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HI6028 - Taxation Theory, Practice & Law - Question Answers

   

Added on  2020-03-04

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Answer 1In the given case, in the last 12 months, Eric acquired the following assets: an antique vase (for$2,000), an antique chair (for $3,000), a painting (for $9,000), a home sound system (for$12,000), and shares in a listed company (for $5,000). The assets so acquired by him in the lastweek.AssetsPurchasePriceSalesValueCapitalgain/(loss)Antique vase $2,000 $3,000 $1,000 Antique Chair$3,000 $1,000 $(2,000)Painting$9,000 $1,000 $(8,000)Home sound system$12,000 $11,000 $(1,000)Shares in a listedcompany$5,000 $20,000 $15,000 Total$31,000 $36,000 $5,000 As per the section 104 of income tax act 1936, capital gain tax applies to all capital assetsacquired after 20th Sept 1985. However, there are certain exceptions to the rule. Personal assetswhose acquired value is less than $10,000 are not considered as a capital asset for capital gaintax perspective. Further, Antique assets are kept outside the bracket of capital gain tax. In thisscenario, for the purpose of capital gain tax, home sound system and shares in the listed companywill be liable for capital gain taxation. (ATO)

In this regard, the net capital gain for Epic will be calculated as follows:AssetsPurchasePriceSales ValueCapital gain/(loss)Home sound system$12,000 $ 11,000 $(1,000)Shares in a listedcompany$5,000 $ 20,000 $15,000 Total$17,000 $ 31,000 $14,000 Considering the above provision, the net capital gain will be $14,000.Answer 2In the given case, Brian as part of his remuneration has received loan at concessional rates worth$1m, out of the loan sanction 40% of the amount was been used by Brian.As per the section 51 of income tax act 1936 and considering the provision of Fringe benefit taxin Australia, if an employer provides loan to the Employees either interest free or at low interestrate less than the benchmark limit, it will attract fringe benefit tax on the employer. The statutorybench marking interest rate for the year ended 31st March 2017 is 5.65%. Thus, if the interestrate is less than the benchmarking rate, the differential amount will be treated as fringe benefitand will be taxable in the hands of the employer.The cumulative interest the employee will be paying in the year ending 31st March 2017 at aninterest rate of 1% per annum will be $3,396. On the other hand, if the employee would havepaid interest at the benchmark rate of 5.65% per annum, the interest rate that would be paid will

be 19,373. In this scenario, the employer is liable to pay fringe benefit tax on the extra benefitthat is provided to the employee in terms of interest rate differential worth $15,977. The fringebenefit tax rate for the year ended 31st March 2017 is 49%. Thus, the fringe benefit tax that willbe paid by the employer in the given circumstances will be $7,829.If the employer would have released Brian from paying any interest rate on the loan amount thathas be utilized by him, the entire amount of interest calculated using the benchmarking rate, willbe treated as fringe benefit from the perspective of the employee and will be taxable in the handsof the employee at the rate of 49%. In the circumstances, $19,373 will be treated as the fringebenefit value and the fringe benefit tax would be $9,493. If the interest amount would have beenpaid at the end of the loan period rather than paying in monthly installment, there would be nochange in the fringe benefit value for the employer.If the employer would have released Brian from paying any interest rate on the loan amount thathas be utilized by him, the entire amount of interest calculated using the benchmarking rate, willbe treated as fringe benefit from the perspective of the employee and will be taxable in the handsof the employee at the rate of 49%. In the circumstances, $19,373 will be treated as the fringebenefit value and the fringe benefit tax would be $9,493.Answer 3Jack (an architect) and Jill his wife who is a housewife borrowed money for the purpose ofpurchasing a rental property .As per the agreement as entered in between both of them Jack willbe allowed 10% from the profits accruing from the property while Jill will be allowed remaining90% of the profits. Also, in case of any loss accruing the designated property Jack will bebearing entire 100% of the losses. Previous year has incurred a loss amounting to $10,000.Below

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