Taxation: Assessable Income, Fringe Benefits Tax, Net Capital Gain, Income Tax Deductions

This document provides information about assessable income, fringe benefits tax, net capital gain, and income tax deductions in taxation. It includes calculations and deductions available to Michael for the year ending June 2019. The document covers topics such as assessable income, rental income, capital gain, fringe benefits tax, interest free loan, benchmark interest rate, net capital gain, and income tax deductions.

TAXATION

TABLE OF CONTENTS
TABLE OF CONTENTS................................................................................................................2
TASK 1............................................................................................................................................1
Assessable income of Michael for the year ended 30 June 2019................................................1
TASK 2............................................................................................................................................2
Fringe benefits tax to be paid by Michael for June 2019............................................................2
TASK 3............................................................................................................................................3
Net capital gain or loss for year ended 31 March 2019...............................................................3
TASK 4............................................................................................................................................4
Income tax deductions available to Michael for year ending June 2019.....................................4
REFERENCES................................................................................................................................5

TASK 1
Assessable income of Michael for the year ended 30 June 2019.
Assessable Income
Sales of equipments and supplies 915000
Rental Income 95000
Capital Gain 634450
Total Assessable Income 1644450
Deductions:
Wages 235000
Rates 5270
Loan establishment expense 392.5
Capital gain 50% 317225
Taxable Income 1086562.5
Working Notes
1
Income from business
Sales of equipment & materials 915000
Expenses
Wages 275000
Bad debt 600
Business income 639400
Rates 5270
Add:
Wages not allowed as deduction 40000
Assessable income 674130
2.
Rental Income
Rental Income 95000
Deduction :
loan establishment expense 1570 / 4 392.5
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In the present case for calculating the assessable income of Michael all the income earned
during the year are to be reported in the tax year. Michael is doing the business of selling
swimming pool equipments and services. The business revenues earned during the year are
taxable for the year. However Michael is allowed to claim deduction over the business expenses
as per Income Tax Assessment Act, 1997.
Small business may employ their relatives in the business at salaries or wages. Under section
26-35 of the ITAA, 1997 ATO has the power of reducing the deductions that could are claimed
by employer wages or salaries paid to the relative which is considered reasonable by ATO. As
the brother of Michael is employed the section of s109 concerning excessive payments are
breaches as for similar work unrelated employee is available at 10000 (Braithwaite and Reinhart,
2019). Therefore the excessive payment of 40000 will be taxable.
Expenses over the vacant land are generally not deductible but certain expenses such as rates
and interest expenses over the vacant land are deductible as per Australian taxation office.
Business income of Michael is taxable after claiming deduction of expenses incurred for
generating assessable income.
Rental Income is taxable under the ITAA 1997. Purchase of investment property will
recorded as capital assets and the interest expense loan for the acquisition of property is allowed
as deduction in the tax return. As per the guidelines provided by the ATO where the borrowing
costs expenses exceeds 100 they are apportioned between 5 years or life of assets whichever is
lower.
TASK 2
Fringe benefits tax to be paid by Michael for June 2019.
Fringe Benefits tax
Interest free loan 500000
Benchmark interest rate 5.20%
Interest over loan 26000
Insurance payment 25000
Total fringe Benefits 51000
Fringe benefits tax rate 47%
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Fringe benefits tax 23970
Fringe benefits tax is applicable over the benefits that are paid other than the salaries and
wages. Loan Fringe Benefits are the loan made by employer or the associate to the employee or
the associates at lower rate of interest of no interest (Fringe Benefits, 2019). Loan is defined
under section 136 of FBTAA. Taxable value of fringe benefit is computed as difference between
interest calculated at benchmark rate of interest and actual rate of interest.
In this case as Michael has granted loan of 500000 to the employee as interest the whole of
interest at benchmark rate will be taxable under fringe benefits tax. Also Michael has paid for the
insurance expense of employee (Hobson, 2019). It is considered that insurance expense will not
be reimbursed by employee therefore the financial benefits granted to employee will be taxable
under fringe benefits tax. The rate of fringe benefits provided by ATO is 47%.
TASK 3
Net capital gain or loss for year ended 31 March 2019.
Capital Gain
Assets
Sales
proceeds
Cost of
acquisition Gain/(Loss)
Antique 7500 2000 5500
First day cover 22000 500
Exempt as
>500
Lounge 14950 15000 -50
Investment property
Sale proceeds (1/7/2018) 986500
Cost of acquisition
Cost of property 345000
Stamp duty 2750 347750
Capital Gain 638750
Expenses
Commission for sale of property 9750
Capital Gain 629000
Capital Gain
3

Antique 5500
Lounge -50
Investment property 629000
Net Capital Gain 634450
Michael has earned capital gains from the sales made during the year. Capital gain tax is
applicable over the capital assets acquired after September 30, 1985. Therefore all the sales
transactions are liable for capital gain. Michaels is required to capital tax over the antiques as
they were purchased for more than 500 that is above the threshold level of exemption. Sale of
First day cover is considered as collectible of Michael and collectibles that are purchased for 500
or less are exempt under the taxation (Bayliss, 2019). The sale of lounge has resulted in capital
loss, this loss of capital loss can be claimed against other capital assets as it is not a exempt
capital asset.
Capital gain over the sale of investment is computed after calculating the cost base for the
capital assets. Stamp duty payments are included under the cost base. Interest paid over the
property is deducted in the year in which it paid (Cost Base, 2019). Capital gain of 629000 is
earned over the investment property after claiming expenses for commission as per ITAA, 1997.
TASK 4
Income tax deductions available to Michael for year ending June 2019.
Deductions
Wages 235000
Rates 5270
Loan establishment expense 392.5
Capital gain 50% 317225
Wages are allowed under business expenses. Rates paid over vacant land are allowed as
deduction as per Australian taxation office. Loan establishment are part of borrowing expenses
as allowed as deduction for the allowable portion. Capital gain on sale of capital assets is
allowed for claiming 50% discount over the total gain earned during the year under discounting
method as per provisions of ITAA, 1997.
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REFERENCES
Books and Journals
Braithwaite, V. and Reinhart, M., 2019. The Taxpayers' Charter: Does the Australian Tax Office
comply and who benefits?. Centre for Tax System Integrity (CTSI), Research School of
Social Sciences, The Australian National University.
Hobson, K., 2019. 'Say no to the ATO': The cultural politics of protest against the Australian Tax
Office. Centre for Tax System Integrity (CTSI), Research School of Social Sciences, The
Australian National University.
Bayliss, M., 2019. Universal basic income: The potential impact on the Australian tax system. J.
Austl. Tax'n.21. p.66.
Online
Cost Base. 2019. [Online]. Available through : <https://www.ato.gov.au/General/Capital-gains-
tax/Working-out-your-capital-gain-or-loss/Cost-base/Elements-of-the-cost-base-and-reduced-
cost-base/>.
Fringe Benefits. 2019. [Online]. Available through : < https://atotaxrates.info/businesses/fringe-
benefits-tax/loan-fringe-benefits/>.
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