Taxation Theory, Practice & Law

This document provides guidance on taxation theory, practice, and law. It discusses fringe tax liability for a car provided to an employee, calculation of fringe benefits taxable amount, and capital gain tax on the sale of assets. It also explains exemptions from capital gain tax for certain assets. Find study material and solved assignments on taxation at Desklib.

Taxation Theory, Practice &
Law

TABLE OF CONTENTS
QUESTION 1...................................................................................................................................3
QUESTION 2...................................................................................................................................5
REFERENCES................................................................................................................................8

QUESTION 1
Issue
In the present case Perisher ltd which is equipment manufacturer operating in Victoria. It
has provided Nikita their employee with car as Nikita has to do lot of travelling for employment
related work purpose. The car is not solely used for work purposes but also for private use. Car is
purchased by Perisher for $44000 with delivery charges of $2000. There has been travelling of
12000 km between May 2019 to March 2020 and has incurred expenses of $770 which are also
reimbursed by the perisher. On interstate travel by Nikita car was not in use for 10 days and also
for 5 days for annual repairs car was not used. Perisher wants to identify the Fringe tax liability
for the car provided to Nikita considering the work travel and private use purpose.
The fringe tax benefits tax refers to the amount of the tax which is being payable by the
employers on the benefits which is being provided to the employees on account of the
employment. It includes employees which are past, current as well as the future employees. The
liability is evaluated on an annual basis. There are different rate prevailing for FBT which
includes the marginal rate of tax along with the Medicare. The contribution of the employee
involves the amount employee pays directly to the employers while using the car and any other
operating cost such as fuel which is being paid by the employee (Woellner and et.al, 2016).
Under the situation of change of employer, even within the same team of the organization, it
will require the new commitment or the new availability of the car by the newly employed
employer.
As provided under the FBTAA 1986, the statutory percentage in respect to the car fringe
benefits are stated below.
Total distance travelled in km in that year Percentage
Less than 15000 26.00%
15000 to 24999 20.00%
25000 to 40000 11.00%
Over 40000 7.00%
The car fringe benefit arises mainly when the car which is made available by the
employer is made to use for personal purpose as well. There are two types of methods for the

computation of it which is by using statutory formula or the operation cost approach. As per the
statutory common wealth budget, the flat rate of 20% has been taken as the statutory rate
irrespective of the kms travelled by the vehicle (Arnold, Ault and Cooper, 2019). According to
the FBTAA 1986, the base value of the car included the original cost at which it is purchased
which excludes the stamp duty and the registration cost, any of the cost associated with the
fitting nay non-business accessories and third is the delivery charges. All these costs and charges
are mainly inclusive of the GST and the luxury car tax wherever relevant.
As per the provisions under ITAA, 1997, there are certain circumstances in which the car
utilized is exempted from the Fringe tax benefit. This exemption is limited to the certain private
use which are described below.
 Travel between the home and the work.
 Non- work related which is minor in nature or infrequent such as occasional purpose.
 Incidental travelling during the course of undertaking the employment related work.
Apart from the above, there are other benefits which can be availed like providing the car
parking to the employee and also the offering the car parking FB. Paying back or reimbursing
any expenses which are being paid by the employees as the road tools and might be provided
with the expenses' payment FB.
Calculation of base value of the car:
Particulars Amount
Purchase price of the car $44000
Dealer delivery charges $2000
Total base value of the car $46000
The benefits have been taken by the employee which has been offered by the employer
which the account for the number of days from the time period starting from 1 May 2019 to 31st
march 2020 which is approximately 335 days. The fringe tax percentage is 20%. In this, the
taxable value of the is determined as the percentage of the total cost or the value of the car which
is dependent upon the total distance travelled. On the other hand, in the second approach, the
taxable value is mainly for the private use of the vehicle (Fringe benefits tax (FBT). 2020). The
actual operating expense includes repairs expenses but not the expenses which are being met by

insurance company, maintenance, fuel, registration and the insurance charges which is being
paid to offer fringe benefit and the leasing cost in case the car is on lease instead of being
purchased. It also includes any of the operating cost which is being paid by someone else. It has
been given in the case that the car has not only been used for the work purpose and the as on 1
May 2019, it has been purchased with an additional amount of delivery charges. Also, the
distance travelled is 12000 kms and Nikita has incurred expenses amounting to $770 in regard to
repairs.
Computation of fringe benefits taxable amount for Perisher
Taxable amount = tax rate * base value of the car * number of days of benefits / 365 days –
expenses incurred
= 20% * 46000 * 335/365 – 770
= 9200 * 0.918 – 770
= $7674
It could be evaluated that Perisher would be required to pay $7674 for fringe benefits
provided to the Nikita of car for both work related travel and personal use. When the value of
fringe benefits exceeds the threshold limit Nikita will be also required to pay tax in the annual
tax return for the benefits provided by the company.
QUESTION 2
Capital gain or the loss is difference between the amount paid for acquisition of asset and
the proceeds on sale of assets. When the assets are sold at price higher than at which they were
purchased it will be resulting in capital gain. Similarly if the sale proceeds are less than cost of
acquisition than it is capital loss (Burkhauser and Wilkins, 2016). When any capital asset is
disposed at gain capital gain tax is applicable except for the specific exemptions provided under
ITAA, 1997. There are two methods by which capital gain tax could be calculated which are
discounted method and one is indexation method. Capital gain tax is charged under ITAA 1997
and as per guidance provided by ATO. Capital gains and loss have to be reported in the income
tax return and has to pay CGT over gains. Though it is named differently as CGT but is part of
the income tax only and is not paid separately.
1. Antique painting sale
Taryn has sold a antique painting which was purchased by the father in August 1984 at
$2500. When any capital asset is sold which was gifted to the tax payer date of acquisition will

be taken as the date at which former purchased it. The painting is sold for $25000 which is
higher than the acquisition price. There has been capital gain of $22500 on the sale of acquisition
painting (Kennedy, T., and et.al., 2017). According to section 108 of ITAA, 1997 the capital gain
of $22500 is taxable for Taryn However, as per ATO guidance the capital gain tax is applicable
only over assets that have been purchased after September 20, 1985. As per the provisions of tax
law, capital gain tax is not applicable to capital gain over sale of antique painting as it was
acquired by father of Taryn before September 1985 though it was transferred to Taryn 5 years
ago. The gains over sale of antique painting by the Taryn is fully exempt and is not required to
be reported in the annual income tax return.
2. Car sale
The capital gain tax is applicable over all the assets which are sold by the assessor at
gains. However as per the ATO guidance some of the assets are exempt from capital gain tax. In
the exemption list provided by the ATO gains over sale of personal car is exempt from capital
gain. As per section 118.5 of ITAA, 1997 capital gain or over capital loss from the Motor cycles,
cars and valour decoration are disregarded for capital gain tax (Australia and Au, 2020).
Therefore as per the provisions of this Act and ATO guidance capital loss incurred by Taryn over
sale of the car is disregarded for the capital assets. The loss incurred over sale of car could not be
used by the Taryn over other taxable capital gains occurred during the year. The loss could not
be carry forwarded to next year. Therefore the capital loss incurred over car is disregarded and
will not be used for reducing capital gain tax liability.
3. Harry potter collection sale
As per the guidelines of ATO, all the assets which has been acquired since 20th
September 1985 are all subjected to the CGT. There are certain exemptions to capital assets.
Which includes the main residence, motorcycle or car. It also involves any of the depreciating
assets which is mainly utilized for the taxable purpose like organizations equipments or any sort
of fittings in the property rented or any of the property which has been purchased before the
above stated date (Aquilina, 2019). Apart from this, there are certain items which are exempted
from the capital gain or loss which includes any type of collectibles which has been acquired by
the individual for less than or equal to $500. Therefore, the capital gain incurred on selling of
Harry Porter's collection by Taryn is completely exempted and there is no requirement of it being
reported.

4. Gold necklace sale
The gold necklace is included in the collectibles which is included in the capital gain tax
assets up to certain value. The collectible included items which is being utilized for the personal
use or for the purpose of fun or enjoyment. It will be disregarded only if it is purchased for less
than or equal to $500 before 16th December 1995 (Blakelock and King, 2017). If the asset is
disposed off as asset then the individual is exempted from paying CGT only if it satisfies the
condition of acquiring the asset on or before 16 December 1995. The capital losses can be used
to minimize the capital gain in the same year and the loss can be carried forward next year as
well. In the given case, Taryn has acquired the jewellery at $1200 which is more than the $500,
thus, it does not fall into the category of exempted capital gain or losses. Therefore, the asset will
be chargeable to tax.
5. Sculpture sale
The capital gain arises only when the individual enters into a contract of buying and
selling a particular item. When the cost of buying it exceeds the disposable value then it incurs
the capital loss and in the opposite situation where the disposable value is more than buying cost,
then it results into capital gain. The collectables include the paintings, all types of sculptures,
photographs, any property of similar type, jewellery, antiques, rare folios, postage stamps and so
forth (Capital gains tax. 2020). But there are also certain exemptions which are being their on
certain collectable items. First is item has been purchased for less or equal to $500, or the same
has been purchased before 16 December 1995 at $500 or less. In the given scenario, it can be
seen that the Taryn has bought the item on December 1994 which is before the 16 December
1995 and is assumed to have been acquired at $500 or less. Therefore, the capital gain arising
over the sell of the sculpture is exempted from capital gain tax and is also not required to report
it in its ITR.

REFERENCES
Books and Journals
Aquilina, J., 2019, November. Reforming and realigning Division 855 of the Income Tax
Assessment Act 1997 to give better effect to its policy objectives. In Australian Tax
Forum (Vol. 34, No. 1).
Arnold, B. J., Ault, H. J. and Cooper, G. eds., 2019. Comparative income taxation: a structural
analysis. Kluwer Law International BV.
Australia, D. P. and Au, J., 2020. The Australian Taxation Office makes a proactive start to
2020. International Tax Review.
Blakelock, S. and King, P., 2017. Taxation law: The advance of ATO data matching. Proctor,
The,. 37(6). p.18.
Burkhauser, R.V., Hahn, M.H. and Wilkins, R., 2016. Top incomes and inequality in Australia:
reconciling recent estimates from household survey and tax return data.
Kennedy, T., and et.al., 2017. Does income inequality hinder economic growth? New evidence
using Australian taxation statistics. Economic Modelling. 65. pp.119-128.
Woellner, R. and et.al, 2016. Australian Taxation Law 2016. OUP Catalogue.
Online
Capital gains tax. 2020. [Online]. Available Through:<https://www.ato.gov.au/General/Capital-
gains-tax/CGT-assets-and-exemptions/#Personal_use_assets>.
Fringe benefits tax (FBT). 2020. [Online]. Available
Through:<https://www.ato.gov.au/law/view/document?DocID=SAV/FBTGEMP/
00008&PiT=99991231235958/>.