Spiceco Ltd.: Fringe Benefits Tax and Capital Gains Tax Implications

This assignment provides a detailed analysis of Fringe Benefits Tax (FBT) and Capital Gains Tax (CGT) implications for Spiceco Ltd. The first part of the assignment focuses on FBT, explaining the regulations of the Australian Taxation Office, different types of fringe benefits (car parking, car, entertainment, etc.), and the calculation methods, including the statutory formula and the operating cost method, with a specific example of car fringe benefit calculation. The second part of the assignment addresses Capital Gains Tax, analyzing various scenarios: the sale of a house (main residence exemption), the sale of a painting (collectables), the sale of a yacht (personal assets), and the sale of shares, including the calculation of capital gains or losses, and the application of relevant tax provisions and exemptions. The assignment emphasizes the importance of choosing the most advantageous method to minimize tax liability and provides calculations for each scenario, explaining the relevant provisions of the Income Tax Assessment Act 1997.

Question 1
In accordance with the regulations of Australian Taxation Office, the Fringe Benefits Tax is to be
paid by the employers in relation to different benefits that are given by the employers to their
employees and family members of employees. The value of the Fringe Benefits Tax is calculated
on the Fringe Benefit Taxable value. Thus the Fringe Benefits Tax is tax different from the
income tax. The assessment of the Fringe Benefits Tax liability is calculated for the period April
1 to March 31 as this is the Fringe Benefits Tax year. (Tracey Dunn, 2019)
The employers are allowed to claim the deduction of the expense that is being incurred for
providing different Fringe Benefits to the employees, and the Fringe Benefits Tax paid can also
be claimed as the income tax deduction.
The various types of Fringe Benefit are Car parking fringe benefit, Car fringe benefit,
Entertainment related fringe benefit, Expense payment fringe benefit, Debt waiver Fringe
Benefit, Loan Fringe Benefit, Board Fringe Benefit, Housing fringe benefit etc.
When the employers give their car to the employee for their personal use, then it leads to Car
fringe benefit. The Car Fringe Benefit arises on any of the following cars such as sedan car, any
vehicle carrying goods which are having to carry capacity of less than one tone and any vehicle
which will carry less than 9 persons. (ATO, 2019)
Thus the Car Fringe Benefit arises when the car is given for the personal use of the employee.
When the car is given for travelling from home to work or vice versa, it is being considered that
the car is used for personal purposes. But the use of a car for travelling from work to home is
exempt from the Fringe Benefits Tax. There are various benefits that are related to the use of the
car by the employee, such as Fringe Benefit in relation to expense payment and also the Residual
fringe benefit.

The taxable value of the Car Fringe Benefit is calculated by the method of the statutory formula
which is based on the acquisition cost of the car and the method of the Operating Cost which is
based on the cost of operation of the car. The method which provides the employer lower
Taxable value of Fringe Benefit can be used in order to minimize the Fringe Benefits Tax
liability. The method used in the previous year is not having any relation to the method of
calculating the value of Fringe Benefit in the current year.
The statutory formula method for computing the value of Car Fringe Benefit is computed on the
basis of the base value of the car and statutory percentage applicable on the car.
The taxable value in relation to the Car Fringe Benefit is computed on the basis of the total
operating costs, the percentage of the use of a car for private purposes and the contribution of the
employee. The cost of operation of the car includes the cost incurred actually and costs which are
deemed and not incurred actually. The actual cost of operating will include the cost of repairs,
maintenance, fuel expenses, registration expense, insurance expenses and cost of leasing. The
operating costs which are deemed include the expenses in relation to depreciation and the
interest. The value of the deemed depreciation is computed by using the depreciated value of the
car and the value of the deemed depreciation rate.
The deemed interest is determined by multiplying the interest rate at the statutory level and the
depreciated value of the car.
FBT liability=Taxable value of Fringe Benefit x rate of FBT
The calculation of the depreciation for the FBT year ending 2018-19
Particulars Amount
Cost of car 18000
Rate of depreciation 25%
Depreciation = 18000 x .25

= $4500
The calculation of interest for the FBT year ending 2018-19
Particulars Amount
Cost of car 18000
Statutory interest rate 5.20%
Interest = 18000 x 5.20%
= 936
The calculation of the total cost of operation of car for the FBT year ending 2018-19
Particulars Amount
Cost of repairs 3300
Cost of insurance 2200
Cost of fuel 990
Deemed Depreciation 4500
Deemed Interest 936
The total cost of operation 11926
The calculation of Taxable value of Car Fringe Benefit Tax
Particulars Amount
Total operating cost 11926
Private use 30%
Amount of contribution by the employee $1000

Value of fringe benefit = (11926 x .3)-1000
= $2578
Rate of Fringe Benefit Tax 47%
Fringe Benefit Tax liability = 2578 x .47
= $1212
The calculation of the value of Fringe Benefits Tax by using the statutory method
Particulars Amount
Cost of car 18000
Applicable statutory percentage 20%
Value of fringe benefit = 18000 x 20%
= $3600
Rate of Fringe Benefit Tax 47%
Fringe Benefit Tax liability = 3600 x .47
= $1692
Spiceco ltd. should use the operating cost method for the computation of the Fringe Benefits Tax
liability as the amount of tax to be paid is less in this method in comparison to the statutory
method. Thus, it will help in minimizing the Fringe Benefits Tax liability. (Australian
Government, 2018)
Question 2

1. Sale of house
Issue: Daniel is in the requirement of funds in order to make a super investment. Thus he had
planned to sell various assets. In this case, he had entered into an agreement to sell the house and
house sold in the auction, but the buyer was not able to proceed with the contract due to a
shortage of funds, and thus the initial deposit was forfeited by Daniel.
Regulations: In accordance with the Taxation Ruling TR 1999/19 of the ITAA act 1997, if the
deposit in relation to a contract for sale of property is being received by the seller, and the
amount is being forfeited, and the event of forfeiture is a part of the Continuum Events which
will lead to sale of property at a later date, then the proceeds of forfeiture are being considered as
the capital proceeds and hence accordingly will be taxable. But the provision provides that if the
asset is acquired before 20 September 1985 or comes under the ambit of exemption by the view
of the main residence, then there will be no consequences of Capital Gain Tax on the amount of
forfeiture.(L. Olivier, 2017)
Applications: In this case, Daniel had been living in the property for 30 years. Thus the property
will come under the ambit of the exemption of the main residence, and hence no Capital Gain
Tax provision will be applicable on the forfeiture amount received in relation to the sale of the
property.
Conclusion: No Capital Gain Tax liability will arise as the property comes under the main
residence exemption.
2. Sale of painting
Issue: In this case, Daniel had sold the painting which he had acquired on 20 September 1985.
He had acquired the painting for $15000 but had sold the painting for $125000. Thus he is
concerned to know the Capital Gain that will arise on the sale of the painting.

Provisions: In accordance with the provisions of Section 108-10 of Income Tax Assessment Act
1997, the painting is considered as part of the collectable. The Capital Gain arising from the sale
of collectable is exempted if the cost of acquisition of collectable is $500 or less than $500. The
capital losses that arise on the sale of collectables are eligible to be set off against the Capital
Gain that will arise from collectable.(ATO, 2018)
Applications: In this case, the collectable had been acquired on 20 September 1985. Thus the
Capital Gain will arise on its sale. The Capital Gain will be the difference between the sale price
of the painting and the cost of acquisition of the painting. The discount method will be used as
the holding period of an asset is more than 12 months.
Conclusions: The calculation of Capital Gain is as under:
Particulars Amount
Capital proceeds from painting sale 125000
Less: acquisition cost of painting 15000
Capital gain 110000
50% discount 55000
Net capital gain 55000
3. Sale of yacht
Issue: Daniel had sold the Yacht which he had acquired when he was a member of the yacht
club. He had acquired the yacht for a price of $110000 but had sold the yacht for a price of
$60000 in the current year. Thus he is concerned to know the amount of Capital Gain or Loss
that will arise in regard to the sale of the yacht.
Provisions: In accordance with the provisions of the Australian Taxation Office, the yacht
comes under the ambit of personal assets in relation to capital gain. The personal assets are the

assets that are basically kept for the enjoyment of the taxpayer. The personal use assets that are
acquired at a price of less than $10000 are not considered for the purpose of capital gain. Hence
no Capital Gain Tax provision will be applicable. The exemption in relation to the sale of
personal use assets arises only when the asset is acquired at a price of less than $10000. The
capital losses that are incurred in relation sale of assets which come under personal use are not
taken into consideration, and hence the Capital Losses made on assets under personal use are of
no importance and cannot be used to set off any kind of capital gain. (Euan Black, 2019)
Applications: In this case, Daniel had sold the yacht in the current year at a price of $60000, but
it was acquired at a price of $110000. Hence the Capital Losses arise on the sale of yacht that is
the personal use assets. But the Capital Losses arising on the sale of the assets which come under
personal use are ignored; hence, no benefit of capital losses will be available.
Conclusions: The net capital loss of $50000 arising from the sale of the yacht is disregarded and
will not be eligible for the purpose of set off against any of the Capital Gain.
References
https://www.ato.gov.au/General/Capital-gains-tax/CGT-assets-and-exemptions/#collectables
4. Sale of shares
Issue: Daniel had sold the shares which he had acquired in January 2019. The shares are sold at
a price of $80000 but had acquired the shares for $75000. Thus he wants to know the Capital
Gain Tax consequences that will arise in relation to the sale and the treatment of various costs
associated with the sale and purchase of shares.
Provisions: In accordance with the provisions of the Australian Taxation Office, the shares are
the part of the capital assets, and the sale of shares leads to a Capital Gain Tax event. The shares

had been held for a period of only 6 months; thus, the indexation benefit will not be available on
the cost of shares. The discount method also cannot be applied in relation to the Capital Gain as
the holding period of assets is less than 6 months. There are various expenses that are incurred in
relation to the purchase of shares; hence, the cost of the expense will become part of the cost
base for the purpose of computing the capital gain. There are different expenses that are incurred
in relation to the sale of assets, and thus, the amounts are to be deducted from the capital
proceeds. (Andrew Mirams, 2019)
Applications: In this case, stamp duty incurred on the purchase of shares will be added in the
cost of acquisition of shares and the brokerage paid on shares will be deducted from the capital
proceeds of shares. The amount of interest on the loan, which is non-deductible and is used to
finance the purchase of shares will also become part of the cost of owning the Capital Gain Tax
asset. Hence the Capital Gain will be computed as the excess of the net sale value and total cost
price of the asset. Conclusions: The calculation of Capital Gain in relation to shares is as under:
Particulars Amount
Capital proceeds from the sale of shares 80000
Less: brokerage paid on the sale of shares 750
Net capital proceeds 79250
Cost of purchase of shares 75000
Add: interest on the loan 5000
Add: stamp duty on the purchase 250
Total cost base 80250
Capital loss $1000
(a) The computation of the net Capital Gain or net Capital Loss is as under:
Particulars Amount

Sale of painting 55000
Capital loss on a yacht (1000)
Capital loss of the previous year 2017-18 (10000)
Net capital gain $44000
(b) The net Capital Gain of $55000 on sale of painting should be invested in the
superannuation funds.
(c) The net capital loss of $1000 on the sale of shares and $10000 in relation to previous year
sale of shares will be set off against the gain on sale of the painting.
References:
Australian Government, 2018, “Fringe Benefits Tax Act, 1986”; Available at:
https://www.legislation.gov.au/Details/C2018C00240
ATO, 2019, “Fringe Benefits Tax – Rates and Thresholds”; Available at:
https://www.ato.gov.au/Rates/FBT/

ATO, 2018, “Taxation Determination 2018/2: Fringe Benefit Tax: What is the benchmark
interest rate to be used for the Fringe Benefits Tax year commencing on 1st April, 2018?”;
Available at: https://www.ato.gov.au/law/view/document?DocID=TXD/TD20182/NAT/ATO/
00001&PiT=99991231235958
ATO, 2019, “Fringe Benefits Tax – A guide for employers”; available at:
https://www.ato.gov.au/law/view/document?DocID=SAV/FBTGEMP/00009&PiT=9999123123
5958/
ATO, 2019, “2019 Fringe Benefits Tax (FBT) Return”; Available at:
https://www.ato.gov.au/Forms/2019-Fringe-benefits-tax-return/
Australian Government, 2018, “Fringe Benefits tax (FBT)”; Available at:
https://www.business.gov.au/finance/taxation/fringe-benefits-tax
CommBank, 2019, “What is Fringe Benefits Tax”; Available at:
https://www.ato.gov.au/law/view/document?docid=TXR/TR199919/NAT/ATO/00001
Richard Hume‐Rothery, (1989) "FRINGE BENEFITS", International Journal of Manpower,
Vol. 10 Issue: 5, pp.43-47, https://doi.org/10.1108/eb045215
Tracey Dunn, 2019, “Fringe Benefits Tax – Tips and Traps for 2019 FBT Year”; Available
at: https://www.rsm.global/australia/insights/tax-insights/fringe-benefits-tax-tips-and-traps-2019-
fbt-year
ATO, 2018, “CGT Assets and Exemptions”; Available at:
https://www.ato.gov.au/General/Capital-gains-tax/CGT-assets-and-exemptions/#collectables
ATO, 2018, “Elements of the Cost Base and Reduced Cost Base”; Available at:
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/

Charles C. Holt John P. Shelton, 20xx, “The Implications of the Capital Gains Tax for
Investment Decisions”; Available at: https://onlinelibrary.wiley.com/doi/abs/10.1111/j.1540-
6261.1961.tb04237.x
L. Olivier, (2007) "Determining a taxable Capital Gain or an assessed capital loss: some
problems", Meditari Accountancy Research, Vol. 15 Issue: 1, pp.35-
50, https://doi.org/10.1108/10222529200700003
Euan Black, 2019, “What is Capital Gains Tax and How do I Calculate it?”; Available at:
https://www.realestate.com.au/advice/what-is-capital-gains-tax/
Youngdeok Lim, Christopher Evans, John Minas, 2018, “The Impact of Tax Rate changes on
Capital Gain realizations: Evidence from Australia”; Available at:
https://www.taxinstitute.com.au/tiausttaxforum/the-impact-of-tax-rate-changes-on-capital-gains-
realisations-evidence-from-australia
John Minas, Brett Freudenberg, 2019, “Reforming Australia’s 50 percent Capital Gain Tax
Discount Incrementally”; Available at: https://www.ssrn.com/abstract=3342859
Andrew Mirams, 2019, “A Complete Guide to Capital Gains Tax”; Available at:
https://propertyupdate.com.au/a-complete-guide-to-capital-gains-tax/
NAB, 20xx, “Calculating and Paying Capital Gains Tax”; Available at:
https://www.nab.com.au/personal/life-moments/manage-money/money-basics/capital-gains-tax