Taxation Report: Capital Gains, Fringe Benefits, and Tax Law

This report delves into the intricacies of Australian taxation, employing the IRAC (Issue, Rule, Application, Conclusion) approach to analyze various case studies. It begins by examining capital gains and losses for an individual, Eric, detailing the calculation of net capital gain from the sale of assets. The report then investigates fringe benefits, calculating the taxable value and tax payable for Brian, a bank executive, based on a provided loan. Furthermore, it addresses loss allocation for tax purposes in a scenario involving Jack and Jill, exploring their property investment and the implications of their agreement. The report also explains the principles established in IRCA v Duke of Westminster, including the concepts of DOTAS, TAARS, and GAAR. Finally, it presents a case study related to Bill and a parcel of land, analyzing the tax implications of timber harvesting investments. Through these case studies, the report provides a comprehensive understanding of Australian taxation principles and their practical application, offering valuable insights into tax planning and compliance.

TAXATION

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
1) CAPITAL NET GAIN/LOSS FOR ERIC...................................................................................1
2) TAXABLE VALUE OF FRINGE BENEFIT FOR 2016/17 FBT YEAR (CASE STUDY
RELATED TO BRIAN)..................................................................................................................2
3) LOSS ALLOCATED FOR TAX PURPOSES FOR JACK........................................................3
4) PRINCIPLES ESTABLISHED IN IRCA V DUKE OF WESTMINSTER [1936] AC 1..........4
5) CASE STUDY RELATED TO BILL REGARDING PARCEL................................................6
CONCLUSION................................................................................................................................6
REFERENCE...................................................................................................................................8

INDEX OF TABLES
Table 1: Capital gain for Eric on selling assets for Eric..................................................................1
Table 2: Fringe benefit for Brian.....................................................................................................3

ILLUSTRATION INDEX
Illustration 1: Fringe benefit tax rates in Australia..........................................................................2

INTRODUCTION
Government of Australia raise revenue through tax from any individual according to set
planning policies. It affects market and economic position of the country as implementing IRAC
approach and making decisions regarding further business activities. The present report is based
on understanding IRAC approach for taxation in Australia stands for issue, rule, application and
conclusion. In this regard, monetary position of businesses and individuals through different
cases can be described. However, good understanding with capital gain and fringe benefit
concepts are to increased in the case studies of ERIC and Brain. Similarly, taxable amount on
parcel of land in case scenario of Bill and tax purposes for Jack will be introduced affect their
financial positions and further decisions relating to business operations. Thus, students are able
to acquire knowledge regarding taxation in Australia with the help of case scenarios using IRAC
approach effectively through this assignment.
1) CAPITAL NET GAIN/LOSS FOR ERIC
Capital gain or loss for any organisation is evaluated through considering result on selling
assets. It is useful to analyse company's financial position on which further decisions are made
on business operations. However, investment income in the form of cash flow is recognised by
purchasing and selling both assets as tangible and intangible (Kim and et.al., 2013). In the case
scenario, Eric has sold company's antique vase, chair, painting, sound system and shares by
which actual monetary position of the entity can be identified. Therefore, net capital gain on
selling these items by comparing with its investment amount is to be evaluated as below:
Table 1: Capital gain for Eric on selling assets for Eric
Particulars Purchase amount($)
Selling price
($) Profit ($)
Antique Vase 2000 3000 1000
Antique chair 3000 1000 -2000
Painting 9000 1000 -8000
Sound system 12000 11000 -1000
Shares 5000 20000 15000
Capital gain 5000
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Interpretation: It is identified that Eric had invested for purchasing antique vase, antique
chair, painting, sound system and shares as $2000, $3000, $9000, $12000 and $5000
respectively. On which selling price on each item is determined as $3000, $1000, $1000, $11000
and $12000 sequentially. Therefore, he gains total $16000 profit on selling antique vase and
shares as well $11000 of loss on selling other mentioned assets. As per this calculation, for
evaluating net capital gain, sum total of overall results is done by which actual financial position
and profitability can be recognised (Bird, 2015). Thus, net capital gain on this business operation
is calculated as $5000 which is quite effective and forecasts for gaining profit in the future time
effectively.
2) TAXABLE VALUE OF FRINGE BENEFIT FOR 2016/17 FBT YEAR
(CASE STUDY RELATED TO BRIAN)
Fringe benefit is considered as extra tax benefits to an individual provided by employer to
employee or associate of any company in Australia. It includes several types of benefits such as
salary, wages and home allowances, employee relocation expenditures, minor benefits etc. In the
given case study, Brian who is a bank executive and as a part of his remuneration package, his
employer provided him loan of $1 m at the rate of 1% per annum for 3 years (Griffith, Hines and
Sørensen, 2013).
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Further, he used its 40% for borrowing funds for the purpose of income producing.
However, fringe benefit in this case for Brian for 2016/17 can be calculated as below:
Table 2: Fringe benefit for Brian
Particulars Figures
Fringe interest rate 5.65% - 1% = 4.65%
Fringe benefit (in $) 400000 * 4.65% = 18600
FBT tax rates 49%
Taxable amount of fringe benefit 18600 / (1- 49%) = 36470.59
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Illustration 1: Fringe benefit tax rates in Australia
(Source: Fringe benefit tax rates in Australia, 2017).

Amount of tax payable (Fringe benefits
taxable amount * rate of tax)
36470.59 * 49% = 17870.59
Interpretation: It is recognised that fringe interest rate in Australia for 2017 is 5.65%
and employer provided loan of 100000 at the rate of 1%. Therefore, fringe interest benefit on
400000 at the interest rate of 4.65% is 18600. However, at present FBT tax rate in the country is
49% on which taxable amount is evaluated. Thus, taxable amount on fringe benefit for Brian is
calculated as 36470.59 which is multiplied by tax rate. Overall, amount of tax payable for him is
17870.59.
3) LOSS ALLOCATED FOR TAX PURPOSES FOR JACK
Jack and Jill who were joint tenants borrowed some money and purchased a property on
rent. They signed an agreement in which it was return that jack was holding 10% share in the
property whereas Jill was holding 90% of the property benefits. Under the agreement it was
stated that, if the property turned out with loss then its bearer will only be jack and the other
partner Jill will not be responsible for any loss or jack will bear 100% loss (Da, Giacomo and
Sembenelli, 2014). However, the capital gain or capital loss required for the account can be
understood by applying IRAC approach as described below:
 Issue: In the case scenario, occurred issue is related to borrowing money for rented house
by Jack and Jill in which entitled 10% profit will be in share of Jack. Similarly, in case of
loss, Jack will be liable to face all loss occurred (Zelinsky, 2013). Further, they got loss
of 10000 then allocated money for tax purposes is to recognise. Including this, there is
also condition of in case of selling the property, how much gain or loss can be occurred.
 Rule: Accoridng to Tax Act in Australia, it is mentioned that partners are not tax payers
but an individual partner has to pay tax. Thus, this rule is to be implemented on tax and
paying on occurred loss (Blundell, Bozio and Laroque, 2013).
 Application: Above mentioned rule is to be implemented in the case scenario and no
taxable amount is determined for Jill while for Jack, taxable amount is to be evaluated.
Further, in case of selling the property, proper gain can be obtained affect their income
properly (Brand, Anable and Tran, 2013).
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 Conclusion: It is concluded from this case study that Jack is liable to pay on occurred
loss and through selling this property, proper profit can be gained. Therefore, according
to Taxation Law of Australia, it is determined that individual tax will be paid on this loss
by Jack and it will be better to sell the property by which effective income can be earned
effectively (Kosonen, 2014).
4) PRINCIPLES ESTABLISHED IN IRCA V DUKE OF WESTMINSTER
[1936] AC 1
Duke of Westminister was gardener in Australia who reduced to pay tax on his income
for which IRAC approach is applied on taxation for an individual. It stands for issue, rule,
application and conclusion for reducing any occurred problems. However, several principles
mentioned in this approach can be described as below:
 Issue: It is related with analysing negligence on paying tax and information sought by
solicitor for intending purchaser land etc. Similarly, issue of measuring damages for
negligent mis statement (Scheve and Stasavage, 2016) Therefore, government of
Australia makes policy plans for reducing these issues to increase revenue and country's
effectiveness.
 Rule: Through identifying issues, different rules are made to reduce issues and following
on different plans. In this regard, these rules are made under common law and related to
court case. It is also considered that these rules are helpful to reduce issues occurred for
making correct legal analysis (Australia's Future Taxation system, 2017). Thus, rules for
tax payees and following on its provisions are recognised affect legal system of the
country.
 Application: It is one of the essential section of IRAC in which rules are applied to
reduce issues and implementing legal system of the country (Genders, 2016). According
to facts and rules made through court's decision, mentioned rules are applied efficiently
affect country's effectiveness.
 Conclusion: In this process, facts and rules made through court's decision and various
results are obtained which are followed on in the future time. However, decision is based
on the implementing rules regarding each issue (Boczko, 2016). Therefore, tax related
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issue is also reduced in this way impact on overall management and other implements for
the further years.
However, under IRCA V DUKE OF WESTMINSTER [1936] AC 1, following principles
are determined for tax planning and reducing tax avoidance as:
 Disclosure of tax avoidance scheme (DOTAS): Under this principles, rules and
regulations for reducing tax avoidance are made if TAARS remain unfair. In this regard,
it is considered that an individual employee must disclose his income including money
from foreign. Including this, in case of negligence on paying tax, warning and other
penalties are also ruled for reducing it. Thus, DOTAS promotes an individual to pay tax
and disclosing details of earned income and allowances effectively.
 Targeted anti-avoidence rules (TAARS): It is targeted to reduce tax under this
provision impacts on revenue of the country on which decisions are made for its
development. Therefore, through following on rules amended in this provision would be
able to encourage public for not avoiding paying tax (inclair, W. and Lipkin, 2016).
 GAAR: It is more specific in comparison to general for tax regime rules in process and is
to be come into force soon. It also includes tax planning and implementing provisions for
paying tax. In this regard, different rules are to be made for tax benefits for reducing
business risks (Zelinsky, 2013). Hence, GAAR remains effective for paying tax and
implementing plans for tax payers effectively.
5) CASE STUDY RELATED TO BILL REGARDING PARCEL
Bill is an owner of a large parcel of land which is full of pine trees in which he intends to
use the land for grazing sheep. Now he wants to have the field to be cleared so that he can
discover logging company which will cost him around $1000 for every 100 meters of timber
which they can take from the land (Boczko, 2016). It can be understood with the help of IRAC
approach as described below:
 Issue: It is recognised that on paying 1000 for every 100 meter, Bill will have to pay
100000 on which tax redemptions and allowances can be gained. While, on the other
hand, he is also planning to invest 50000 in lump sum which would also be effective for
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required timber from his land (Genders, 2016). Therefore, taking appropriate decision on
this investment is required,
 Rule: According to Tax Act in Australia, it is mentioned that through incurring cost on
timber of land, appropriate allowance can be gained which consider as income. However,
through incurring 100000 will be useful on which effective income can be earned (Da,
Giacomo and Sembenelli, 2014).
 Application: By implementing above mentioned rule, it will be good for Bill to invest
10000 for taking effective redemption and proper advantage of tax rules of Australia.
 Conclusion: Through calculating both investments as 10000 and 50000, it is concluded
that Bill can gain effective profit of tax allowances (Kosonen, 2014). Therefore, for
taking adequate advantage of tax policies, it will be good decision for Bill to invest 1000
per 100 meters for timber as required.
CONCLUSION
It is concluded that tax policies are effective for reducing its avoidance and increasing
government's fund in Australia. In this regard, deep understanding towards IRAC approach has
been increased. However, different case study related to taxable amount and fringe benefits are
described through this assignment. In addition to this, solutions for an individual regarding
paying tax and increasing income is described. Thus, all tax policies and rules for implementing
strategies has been understood through this report.
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REFERENCE
Books and Journal
Bird, R.M., 2015. Subnational taxation in developing countries: a review of the literature.
Journal of International Commerce, Economics and Policy. 2(1). pp. 139-161.
Blundell, R., Bozio, A. and Laroque, G., 2013. Extensive and intensive margins of labour
supply: work and working hours in the US, the UK and France. Fiscal Studies. 34(1). pp.
1-29.
Boczko, T., 2016. Managing Your Money: A Practical Guide to Personal Finance. Palgrave
Macmillan.
Brand, C., Anable, J. and Tran, M., 2013. Accelerating the transformation to a low carbon
passenger transport system: The role of car purchase taxes, feebates, road taxes and
scrappage incentives in the UK. Transportation Research Part A: Policy and Practice.
49(2). pp. 132-148.
Da Rin, Giacomo, M. and Sembenelli, A., 2014. Entrepreneurship, firm entry, and the taxation
of corporate income: Evidence from Europe. Journal of public economics. 95(5). pp.
1048-1066.
Genders, D., 2016. The Daily Telegraph Tax Guide 2016: Understanding the Tax System,
Completing Your Tax Return and Planning How to Become More Tax Efficient. Kogan
Page Publishers.
Griffith, R., Hines, J. and Sørensen, P.B., 2013. International capital taxation. Dimensions of Tax
Design: The Mirrlees Review. 6(3). pp. 914-996.
Kim, J. and et.al., 2013. Attitudes towards road pricing and environmental taxation among US
and UK students. Transportation Research Part A: Policy and Practice. 48(3). pp. 50-62.
Kosonen, K., 2014. Regressivity of environmental taxation: myth or reality?. Handbook of
Research on Environmental Taxation, Cheltenham: Edward Elgar Publishing. 5(4). pp.
161-174.
Scheve, K. and Stasavage, D., 2016. The conscription of wealth: mass warfare and the demand
for progressive taxation. International Organization. 64(4). pp. 529-561.
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