Taxation Theory, Practice & Law: Capital Gains, Fringe Benefits, & GST

This report provides a comprehensive analysis of Australian taxation, addressing capital gains tax (CGT) and fringe benefits tax (FBT) calculations, along with GST implications. The report examines various scenarios, including the sale of vacant land, antique beds, paintings, and shares, to determine net capital gains or losses. It details the application of different methods like the indexation and discount methods, considering the timing of asset acquisition and disposal. The report also analyzes FBT related to employer-provided cars and other benefits. Furthermore, it incorporates relevant sections of the Income Tax Assessment Act 1936 and 1997, along with the Goods and Services Tax Act 1989, to provide a complete understanding of the tax liabilities and implications. The analysis includes setting off capital losses from past years and current year collectables losses against capital gains. Finally, the report culminates in the determination of the total taxable capital gain/loss for the year ending June 30th.

TAXATION THEORY,
PRACTICE & LAW

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
QUESTION 1...................................................................................................................................1
Determine Net Capital Gain/Loss for year ended 30th June.......................................................1
QUESTION 2 ..................................................................................................................................9
Employer Provided Car to Employee.........................................................................................9
Calculation of Fringe Benefit as Loan......................................................................................11
FBT charged as goods sold to Jasmine at low cost ..................................................................11
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................13

INTRODUCTION
Federal Government Levies and collects Taxes in Australia through Australian Taxation
Office. ATO manages all laws and regulations that are levied on the different sections of society.
The Law which covers income tax in Australia is Income Tax Assessment Act 1936 followed by
Tax Assessments Act 1997. Goods and Service tax governed by Goods and Services Tax Act
1989 are taxes that are levied on Sales of Goods and Services, collected by Federal Government.
In this project, the client wants analysis of data given of calculation of taxable capital gain loss
for current year on various assets and also to provide GST' s provisions if applicable. In this case
study, client needs calculation regarding Fringe Benefits that are provided to employees under
FBT Act 1986.
QUESTION 1
Determine Net Capital Gain/Loss for year ended 30th June
Various asset provided by client where capital gain tax, is need to be calculated under
Income Tax Assessment Act 1997. All gains and loss regarding capital asset are levied on
purchase and sales of property (Wilkins, 2015). The law covers various methods to calculate tax
by different basis of utilization of asset.
(a) Vacant Land
Treatment on sales of land depends upon that it is used as a capital asset or is kept for
commercial purpose. Mostly block of land are treated as capital asset so it is charged as CGT but
if they are used as stock in real estate business then any income from that will be ordinary
income and will be charged for taxes as business income (Capital Gains Tax. 2018.).
Land acquired before 11:45 am on 21st September 1999 and is held for more than 12 months then
Indexation Method will be applied and if not then “Discount Method” will be used. To calculate
cost base, we need to include all expenses which are related to acquisition of asset that may be
brokerage, stamp duty etc. (Chardon, 2016).
The Contractual rights of asset are described by Section 104(35) of ITA act 1997.
1. the timing of event will be when you enter into contract or acquiring rights are
created for other persons.
2. Disposing of asset will be deemed as event when owner transfers right to others
person.
1

Cost base Calculation on 3/06
Purchase Price of Vacant land 100000
Add Statutory Rates And taxes 20000
Unindexed Cost Base 120000
Calculation of Sale Proceeds
Sale proceeds from land 320000
Less Unindexed Cost Base 120000
Gain for next year 200000
2

Taxable CGT for Capital Gain Tax for next year
Land was acquired after 11:45 am on 21st September 1999, so “Discount Method” will
apply and CGT will be calculated as 50% of Capital Gain/Loss. So Capital Gain/Loss for next
year will be $100000(200000*50%).
Interpretation
Chargeable Capital Gain Tax will be of next year as because land ownership was
transferred in next year on 3/01. The provision which is stated above states that the contractual
rights will have to be transferred for completion of event of sale. So here in given case advance
received for sale of land doesn't mean that transaction had been completed because right of
transfer is not created for buyer. It has also been said as that, if the amount is being received in
installments, it doesn't affect CGT event tax will be charged on date of sale of contract that is
next year 3/01.
(b) Antique Bed
They are types of Collectables mentioned under ITA act 1997. These items are mostly
used for personal purposes and kept for enjoyment. They include-:
1. Antique items
2. Drawings, Sculptures, Paintings
3. Jewelry etc.
Capital Gain / loss will not be considered on collectables if asset that was purchased for less than
or Equal to $500. Laws and Regulations regarding Loss or destruction of asset are described
under section 104(20) of the ITA act 1997. Timing of event will be considered as when you first
receive compensation for any damages or theft or destruction from any insurance company or
others (Supanti, 2015).
Cost Base Calculation for current year on 12/11
Particulars Amount Indexation Factor Net Amount
Antique purchase price 3500 2.90 10157.22
Add Value Additions 1500 2.67 4011.88
Unindexed Cost Base 5000 14169.09
3

CGT event because of Theft
Particulars Amount
Claim from Insurance Company 11000
Indexed Cost Base 14169.09
Net Capital Gain/loss -3169.09
Indexation Table for calculation of Index Factor
Year Rates of Indexation
July 85 38.8
July 86 42.1
Jan 18 112.6
Interpretation
The Indexation Method has been applied because asset was purchased before 11:45 am
on 21st September 1999. The Capital event for loss by theft will be considered when collectables
here antique bed, insurance claim has been received on asset. Market value will not be taken into
consideration because purchase cost of asset has been provided by client. Insurance company has
provided claim in current year, so event will be considered for current year and tax will be
charged in this year eligible for CGT in current year, Amount received from insurance company
is lower by indexed cost base so there is capital loss to client in this case and it can be set off
with other capital profits from collectables.
(c)Painting
The asset (painting) is also a collectable, so all provisions which are applied to Antique
Bed will also be taken into consideration for this asset.
Capital Gain/ Loss Calculations
Calculation of Cost Base
Purchase Price 2000 2.97 5941.95
Sales Price 125000 125000
4

Net Capital Gain/loss 119058.05
As property purchase before
11.45 am on 21st sept 1999 the
indexation model will be applied
Indexation Table
May 85 37.9
Apr 18 112.6
Interpretation
The Collectable was purchased after 11:45 am on 21st September 1999, Indexation
Method has been applied. The contractual obligation has taken place in current year dated 3rd
April so CGT will be also be of same year. Indexed purchase price after taking into consideration
of index factors has been calculated as $5941.95 and sale proceeds received are $125000, So
there is Capital gain of $119058.05 and will be charged in current year.
(d)Shares
The Shares will also be treated as in same manner as other capital asset as they are also a
type of property as defined by ITA act 1997. The event of capital gain will be considered when
there is sale or transfer of shares.
(i)Trade of Common Bank Ltd Shares
Purchase Cost of shares
Particulars Amount
Cost of Purchase per shares(a) 15
No. of shares purchased(b) 1000
Add Stamp cost on purchases(c) 750
Net purchase cost d=(a*b)+c 15750
Proceeds from sale of Shares
5

Particulars Amount
Sale Price per share (a) 47
No. of shares sold(b) 1000
Less Brokerage Paid(c) 550
Net sales value e=(a*b)-c 46450
Net Capital gain/Loss
Particulars Amount
Gain/Loss (e-d) 30700
(ii)Trade of PHB Iron Ore Ltd
Purchase Cost of Shares
Particulars Amount
Cost of Purchase per shares(a) 12
No. of shares purchased(b) 2500
Add Stamp cost on purchases(c) 1500
Net purchase cost d=(a*b)+c 31500
Proceeds from Sale of Shares
Particulars Amount
Sale Price per share (a) 25
No. of shares sold(b) 2500
Less Brokerage Paid(c) 1000
Net sales value e=(a*b)-c 61500
Net Capital Gain/Loss
Particulars Amount
Gain/Loss (e-d) 30000
6

(iii)Trading of Young Kids Learning Ltd
Purchase Cost of shares
Particulars Amount
Cost of Purchase per shares(a) 5
No. of shares purchased(b) 1200
Add Stamp cost on purchases(c) 500
Net purchase cost d=(a*b)+c 6500
Proceeds from Sale of Shares
Particulars Amount
Sale Price per share (a) 0.5
No. of shares sold(b) 1200
Less Brokerage Paid(c) 1000
Net sales value e=(a*b)-c -400
Net Capital Gain/ Loss
Particulars Amount
Gain/Loss (e-d) -6900
(iv)Trading of Build Ltd.
Purchase Cost of Shares
Particulars Amount
Cost of Purchase per shares(a) 1
No. of shares purchased(b) 10000
Add Stamp cost on purchases(c) 1100
Net purchase cost d=(a*b)+c 11100
Proceeds from sale of shares
7

Particulars Amount
Sale Price per share (a) 2.5
No. of shares sold(b) 10000
Less Brokerage Paid(c) 900
Net sales value e=(a*b)-c 24100
Net Capital gain/Loss
Particulars Amount
Gain/Loss (e-d) 23000
Interpretation
In above cases (i)(ii)(iii) the shares are purchase after 11:45 am 21st September 1999
“Discount Method” will be applied and taxable CGT will be 50% of capital gain/loss.
Net Capital Gain/Loss for the 1st three points will be as follows-:
Particulars Amount
Total Capital Gain or loss will be 53800
Taxable capital gain will be
(53800*50%)
26900
But as shares of Build Ltd in point (iv) are traded within 12 months that means transactions of
sales and purchase has taken place within twelve months, so “Other' s Method” will be applied.
This method states that Net Sales Proceeds Less Net Cost of Purchase will be taxable capital
gains.
Particulars Amount
Sales Value point iv 24100
Purchases Cost in point iv 11100
Taxable Capital Gain/Loss 13000
(e)Violin
This is also a type of collectable, all provision that are taken into consideration for
antiques and paintings will also be applied to Violin.
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Net Capital gain/ loss will be-:
Particulars Amount Indexation factor Net Amount
Indexed Cost of Purchase 5500 1.65 9093.98
Net Sales Proceeds 12000 12000
Taxable Capital gain 2906.02
Indexation Table
Year Index rates
1999 68.1
2018 112.6
Interpretation
Collectables was purchased before 11:45 am on 21st September 1999, So “Indexation
Method” had been applied. So taxable capital gain after indexing is $2906.02.
Taxable Capital Gain/ Loss
Total Taxable Capital Gain/Loss of Current year before setting off 158694.98
Set of Carried Forward of Losses
Collectables Losses can be set off only by profits of these types of asset that can be even
past year losses and can be carried to infinite no. of years has been prescribed by Section 102 Of
ITA act 1997.
Particulars Amount
Capital losses from past year 7000
Collectables losses of current year 1500
Total Losses that can be set off 8500
Setting off Collectables loss with their profits are priority so firstly they need to set off that
losses.
9

Particulars Amount
Total Capital gain From Collectables in current year 118794.98
Less setting off Capital losses from collectables 1500
Net Taxable Capital gain from Collectables 117294.98
Net Capital gain/Loss after setting off losses from collectables are $157194.98.
Now Past Year Losses can be set off with left over profits-:
Particulars Amount
Net capital gain after setting off losses from
collectables
157194.98
Less setting off Capital losses of past year 7000
Net Taxable Capital Gain 150194.98
Interpretation
After taking into consideration of all provisions of ITA Act 1997 and information given
by client taxable capital gain/loss for current year ending 30th June is $150194.98.
QUESTION 2
Employer Provided Car to Employee
(a) Rapid Heat Pty Ltd. an Electric Heaters Manufacturer provides Fringe Benefits to their
employees. They have provided different benefits so in this question there is need to calculate
Fringe Benefits Tax which is governed by Fringe Benefit Act 1986.
The car provided as benefit will be treated as private use when vehicle is not parked in premises
of business and had been parked at home of employee is mentioned under section 7 of FBTA act
(Car Fringe Benefits Tax. 2018.). The Definition of car is also provided by act. They include-:
1. Vehicle that carry passenger less than 9.
2. Loading Capacity of Vehicle should not be more than 1tonne.
3. Station Wagons, Vans, Motors cars etc.
FBTA act also provides different methods to calculate Fringe Benefits under Section 9, that are-:
1. Cost Method-: Gross taxable Value has been shown as actual value
2. Statutory Method-: Actual value of cars has not been shown as Gross taxable value
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