Tax Implications of Capital Gains and Fringe Benefits - A Case Study

This case study analyzes the tax implications for an individual, Amber, focusing on capital gains from the sale of a chocolate shop and an apartment, as well as income from a restrictive covenant. It applies relevant sections of the Income Tax Assessment Act 1997 (ITAA 1997) and taxation rulings, such as TR 1999/16, to determine the taxability of each transaction. The analysis covers CGT events, including C1 events related to the sale of the business and D1 events related to the restrictive covenant. The study also assesses eligibility for the main residence exemption concerning the apartment sale. It concludes that the capital gains from the chocolate shop sale are taxable, the income from the restrictive covenant is a CGT event D1 and not ordinary income, and the apartment sale is eligible for partial exemption from capital gains tax. The case study also touches upon fringe benefits tax implications.

Running head: TAX
Tax
Name of student:
Name of University:
Author note:

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Table of Contents
Answer to Question no. 1:..........................................................................................................2
Answer to question 2:.................................................................................................................8
Conclusion:..............................................................................................................................14
Reference:................................................................................................................................15

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Answer to Question no. 1:
Issues:
The existing issue relates to the implications of the capital gain taxation below
“section 104 of the ITAA 1997”.
Laws:
Below “section 102-5 of the ITAA 1997” it becomes essential for a taxpayer to
encompass the quantity of capital gains in the year’s incomes earned (Basu, 2016). To
comprehend the ailment about the capital loss as well as the capital gains of the taxpayer it
appears vital to envisage the taxpayers’ CGT. Furthermore, to comprehend the CGT asset it is
important for the assets’ qualification. The taxpayer acquires the capital gains and the capital
losses solitarily tracking from the occurrence of CGT below “section 102-20”. Conferring to
“section 104-10 (1)” the A1 affair of CGT arises during the preparation of the CGT asset.
Below “section 104-25 (1) of the ITAA 1997 a CGT” the C2 affair happens at the
close of the weak asset. Crosswise, incorporeal assets ownerships complete at the span of the
assets’ termination. In compliance with the goodwill, the ATO visualises that the affair C1 of
the CGT happens at the span when the permanently ceased of the business is done. The TR
1999/16 of taxation ruling is applicable to the taxpayer which assembles the business’
goodwill or the interest of the goodwill in compliance with “ITAA 1936”. A permanent
business closure happens because of the significances of voluntary act which denote that the
permanent business closure as the momentary closing is not be successful in the outcome in
C1 affair of CGT (Woellner et al., 2016).
In “FC of T v Murry (1998)” the law court has visualised establishment of the
goodwill. The observation of the Goodwill as the distinction which is expanded from the
further assets of the business. The occurrence of goodwill is demanding on the impervious on

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the revenues of asset which is shaped from the business, as well as the sites and approaches
of the business. Below “Subsection 108-5 (2)” in custody that the CGT asset there is profit
essential into the justification of goodwill. The “IRC v Muller & Co Margarine Ltd (1901)”
law court detained that the goodwill is dependent on the petition and the business landscape1.
A taxpayer is crucial to hold the net capital gains value in the taxable income which is gained
from the business auction of the goodwill (Braithwaite, 2017).
In accordance “taxation ruling of TR 1999/16” expresses about the disruptive
agreements which embraces the vendor’s contract as well as the buyer linking with the
auction of the business or rather distinct contract that requires the venders to not struggle in
the similar business. In compliance with the “taxation ruling of TR 1999/16” it is
pronounced about the contracts amid the employee of the vendor as well as the purchaser
linking to the contract moulded for business vending stranded on which the company
approves not to struggle for the business application as well as the clients of the business
(Barkoczy, 2016).
Costs that are approved for concession or preventive the rights are not measured as
income. This embrace of the costs which is recognized for not appreciative on performing
approximate work is not stared as income. Reciting the case of “Jarrold v Boustead (1964)”
the law court detained that the sum of the bulge sum that is approved by the rugby player for
position of open-handing of unethical were not measured as income. In the similar scenario,
the conclusion cited in “Dickenson V FC of T (1958)” detained that the quantity which is
compensated to the taxpayer of the petrol station for the vending the shell goods solely for
approaching ten years from the parallel petrol station and trade shell goods solely privileged
the 5 miles range for the approaching five years is not measured as income (Snape & De
Souza, 2016).
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Perceiving a taxpayer incoming the precautionary contracts upon the vending of the business,
the boundary agreements indicates the CGT assets that is formed and deliberated to the
purchaser in its own rights involving the goodwill that is adapted by the procurer. In
accordance with the “section 104-35 (1)” incomes from such defensive contracts are
conserved as “CGT event D1”. A D1 affair of CGT happens at the span when the taxpayer
produces the vowed and the more legal right to substitute unit. As detained in “Higgs v
Olivier (1951)” the enormous sum volume which was compensated to the actor who grabbed
the prime of not causing, controlling or acting in further movie for a time duration of 18
months which was not measured as income2. The previous case earnings remained interned as
D1 affair in CGT as for it shaped a guaranteed right of inadequate trade contract (Richardson,
2016).
In regards of a taxpayer, to advance the main residence issue the dwelling is to be
appropriate as the chief taxpayers’ residence. Presumed that a taxpayer possesses abundant
dwelling thus, it is important to identify which events the chief taxpayers’ dwelling and
henceforth qualified for exclusion (Daniel et al., 2016). Though, the procedures of dwelling
are the taxpayers’ chief residence thus, it is needful on the state material. The taxation
commissioner envisages that the duration of time a taxpayer has resided in on the residence
or the zone where the taxpayers’ family lived in. As unspecified there are approximate
degrees of corporeal tenure that is vital to unveiling the honor of the announcement.
As stated by “Section 118-110 (1) of the ITAA 1997” the proclamation for the
taxpayer is involving the capital gains along with the losses that is prompting from the
occasion of CGT. An exclusion is permissible in the case solely when the assets of CGT is
housing and the taxpayers’ chief residence through the ownership time. A slight chief
2 Hirsch, Werner Z. Law and economics: an introductory analysis. Academic Press,
2015.

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exemption power be legal to a taxpayer3. The slight exemption for the affair of CGT a
taxpayer is to be gained where the chief residence shaped a part of the possession period (Cao
et al., 2015).
Application:
Sale of Shop:
In the existing case study as, seemingly it is detected that the chocolate shop
proprietor Amber which she worked from Sydney. Yet, Amber subsequent her child birth she
took the decision of vending the shop in the year 2018 for a total sum of $440,000 midst
which $280,000 was attributable for the goodwill. Consequently, this condition the taxation
ruling of “TR 1999/16” is pertinent for Amber. Signifying to the court result in “FC of T v
Murry (1998)” the goodwill formed the legal awareness of the Amber’s business.
Concerning, “section 104-25 (1) of the ITAA 1997” CGT happened in a C1event when there
was an inference to the Ambers’ business. The marketing of shop presented expansion in the
C1 affair of CGT. The taxpayer entered into the agreement that caused in the completion of
asset. The occurrence of business and its goodwill is reluctant on the impervious that the
Ambers’ business shaped profits after the asset (Zainan et al., 2017).
Amber settled the business imperishably which specified the importance of charitable
act. As the business was eternally settled by Amber and traded thus, it presented expansion to
the C1 affair of CGT (Burton & Karlinsky, 2016). Stating the case of “IRC v Muller & Co
Margarine Ltd (1901)” it vital to Amber to encompass the worth of the improvements in the
taxable income of the take-home capital which is shaped from the business auction and
goodwill. The sum that is gained after the capital gains is sourcing from the chocolate shop
auction which is to be detained taxable below “section 104-10 (1)”.
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Restrictive Covenants:
In the progressive section of the case it is observed that Amber was vital for the
signature of the bond which can boundary her from operative the identical business in the
exclusive range of around 20km for the approaching five years4. When moving the bond
Amber accredited a sum quantity of $50,000. The receiving of $50,000 is to be observed as
D1 affair in CGT. With direction to the case of “Jarrold v Boustead (1964)” the payment
that is recognized by Amber for leaving or warning the privileges is not to be eminent as
income temperately which configured to the D1 affair of CGT (Braithwaite, Reinhart & Job,
2018).
In orientation with the event of “Dickenson v FC of T (1958)” the quantity which
was recognized by Amber was seemed in esteem of the contract of not in the execution of the
business. The restrain contracts for Amber indicates the CGT assets that is designed and
deliberated to the purchaser in its own human rights involving to the assimilated goodwill by
the purchaser. Below “section 104-35 (1)” Amber incomes by 50,000 from these
uncooperative agreements are conserved as “CGT event D1”5. The profits in the Amber case
study ought to be interned as D1 affair in CGT as for it formed a predetermined right of
incomplete trade contract which has stated her not to oppose in the identical business.
Sale of Apartment:
In the progressive events it is detected that Amber established an apartment in the
month of October 2013 from her Uncle. The properties were accepted in September 2013
through her Uncle thus, Amber remained in that apartment from October 2013. A bond of
retailing of the flat which Amber signed in the month of May. Yet, the authorization for sale
of residence ensued in July in 2018. Concerning Amber, the principal residence concession is
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legal as after the dwelling flourishes as the chief residence of the taxpayer. As the dwelling
approaches the chief house for Amber consequently, it is needful on the cross-examination of
component. The query of context can be stubborn for Amber as the belongings was
customary after her Uncle and accordingly, was used as the chief residence when enthused
hooked on the flat.
Stating the interpretations of the taxation commissioner, the time duration in which
Amber has resided in residence and the zone where the taxpayers’ family resided in was
knowingly for a duration of five years. As implicit from the ailment of Amber location below
“section 118-110 (1)” is designed as there stayed the abundant degree of physically staying
on the residence exceeding the time of tenancy. Amber in this distinctive can increase the
chief partial residence issue as after the usage of the flat as her main residence from the
duration when she acknowledged after her Uncle. The ownership had lodging on it thus,
Amber resided in it. Thus, with situation below “section 118-110 (1) of the ITAA 1997” it is
permitted to the fractional exception of the taxpayer since the capital gains tax as for the
assets were housing and the key residence of taxpayer all through the dated of whole
proprietorship.
Conclusion:
As per conclusion, the total amount that is customary from the sum of capital gains by
Amber after the mart of chocolate shop will be incarcerated taxable below “section 104-10
(1)”. Still, below “section 104-35 (1)” incomes of $50,000 instigates from the defensive
contracts are conserved as “CGT event D1” and are not measured as income beyond normal
insights. The receipt formed a vowed right of excellent bond of trade. The mart of apartment
via Amber will be allowable to fractional barring from the capital gains tax as for the assets
had housing and the key taxpayers’ residence through the period of possession.

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Answer to question 2:
Issues:
This contemporary case is count on the tax consequences decision on the taxpayers’
fringe benefits which is attained from the dealings by the taxpayer.
Laws:
Below “section 6 -1 of the ITAA 1997” the derived income from the private effort or
the from the private exertion indicates the income comprising of the earnings salaries,
superannuation, commission, allowances, wages or further methods of profits which the
taxpayer attains owing to the condensed facility. A receipt is added after the service as well
as the influence of private facilities which is visible to the worker income tax or aimed at the
company, a fringe benefit tax. Concerning a receipt that appears sound as income, formerly
the obligation appears a linking with the receipts that is formulating from the taxpayers’
private service.
The assembly is obviously traditional for the individual services of the mutual items
which encompasses of the earnings and salary, directives or supplementary form of lower
payments which is encompassed in the labour occasion. Below “Section 6-5 of the ITAA
1997” it is demarcated that the income that is grounded on the regular ideas is reckoned as
taxable beneath the “ITAA 1997”. Usually, below “section 6-5 of the ITAA 1997” maximum
of the income is apprehended as ordinary income that originates in the taxpayer6. In the scene
of “Scott v Commissioner (1935)” the lawful definition is specified about the income. The
commissioner incarcerated that grounded on the usage of manhood and the unvarying ideas,
income is to be recognized. A component of the income landscape when it is established
remains occasioned for the taxpayer. In “Dean v FC of T (1997)” the law court detained that
absorbent payment which is prearranged to the employees for a span of twelve months as an
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agreement of employment after the seizure were measured as the payment or income from the
organisation.
A fringe benefit indicates the sum which is given to the worker while in the modified
form of the incomes or salary. Conferring to the tax legislature of the fringe benefit, this is
the advantage which is on disorder in connection to the provision. This proficiently expresses
the advantage which is lend to somebody as they are regarded as employee. Below
“subsection 136 (1) of the FBTAA 1986” the specification of the car fringe benefit is
depended. Conferring to the employ the car service availed by the employee launches benefit
beneath the “subsection 136 (1) of the FBTAA 1986”. Rendering to the tax lawmaking of
fringe benefit, this benefit is availed in employment.
Generally, the car fringe benefit initiates when a car is given to the employee by the
company for using it for private drive. An employee normally performs the usage of the car
for private drive as well as the car is reachable for the employees’ private use. The fringe
benefit in the recipient’s view is measured by the income tax as in the form of exempted
income.
Residual fringe benefit embraces any kind of private conveniences or the services that
provides the employee for engagement. A residual fringe benefit is, counting of the services
that is given for transportable or the manual exertion or proficient or any usage of the
property. Mostly, the advantage of the residual fringe is measured as benefit which is
conservative when for a period an employee is provided. The preparation of the salary
packages consists of the whole remuneration preparation when a person and an organisation
arrive in the bond.
A loan fringe benefit is sourced when an employee is provided with a loan fringe
benefit by the organisation and cares lesser number of interest at the fringe benefit tax year. A

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lesser rate of interest is measured as reduced in comparison with the legislative interest
proportion. The loan fringe benefit taxable amount indicates the modification amongst the
accumulated interests throughout fringe benefit year. The jurisdictive interest is practical in
the gentle accumulated interest rate.
In the event of “Moore v Griffiths (1972)” Mere enchanting is not thought as the
income. However, if there are suitable connection is existing then it is to be seized as the
income along with the revenue engendering movements of the taxpayer. In the event of
“Kelly v FCT” from the taxpayer an award is recognized as premium and sensible player
from the station. The expanse is to be measured as the income as for it was lesser to the hire
as well as the work and was linked to the skill workout. Also, in the event of “FC of T v
Stone” the policewomen identified as the taxpayer and the javelin thrower whose income is
established by prizes as well as the praise7. The taxpayer was assessed for the continuance on
the trade of the dedicated athlete and the money was interned as income.
The non-cash benefits must have an appropriate assembly with the private facility yet,
if the cash appears non-convertible then in that scenario it was not interned as the normal
income. Reciting the alignment of the court consequence in “Payne v FCT (1996)” retrieval
of the accumulated facts of frequent flyer from the work-related travel is to be interned as the
income. Even though the non-cash benefits will be observed as taxable below “section 15-2
of the ITAA 1997” or is visible to the levy of fringe benefit.
Commonly, when for the employer the expenses have ensued by the organisation and
the costs are laterally remunerated by the organisation, it enlarges to the expenditure payment
of the fringe benefit. The taxable worth of the fringe benefit cost is the number which is
repaid. If for the employee a disbursement happens for the execution of the responsibilities
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that relate to employment, the spending then for income tax purpose is completely detained
deductible. Habitually, where the costs for the proprietor have been qualified by the
employee yet, of those benefit payment, values in the development of fringe benefit.
Application:
Salary Income:
The contemporary case study is stranded on explaining the tax significances of the
fringe benefit for an individual named Jamie who worked as the manager for a real estate
company which is known as the Houses R Us. As the section of the bond of employment
Jamie was agreed with the salary of a sum of $50,000. Below “section 6-1 of the ITAA
1997” the getting of salary indicates income arises from the personal exertion8. The receipt of
a sum of $50,000 which is customary from the employment, indicates the income derives
services and is endangered to income tax.
In contrary of “section 6-5 of the ITAA 1997” the earnings earned beneath the regular
perceptions would be measured as ordinary income. Levitation the event of “Scott v
Commissioner (1935)” getting of salary stranded on the ordinary observations is to be
thought as “ITAA 1997” income. Stating about the event of “Dean v FC of T (1997)” the
salaries that is acknowledged from the provision is to be seized as compensation.
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Car Fringe Benefits:
Sideways in another event it is detected that Jamie by his organisation is accompanied
with a car for both the use privately besides for work. By the service of car usage, Jamie
founds benefit below “subsection 136 (1) of the FBTAA 1986”. The characteristics of the
car fringe benefit is offered for employment. The car convention symbolizes the confidential
by Jamie along in the working periods and exterior of it at the vacations (Barkoczy, 2016).
Residual Fringe Benefit:
In the following year it is pragmatic as Jamie was agreed a salary set which
encompassed of laptop at a worth amounting of $2,300 along with a mobile phone rating of
$1,200 per annum (Braithwaite, 2017). The employer equally rewarded of $550 and agreed
the stipend for entertaining to Jamie. In the existing situation of Jamie, the costs have been
skilled by the member for his organisation. House R Us yet the totality of such benefit by the
consequences of the organisation in the extension of fringe benefit. Consequently, Jamie is to
be seized responsible for the taxation of fringe benefit below “FBTAA 1986”.
In the consequent event Jamie recognized the prize of summation $4,800 for
achieving the maximum marts in the respite six months. As for delivery he was satisfied
accompanied by the home entertainment method for a summation of $4,800. Stating the case
of “Kelly v FCT” a home theatre system of an amount of $4,800 is to be measured as non-
cash benefits that is to be adjustable to cash. The number is to be measured as the income
since it was allied to the effort and organisation. The summation of $4,800 recognized as a
reward against his service. The receipts are to be interned as the income since adequate
assembly is contemporary with the revenue making movements of Jamie (Woellner et al.,
2016).

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Loan Fringe Benefit:
From the events it is observed that Houses R Us are giving their staff with summation
of $100,000 for purchasing at the percentage of 4% yearly for their private house. Jamie is
seen tangled in the offer of captivating up the loan (Basu, 2016). A loan fringe benefit would
rise for Jamie throughout the interest proportion which is inspiring by his organisation is
lesser than the law-making rate of interest or the normal interest rate. If Jamie reproduces to
the loan that is offered, a loan fringe benefit would formulate since his organisation
guarantees the loan fringe benefit by condemning less rate of interest throughout the tax year
of the fringe benefit. Besides, if Jamie reproduces loan from his organisation, the worth
which appears taxable from the loan fringe benefit would indicate the alteration within the
interests that is gathered to Jamie at the fringe benefit year when it appears that the legislative
interest has been efficient.
Conclusion:
It is concluded that the salary which Jamie approved is to be restrained taxable below
“section 6-5 of the ITAA 1997”. Yet the car convention by Jamie begins fringe benefit as per
the “subsection 136 (1) of the FBTAA 1986”. Moreover, the value of $4,800 create a reward
in respect for his service of hiring and is to be measured as the income since, there is suitable
connection is existing with the revenue making actions of Jamie. Accordingly, Jamie is to be
interned taxable for the payment of the fringe benefit expense as his functioning body
reimburses the total summed up expenditures.

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Reference:
Books:
Barkoczy, S. (2016). Core tax legislation and study guide. OUP Catalogue.
Basu, S. (2016). Global perspectives on e-commerce taxation law. Routledge.
Braithwaite, V. (2017). Taxing democracy: Understanding tax avoidance and evasion.
Routledge.
Daniel, P., Keen, M., Świstak, A., & Thuronyi, V. (Eds.). (2016). International Taxation and
the Extractive Industries: Resources Without Borders. Taylor & Francis.
Richardson, G. (2016). The Determinants of Tax Evasion: A Cross-Country Study.
In Financial Crimes: Psychological, Technological, and Ethical Issues (pp. 33-57).
Springer, Cham.
Snape, J., & De Souza, J. (2016). Environmental taxation law: policy, contexts and practice.
Routledge.
Woellner, R., Barkoczy, S., Murphy, S., Evans, C., & Pinto, D. (2016). Australian Taxation
Law 2016. OUP Catalogue.
Journal articles:
Braithwaite, V., Reinhart, M., & Job, J. (2018). Getting on or getting by? Australians in the
cash economy. In Size, Causes and Consequences of the Underground Economy (pp.
55-69). Routledge.
Burton, H. A., & Karlinsky, S. (2016). Tax professionals’ perception of large and mid-size
business US tax law complexity. eJournal of Tax Research, 14(1).

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Cao, L., Hosking, A., Kouparitsas, M., Mullaly, D., Rimmer, X., Shi, Q., ... & Wende, S.
(2015). Understanding the economy-wide efficiency and incidence of major
Australian taxes. Canberra: Treasury working paper, 2001.
Zainan, N., Noor, R. M., Omar, N., Aziz, R. A., & Sanusi, S. (2017). Retailers' Behavioural
Factors Towards Goods and Services Tax (Gst) Compliance: Sociological and
Psychological Approach Study. Management & Accounting Review, 16(1).
Case laws:
Section 102-5 of the ITAA 1997
Section 104-25 (1) of the ITAA 1997 a CGT
Taxation ruling of TR 1999/16
Section 118-110 (1) of the ITAA 1997
Section 6 -1 of the ITAA 1997