Taxation Laws and Rates for Investments

This assignment analyzes taxation laws and rates for investments, focusing on two case scenarios: an investor who sold assets and received a large capital gain, and an employee who received a loan with interest from their employer. The report calculates taxable income and explores the implications of different taxation rules, including fringe benefit tax and capital gains tax. It concludes by highlighting the importance of understanding taxation laws for investments and businesses.

Taxation Theory, Practice
& Law

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
Block of vacant land....................................................................................................................1
Antique bed.................................................................................................................................2
Painting.......................................................................................................................................3
Shares..........................................................................................................................................4
Violin...........................................................................................................................................5
TASK 2............................................................................................................................................7
Advice Rapid Heat Pty Ltd about FBT consequences................................................................7
Variation in the answer if Jasmine has used $50000 as share investment..................................8
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10

INTRODUCTION
Taxation theory is a group of different systems that are concerned with various tax blocks
in order to allot tax liabilities to an individual, company or a group of different companies
(Boadway, 2012). Tax policy is a choice of the government of a country to decide the amount
and percentages of tax and on whom it is going to be implemented. There are different laws for
different tax liabilities. As a tax consultant in Mayfield, New South Wales Australia, it is a
liability to calculate the taxable amount of the client who have bought and sold assets.
This project report is based on the tax calculation of two different case scenarios. In first
case scenario the client have bought and sold different assets and the tax consultant have to
calculate the tax liability of capital gain head. In second scenario an advice to a company is
provided by assisting them in tax. The main objective of this project reports is to understand the
concept of taxation law.
TASK 1
Mayfield, New South Wales is an Australian Community in which Australian taxation
law are applicable. As a tax consultant, calculation of taxable income is a liability. The client is
an investor and antique collector. In year 2017, the client have purchased and bought different
assets. The client belongs to Australia, hence all the Australian taxations laws like, income tax
law, GST law etc. are going to be followed while calculating taxation liability for client. It has
been identified that the client is not carrying a business so the laws will be followed on
individual basis and tax rates of an individual will be applicable on client. For this particular
scenario Capital Gain Tax and Insurance claim Tax is used. Total taxation income and tax
liability for the client is calculated as follows.
Block of vacant land
Case scenario: The client for this scenarios is an antique collector and investor, who has
signed a contract to sell a vacant land for $320000 which was acquired in January 2001 for the
value of $100000 and the client has paid $20000 for water and sewerage. Selling of land is a
capital gain activity so for this scenario capital gain taxation laws are going to be followed.
Related tax regulations: From the case scenarios it has been identified that the capital
gain taxation rates are going to be applied on the client. According to CGT, vacant land is type of
non moveable asset, which is treated as investment and it was acquired after 20 September 1985.
1

According to Taxation department of Australia, vacant land which is a type of capital asset, it
related to the capital gain and the rules for this land are going to be same as other capital gain
assets (Capital gain tax, 2018). The extra expenses that are paid by the client are not going to be
deducted while calculating tax liability. Net capital gain for the client is calculated as follows:
Date Particulars Amount
Jan 2001 Purchase of block of vacant land 100000
Expenses of water, sewage and land taxes on land 20000
Total cost of land 120000
3 June 2017 Contract price of sale of block of vacant land 320000
3 June 2017 Deposit of contract price 20000
3 Jan 2018 Balance payment 300000
Capital gain 200000
Taxable capital gain 20000
Tax rate
19cents per dollars
exceeding 18201
Net tax payable amount 342
Capital gain is the rise in the value of such assets that are capital nature and this value is
higher than the purchased value of that asset. In this case to calculate accurate value of capital
gain, the cost of land is deducted from the value of sold capital asset, so the difference can be
discovered (Gerritsen, 2016). Total taxable amount which is calculated was $20000 not $200000
because the client has only receives $20000, which is a token amount and the rest $180000 are
going to be received in next year. According to the current taxation rate of Australia any income
which is less than 18201 is not taxable. The value of tax for client for current year is $342 which
was calculated by the tax consultant, it was calculated using tax rate 19% or 19 cents per dollar
that is exceeding 18201.
Antique bed
Case scenario: In this case the client is demanding for insurance claim for an antique bed
which was purchased in 1986 for $5000 with all expenses included. This particular capital assets
had been stolen from client's house, when it was stolen the value for the assets was $25000. The
client claimed for insurance on 13 November 2017, but the insurance department has cancelled
2

the request for that insurance claim because such type of asset was not mentioned in insurance
claim. The client has received $11000 in full settlement by compromising (Hebert and Wagner,
2013).
Related tax regulations: In this case two laws are applicable, first is for capital gain
under income tax assessment act 1997 and another is insurance act 1984. According to these two
taxation laws those claims that are received from insurance are not taxable. In this case the client
has receives $11000 for full settlement by compromising because the insurance claim department
has rejected the request of client for claim as such type of asset is not mentioned in insurance
claim. The received amount is not taxable and not considered as a gain according to taxation law
of Australia. The calculation for the client is as follows:
Date Particulars Amount
21 July 1986 Purchase of antique bed 3500
29 Oct 1986 Alterations charge 1500
Total cost of bed 5000
31 Oct 2017 Price of bed 25000
12 Nov 2017 Bed was stolen
13 Nov 2017 Insurance claim
21 Jan 2018
Insurance claim received under household
contents policy 11000
Taxable insurance claim 0
Tax rate Not applicable
Net tax payable amount 0
From the above table it has been analysed that there is no taxable amount and liability for
client because the received amount which is a full settlement of stolen antique bed is $11000,
according to taxation law the received claim for insurance is not taxable so there is no payable
tax fr client.
Painting
Case scenario: In this case client has sold a painting which was purchased on 2 May
1985 for $125000 for $2000 from a famous artist who was an Australian. The same painting was
sold by the client on 3 April 2018 in an auction. The amount of difference will be considered as a
capital gain and it is taxable.
3

Related tax regulation: The painting which was sold on 3 April 2018 is not taxable
under capital gain head because it was bought on 2 May 1985 and CGT is only applicable on
those assets that are purchased on and after 20 September 1985. This painting will be treated
under pre capital gain taxation. According to pre CGT the taxation rates are same and according
to current slab but the tax will be paid by the client in different form (Jacquet, Lehmann and Van
der Linden, 2013). The calculation for tax liability and taxation amount is as follows:
Date Particulars Amount
2 May 1985 Purchase a painting 2000
3 April 2018 Sale of Painting 125000
Capital gain 123000
Taxable capital gain 123000
Tax rate
20797 plus 37 cents for each
dollar over 90000
Net tax payable amount 33007
From the above calculation it has been analysed that the client is having a capital gain of
$123000. This amount is the difference of sales and purchase value of painting. The painting was
purchased by the client fro $2000 and sold for $125000 and the difference of both of will be
treated as capital gain. Taxation rate for this capital gain amount under pre CGT is 37% plus
20797 that is more than $90000. Total payable tax by the client for this case is $33007.
Shares
Case scenario: In this case client has a portfolio of share in which there are different
varieties of shares. These shares are bought and sold by the client in a particular period of time.
Share portfolio of client include four different shares that are sold to to acquire capital gain, it
also include stamp duty and brokerage (Oishi, Schimmack and Diener, 2012). Portfolio of client
includes 1000 shares for $47 each, 2500 shares for $25 each, 1200 shares for $50 each and
10000 shares for 2.50 each.
Related tax regulation: Shares that are purchased or sold after 20 September 1985 are
taxable under capital gain head. The value of 12000 shares in Share Build Limited has decreased
and it will be considered as capital loss, and also considered as a deduction under capital gain
4

head and deducted from taxable income in current year only. The calculation of capital gain for
this case is as follows:
Date Particulars Amount
2001 Purchase of shares 15000
4 July 2017 Sale of shares 47000
Expenses in sale 1300
Capital gain 30700
2001 Purchase of shares 30000
14 February,
2018 Sale of shares 62500
Expenses in sale 2500
Capital gain 30000
2005 Purchase of shares 6000
22 January, 2018 Sale of shares 600
Expenses in sale 600
Capital loss -6000
5 July, 2017 Purchase of shares 10000
22 January, 2018 Sale of shares 25000
Expenses in sale 2000
Capital gain 13000
Net capital gain 67700
Taxable capital gain 67700
Tax rate
3572 plus 32.5 cents for
each dollar over 37000
Net tax payable amount 13887.2
From the above table it has been identified that the total capital gain which has been
collected from different shares is $67700. This capital gain also includes a capital loss of $6000
which has to be deducted from total amount of capital gain. Total taxable amount of capital gain
is $67700 which is taxable at 37.5%after $37000. The standard charge for this tax is $3572.
Total taxable amount for this case is 13887.2.
5

Violin
Case scenario: In this case, the client is a collector of different musical instruments and
also a owner of few violins (Pavkovic and Radan, 2016). On 1 May 2018 the client has sold a
violin for $12000 to the neighbour and the violin was purchased on 1 June 1999 for $5500.
Related tax regulation: This case will be treated as capital gain tax under income tax
law and the rates for the tax liability will be according to income tax slab which is applicable on
capital gain. The violin which has been sold by the client to the neighbour is used by the client
on regular basis so it will not affect the tax rates and taxation amount on violin. Total taxable
amount and tax liability is calculates in below table:
From the above table it has been analysed that, the client has to bear no tax liability for
violin, because the taxable income is $6500. The taxable amount is zero because under
Australian income tax laws the income below $18001 is exempted so the payable tax amount is
zero.
There are various determinations of capital gains which are acquired by the client
(Piketty and Saez, 2012). An a tax consultant of the client total capital gain and taxable amount
for current is calculate as follows and the following tables are providing the accurate information
of payable tax and tax liability.
6

After calculating tax liability for an individual, it has been analysed that total capital
gains acquired by the client after deducting the capital loss of last financial year is $388700, the
tax payable on this amount for year 2017- 2018 is $47236.20.
TASK 2
Case scenario: An employee of Rapid Heat Pty Ltd, whose name is Jasmine, is provided
a case whose actual purchase price is $33000 including GST (Weber, 20130. She has spent $550
on the car for repair and travelled with the car for 10000 Km. In September the company has
provided a loan of $50000, and she had to pay an interest of 4.25% on the loan. From this
amount of loan she has lent $50000 to her husband and spent the rest amount of $450000 to
purchase a home. During the current year she has also purchased an electronic heater for $1300
which was manufactured by Rapid Heat Pty Ltd company.
7

Advice Rapid Heat Pty Ltd about FBT consequences
FBT, it stands for fringe benefits tax which is a type of tax liability and it has to paid by
the companies on several benefits that are provided by the employers to its employees and their
family members too (Piketty and Saez, 2013). An organisation use fringe benefits to attract
quality employees toward the business to enhance the work quality, productivity and profitability
of the company, but pay a certain amount as taxation also. This is totally separate to income tax
and calculated on the taxable amount of fringe benefits that are provided by an employer to its
employees and their family members. Rapid Heat Pty Ltd has provided fringe benefits to
Jasmine in the form of a car, and she has used the car and travelled a lot for her work purpose
and sales activity of products of company. The company has to pay a tax on car which is a form
of fringe benefit and also on the purchase of electric heater. Following table shows the actual
taxable value for fringe benefits that are provided to Jasmine:
Rapid Heat Pty Ltd has purchased a car for $33000 and provided the car as a fringe
benefit to Jasmine and she spent $550 in repair of the car. She has travelled a lot from the same
car for work purpose the total Km she has travelled was 10000 Km the tax for the car will be at
26%. Statutory formula is used to calculate the tax liability for fringe benefits and the actual
taxable amount is $8030. Total amount of tax on electric heater is calculated as 47% the amount
fro tax is $611.
8

Variation in the answer if Jasmine has used $50000 as share investment
Jasmine who is an employee of Rapid Heat Pty Ltd has received a loan of $500000 at an
interest rate of 4.5%. She used $450000 to buy a house and spent $50000 as share investment
(Rose and Karran, 2018). As a tax consultant, the tax liability of Rapid Heat Pty Ltd for this
fringe benefit is calculated in following table:
From the above calculation, it has been identified that net taxable amount of tax is
reduced because she has purchased shares, because this amount is declared as tax free. So the
total taxable income is $27990.
CONCLUSION
From the above project report it has been analysed that different taxation laws and rated
plays an important role for investments. By assessing first case it has been identified that the
client is an investor and an antique collector and sold few of the assets and received a large
amount as capital which is taxable under capital gain head. In second case scenario it has been
observed that Rapid Heat Pty Ltd has faced different issues because of Fringe benefit tax.
9

REFERENCES
Books and Journals:
Boadway, R. W., 2012. From optimal tax theory to tax policy: retrospective and prospective
views. MIT Press.
Gerritsen, A., 2016. Optimal taxation when people do not maximize well-being. Journal of
Public Economics. 144. pp.122-139.
Hebert, D. and Wagner, R. E., 2013. Taxation as a quasi-market process: Explanation,
exhortation, and the choice of analytical windows.
Jacquet, L., Lehmann, E. and Van der Linden, B., 2013. Optimal redistributive taxation with
both extensive and intensive responses. Journal of Economic Theory. 148(5). pp.1770-
1805.
Oishi, S., Schimmack, U. and Diener, E., 2012. Progressive taxation and the subjective well-
being of nations. Psychological science. 23(1). pp.86-92.
Pavkovic, A. and Radan, P., 2016. Creating new states: theory and practice of secession.
Routledge.
Piketty, T. and Saez, E., 2012. A theory of optimal capital taxation (No. w17989). National
Bureau of Economic Research.
Piketty, T. and Saez, E., 2013. Optimal labor income taxation. In Handbook of public economics
(Vol. 5. pp. 391-474). Elsevier.
Rose, R. and Karran, T., 2018. Taxation by political inertia: Financing the growth of
government in Britain. Routledge.
Weber, R., 2014. Tax increment financing in theory and practice. In Financing economic
development in the 21st century (pp. 297-315). Routledge.
Online:
Capital gain tax. 2018. [Online]. Available through:
<https://www.ato.gov.au/General/Capital-gains-tax/>
10