Taxation Theory, Practice and Law- Assignment
Added on 2019-11-29
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Taxation Law 1TAXATION THEORY, PRACTICE, AND LAW ASSIGNMENT Student’s NameCourse TitleProfessor’s NameName of UniversityLocationDate
Taxation Law 2TAXATION THEORY, PRACTICE, AND LAW ASSIGNMENT Question 1Net capital gains and net capital losses are as a result of the capital gain tax legislation. Whena tax payer disposes of a capital asset, they usually realise either a capital loss or capital gain. When preparing annual tax returns, the tax payer must report the capital gains and capital losses. The capital gains tax forms part of the tax payer’s income tax (Austrian Taxation Office, 2017a). Losses arising from the disposal of capital assets cannot be offset by the income tax; this can only be offset by the capital gains. The computations of capital gains or capital losses are done upon the disposal of capital assets such as real estate, share and related investments, collectables and personal use assets. Net capital gains and Net capital losses can be calculated as followsNet Capital Gain = Gains from disposal of Capital Assets during the fiscal year - Losses from the disposal of Capital Assets realised in the current or prior periods - Any allowable discounts Net Capital Loss = Gains from disposal of Capital Assets during the fiscal year - Losses from the disposal of Capital Assets realised in the current or prior periods - Any allowable discounts When computing capital gains and capital losses there are special rules. For collectables (these are items meant for the comfort and personal use of the taxpayer. Collectables include items such as antiques, jewellery, paintings, and photographs) whose value is less than or equal to $500 upon disposal any capital gains or capital losses are disregarded (Australian Taxation Office, 2017a). Capital losses on collectables can only be offset by capital gains from collectables. Similarly for personal assets (for example electric items, household fittings and furniture, and boats) whose values are less than or equal to $10,000 the capital gains loss or capital gain realised upon disposal are not taken into consideration. The net capital gain and capital loss are computed as follows
Taxation Law 3Total Acquisition Costs of Collectables = $2,000 + $ 3,000 + $ 9,000 = $ 14,000Total Disposal Value of Collectables = $ 3,000 + $ 1, 000 + $1,000 = $ 5,000Disposal Costs less Acquisition Costs of Collectables = $ 5,000 - $ 14, 000 = - $ 9,000Disposal Value Less Acquisition Cost Personal Use Item = $ 11,000 - $ 12,000 = - $ 1,000Disposal Value Less Acquisition Cost of Shares= $ 20,000 - $ 5,000 = $ 15,000A net loss of $9,000 is realised on the sale of collectables. The personal use item had a value greater than $ 10,001 therefore the resulting loss of $1,000 is applied to the gain of $ 15,000. Thenet capital gain is $ 14,000. Question 2The loan given by the bank to Brian is what is commonly referred to as a fringe benefit. A fringe benefit is defined as a means of paying for the performance of services by the employer to the employee (Internal Revenue Services, n.d.). The award of the fringe benefit can be extended to non-employees such as independent contractors, the members of the board of directors of the company, future employees, and retired employees. There are different types of fringe benefits including unemployment insurance, life insurance, loans, health insurance, disability payments, retirement schemes, travelling concessions for former employees, free meals, accommodation, recreation allowances (Human Resource Management, 2017). According to the criteria set out by the Australian Taxation Office, the loan provided to Brianis not simply just a loan but a loan fringe benefits because it is given at a rate that is less than the benchmark rate determined by the monetary authorities (the Reserve bank of Australia) [Australian Taxation Office, 2017b]. The benchmark interest rate in Australia as at 1 April 2016 was 5.65%. The taxable value of the loan fringe benefit is computed as the difference between the benchmark interest less the actual interest rate. When computation of the taxable value, the
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