Taxation Theory, Practice & Law

This report analyzes capital gains and losses on various assets, including real estate, shares, and collectables, and examines fringe benefits tax (FBT) on assets like cars and loans. It provides insights into calculating FBT liabilities and minimizing tax burdens.

TAXATION THEORY, PRCATICE
& LAW

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
QUESTION 1...................................................................................................................................1
Determining the net capital gain of client as on 30 June 2018...............................................1
QUESTION 2...................................................................................................................................2
Advising Jasmine in analysing FBT on various assets...........................................................2
Analysing the tax consequences as per loan amount will be used by Jasmine in purchasing
securities.................................................................................................................................4
CONCLUSION................................................................................................................................5
REFERENCES................................................................................................................................6

INTRODUCTION
Taxation law and practices imposed by the legislative authorities in Australia to bring fair
tax operations. There are various taxes, norms and regulation which are imposed on various
segmentation of activities. In the present report, there will be an analysis of capital gains or
losses on different assets on which client will suggest solutions to analyse their taxable income.
Along with this, there will be a discussion based on analysing fringe benefit tax with influence of
FBTA Act, 1986. Moreover, individual will be suggested various ways of reducing taxation costs
and implicate alternative solutions for resolving taxable issues for smooth functioning and
overall impact on the company’s growth.
QUESTION 1
Determining the net capital gain of client as on 30 June 2018
For analysing gains obtained by client on the basis of selling various assets. Thus, there has
been legislation based on Capital Gain Tax (CGT). These are taxes which were being levied on
assets at a time of their purchase and sale. Thus, gains retained by owner were analysed on the
basis of period of utilising such asset (Capital Gains Tax, 2018).
In case of selling real estate property and shares, on which capital gains and losses are
listed in income tax return were determined. Therefore, there will be determination of all taxes
that will be helpful in making proper administration of gains and losses. Moreover, with
influence of provision made in 20th September, 1985 which insists that, there will not be any
charges levied on personal assets. Thus, these are exempted in the CGT like, car, Home and
furniture for personal use (McCormack, 2017). There will be no allowances awarded on
depreciation of assets as well as on fittings, or furniture in a rental property (Jacob, 2018).
Similarly, below listed assets and various analysis on the CGT tax has been determined on
several assets including land, shares, bed, violin etc.
Block of Vacant Land
Date Particulars
Amount
(In $)
A Block of Vacant Land
3/06
curre
nt
Calculation of Cost Base
1

year
Purchase Price 100000
Add: Sewerage rates land taxes 20000
Cost Base Unindexed 120000
3/01
next
year Proceeds from selling house 320000
Less Cost Base Unindexed 120000
200000
As property purchase after 11.45 am on 21st sept 1999 the Discount model
will be applied
Capital Gain will be for next year 100000
Interpretation: On the basis of above report, it can be said that block of vacant land has been
bought by client in 1986 which cost at $100000. The sewerage rates land taxes were $20000. The
total cost base has been analyzed as $120000. However, in accordance with Section 104(35),
which ascertains the creation of contractual rights. The Time of event is when a person enters
into a contract or create other rights (Burns, 2018). If they disposed of any assets, CGT event
will occur. Similarly, when they stop being an owner of asset.
So, in this case of deposition of land has been taken on Section 3/06 but contract of sale
is assigned on Section 3/01 next year then CGT event will be conducted next year. Therefore,
ownership will be transferred in next year and capital gain will be taxable even if amount will be
recovered in instalments. The land had been sold on cost of $320000 on which cost base
unindexed has been reduced which was amounted to $120000. Thus, after such administration,
there has been use of discount model on which 50% of property will be taxable in CGT is
amounted to $100000.
Antique bed
12/11 current
year Antique Bed
Indexation
rates
Calculation of Cost
Base July 85 38.8
2

Purchase Price
350
0
2.9
0
10157.2
2 July 86 42.1
Add Additions for value
150
0
2.6
7 4011.88 Jan 18 112.6
Cost Base Unindexed
500
0
14169.0
9
21/01 current year
Insurance claim
received 11000 11000
Net Capital Gain/loss 11000 -3169.09
As property purchase before 11.45 am on 21st sept 1999 the indexation model will be applied
Interpretation: In relation with above listed table that determined CGT value of Antique
bed obtained by owner. It was purchased at $35000 with influence of rate (2.90), the costs of that
furniture were analyzed as $10157.22. Additionally, there has been alternations determined was
for $1500 at rate of 2.67 and amounted to $4011.88. Thus, due to such impacts cost base
unindexed as $14169.09.
Moreover, with the influence of Section 104(20), loss or destruction of asset, when a
person first receive compensation for the loss or destruction. The market value will be not being
considered in the calculation as per determined cost base (Sowa and et.al., 2018). In addition,
insurance claim has made client to pay $11000 on which net capital loss were obtained which
was amounted to $-3169.09.
Painting
C Painting
Calculation of Cost
Base
Indexati
on rates
May
1985 Purchase Price 2000 2.97 5941.95 May 85 37.9
3

Apr
2018 Sales Price 125000 125000 Apr 18 112.6
Curre
nt
year Net Capital Gain/loss 119058.05
As property purchase
before 11.45 am on 21st
sept 1999 the
indexation model will
be applied
Interpretation: The cost of painting at time it was purchased amounted to $2000, on
which rate was imposed of 2.97 that brings amount of that assets as $5941.95. Additionally, the
painting was being sold at cost of $125000 which brings overall net capital gain as 119058.05.
Thus, with this respect, it can be said that, this painting was being treated under personal asset
and will be denoted in fixtures so there will be probability of having reduction in income tax
analysis of owner’s revenue.
Shares
(i) Shares
2011 Purchase Price 15
Qty of commonwealth shares 1000
Stamp Duty on purchases 750
Net Cost 15750
july 18 Sale Price 47
Sales Oty 1000
Less Brokerage 550
Net sales value 46450
Current year Gain/Loss 30700
(ii) Purchase Price 12
Qty PHB Iron Ore Ltd 2500
4

Stamp Duty on purchases 1500
Net Cost 31500
Sale Price 25
Sales Qty 2500
Less Brokerage 1000
Net sales value 61500
Current year Gain/Loss 30000
(iii) Purchase Price 5
Qty Young Kids Learning Ltd. 1200
Stamp Duty on purchases 500
Net Cost 6500
Sale Price 0.5
Sales Qty 1200
Less Brokerage 1000
Net sales value -400
Current year Gain/Loss -6900
(iv) Purchase Price 1
Current year Qty Share Build Ltd. 10000
Stamp Duty on purchases 1100
Net Cost 11100
Sale Price 2.5
Sales Qty 10000
Less Brokerage 900
Net sales value 24100
Current year Gain/Loss 23000
Gain or loss will be 53800
So, Capital gain will be 26900
5

So, Capital Gain or loss will be
Net Sales Proceeds 24100
Net Purchases value 11100
13000
So, the total capital gain
/ loss for the d point
will be 39900
Interpretation: On the basis of above report, it can be said that there were various shares which
were being purchased by the client in respective period. In above (i)(ii)(iii) cases of point d as
property purchase after 11.45 am on 21st sept 1999 Discount model will be applied. Thus,
duration of obtaining shares are varying in analysing CGT levied on them. There has been 1000
common wealth share which were being purchased at the rate of 15 with additional stamp duty of
$750 were payable of that asset is amounted to $15750.
Moreover, these securities were sold at rate of $47 per share with consideration of
Brokerage value amounted to $550. Thus, net sale value of this security is obtained as $46450 on
total capital gain was $30700 was analyzed. Similarly, 2500 shares of PHB Iron Ore Ltd have
been purchased and sold along with stamp duty and brokerage fees which ascertains the total
capital gain of $30000. Shares of Young Kids Learning Ltd were also analyzed on the same basis
of capital gain determination which brings net capital loss of -$6900.
10000 shares of share build were purchased with consideration of stamp duty, which was
amounted to $1100. Thus, the net cost of purchase is analyzed as $11100. Moreover, sale of
these shares was at the rate of $2.5; each excluding the brokerage cost of $900. However, the
total capital gain has been obtained are $23000. In this case, share purchasing and sales have
been done within 12 months so “The Others Method” was applied in analysing the outcomes.
However, after summing up all gains and losses, net capital gain of period has been analysed as
$39900.
6

Violin
(e) Violin
Current year Cost of Purchase 5500 1.65 9093.98
June 1999 Sales Cost 12000 12000
Gain or loss will be 2906.02
Interpretation: By considering the above analyzed capital gain on Violin, which was
bought at the cost of $5500 at rate of 1.65 which was applied to bring the amount as $9093.98.
Moreover, sale of this asset was made at $12000. Thus, the total capital gain was analyzed as
$2906.02.
As property purchase before 11.45 am on 21st sept 1999
the indexation model will be applied
Particulars
Amount
(In $)
Total Capital gain Loss for the current year 158694.98
Capital gain From Collectables 118794.98
Set Off Carried Forward
Capital losses from past year 7000
Collectables loss 1500
Capital gain From Collectables 118794.98
Less: set off Capital losses from collectables 1500
117294.98
Now total capital gain will be after setting off
collectables will be 157194.98
Less set off Capital losses from past year 7000
Net capital Gain/loss for the year ended 30th June 150194.98
1

Interpretation: The total capital gain loss for current year has been analyzed as $158694.98
additionally, gains from collectables as $118794.98 had also been obtained. Moreover, capital
losses from past year are $7000 along with collectable loss as $1500.
However, as per Section 102, losses of collectables will be set of by collectables capital gain
profits so, the capital gains from them were $118794.98 will be deducted from set off capital
losses from these variables as $1500. Thus, it brings an amount as $117294.98 on which the net
capital gain was demonstrated after setting off all collectables were amounted to $157194.98.
Further, there will be reduction of previous year’s set off capital loss of $7000 that brings an
overall net capital gain as $150194.98.
QUESTION 2
Advising Jasmine in analysing FBT on various assets
Car
Rapid Head Pty provided Jasmine a car for traveling purposes. So, it will be calculated
with reference to Fringe Benefit Tax Assessment Act 1986.
As per Section 7 of the FBTA Act where at any time car provided to employee is applied
for private use (Fringe benefits tax, 2018). Section 7(3) of the act suggests that a car will be
treated as private use, when not in premises and parked at employee’s home.
The car has been defined by the act as:
 Motor cars, station wagons, vans or any utilities
 Other Goods carrying vehicle capacity of less than 1 tone.
 Other passengers carrying vehicle carrying less than 9 occupants
As per Section 9 of Act, FBT can be calculated by using two methods:
1. Statutory Method-: Where a person does not show the actual value of cars in gross
taxable value.
2. Cost Method-: Where a person shows the actual value of cars in gross taxable value.
Section 9 also states that any amount paid as an expense with respect to fuel of car, and
repairs if documentary evidence given by the employee in vacant period will be barred by
employer. The car for repairs and maintenance will not be treated under private or personal use
(McLaren, 2017).
2

The Statutory percentage were provided if car’s fringe benefits were given on 1st April 2014
(except there was pre-existing commitment in place before 7:30 pm 10th may 2011); after that a
fixed rate of 20% was mentioned in the act. So, in the given case scenario, base value of Car
inclusive of GST was $33000.
Period is from 1/05/2017 to 31/03/2018
So, no. days were 335 – 5 days = 330days (5 days are for repairs and maintenance).
Employee contributions will not be deducted as it has been reimbursed by employer
So FBT paid will be (33000*20%)*335/365=6058.
Particulars
Amount
(in $)
Car valued at 33000
Statutory FBT rate 20%
Term of car being used 335-5
330
FBT will be payable as 6058
Interpretation: As per analyzing the Fringe benefit, taxes has been payable by Jasmine
on the car which were awarded by her employer. Thus, cost of that car was $33000 on which
statutory FBT rate will be levied at 20%. The car was operated by Jasmine in a year on which 10
days it was unoperated because Jasmine went out of station. Along with this, there were 5 days
which remained un-operated due to annual repairs and maintenance. Moreover, on which the car
was being used for 330 days out of 365. However, the overall FBT were payable at $6058.
Loan
Section 16 of the act defines Loan FBT as benefits wherein employer provides loan to
employee at some low rates of interest other than statutory rates, presented by the Reserve Bank
of Australia (Fringe benefits tax- rates and thresholds, 2018).
The taxable value of loan FBT will be-:
1. The interest that would have been if the statutory rates were applied to the outstanding
daily balance of loan.
2. Any interest that have been accrued (Grant, Westerholm and Wu, 2018). If it was used
for the asset for which no income can be generated so FBT will be Nil.
3

GST Act 1999 defines that input tax credit will be available for things that are used for
business (Story, 2017). So here in the given question, car that was purchased for employee and
the expenses made on that car was also for business purpose so, company claimed Input credit in
both cases.
Electric Heater
Interpretation: As per considering the above listed table on which it can be said that costs
of purchasing an electric heater of $1300 with additional manufacturing cost of $700. Thus,
overall purchase costs of that heater were $2000. Thus, it has been sold for $2600 on which
overall gain was of $600. The FBT had been levied on asset on rate of $282.
Analysing the tax consequences as per loan amount will be used by Jasmine in purchasing
securities.
In this Case, where the loan is used for income bearing investments. So taxable FBT will
be 4.25%-5.5% (assumed) from 1st Sept 2017 to 31st March 2018 will be
=50000*1.25%*212/365=363
Particulars Amount
(In $)
FBT tax rate will be 4.25%-5.5%
estimates 1.25%
50000*1.25%*212/365 363
4

Interpretation: By considering above listed table, on which it has been analysed that the
FBT tax rate estimated as 5.5% which is against loan interest rate of 4.25%. Therefore, analysing
FBT of Jasmine as if she could utilise all $50000 in purchasing shares for herself. Thus, FBT has
been analysed here on $363.
CONCLUSION
On the basis of above report, it can be said that influences of taxation law, regulations and
practices help in analysing assessable income of an individual or an organisation. Study was
consisted of capital gain analysis of client on the basis of various assets such as violin, land,
antique bed, painting and shares. Further, FBT was analysed on the assets of Jasmine and loan
taken by her.
5

REFERENCES
Books and Journals
Burns, A., 2018. Options in succession planning for a family business. Taxation in
Australia. 52(10). p.543.
Grant, A. R., Westerholm, P. J. and Wu, W., 2018. Imputation Credits and Trading Around Ex-
Dividend Day: New Evidence in Australia.
Jacob, M., 2018. Tax regimes and capital gains realizations. European Accounting
Review. 27(1). pp.1-21.
McCormack, C., 2017. Our clinging to the fringe is stultifying development. News Weekly.
(3010). p.7.
McLaren, J., 2017. The Economic Development of Northern Australia: A Critical Review of the
Taxation Benefits and Incentives Both Past and Present and the Potential Taxation
Options for the Future. J. Australasian Tax Tchrs. Ass'n. 12. p.1.
Sowa, P. M. and et.al., 2018. Private health insurance incentives in Australia: in search of cost-
effective adjustments. Applied health economics and health policy. 16(1). pp.31-41.
Story, M., 2017. Enough to see their grandkids. Professional Planner. (103). p.40.
Online
Capital Gains Tax. 2018. [Online]. Available through :<
https://www.ato.gov.au/General/Capital-gains-tax/>.
Fringe benefits tax. 2018. [Online]. Available through :<
https://www.ato.gov.au/General/Fringe-benefits-tax-(fbt)/>.
Fringe benefits tax- rates and thresholds. 2018. [Online]. Available through :<
https://www.ato.gov.au/Rates/FBT/ >.
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