1.25%)*212/365 363
Interpretation
Chargeable FBT for Loan is $363 calculated for 212 days and difference between rates was
1.25%.
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CONCLUSION
On the basis of above study, it can be concluded that Capital gain taxes and Fringe
benefit taxes have been payable by clients on their earnings through assets and through loan took
by them. However, there have been various norms and regulations which were presented by
Australian Taxation Office and Federal government. Further, capital gain was analysed out of
purchase and sale of several assets by client in a certain period. Along with this, report has also
discussed about the provisions for FBT analysis.
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REFERENCES
Burkhauser, R. V. (2015). Measuring top incomes using tax record data: A cautionary tale from
Australia. The Journal of Economic Inequality., 13(2). pp.181-205.
Edmonds, M. H. (2015). Alternative assets insights: Super funds-tax impediments to going
global. Australia: Taxation in Australia. 49(7). p.413.
Evans, C. M. (2015). Taxing personal capital gains in Australia: an alternative way forward.
Australia: Austl. Tax F. 30. p.735.
Godber, P. T. (2017). Speed dating in the new tax era: The BEPS Convention kicks off. Australia:
Tax Specialist. 21(1). p.16.
Hodgson, H. a. (2015). TravelSmart or travel tax breaks: is the fringe benefits tax a barrier to
active commuting in Australia? eJournal of Tax Research, 13(3). p.819.
tax, C. a. (2018, September 28). Calculating and paying capital gain tax. Retrieved from
National Australia Bank Limited:
https://www.nab.com.au/personal/life-moments/manage-money/money-basics/capital-
gains-tax
White, J. a. (2018). Deductibility of employee travel expenses: The ATO's guidance. Australia:
Taxation in Australia. 52(11). p.608.
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