HA3042 Taxation Law - Fringe Benefits and Capital Gains Analysis

This case study delves into Australian taxation law, specifically focusing on fringe benefits tax (FBT) and capital gains tax (CGT). The first part analyzes the consequences of fringe benefits received through operating cost and statutory cost methods, detailing calculations for car fringe benefits and determining the more beneficial method. The second part examines capital gains events related to the sale of a house, a painting, and a luxury yacht, considering CGT implications, exemptions, and cost base calculations. Each scenario applies relevant sections of the ITAA 1997 and FBTAA 1986 to determine taxable amounts and potential discounts or disregarded losses. Desklib offers a wealth of similar resources for students seeking assistance with their studies.

Running head: TAXATION LAW
Taxation Law
Name of the Student
Name of the University
Authors Note

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Answer 1
In the present case study, issue is that the determination of the consequences of fringe
benefit obtained by the method of operating cost and method of statutory cost respectively.
The Fringe Benefit Tax in Australia has been dealt with in the Fringe benefits Tax
assessment Act 1986. As per s136 (1) of the said act, FBT is one of the benefits given to an
associate or an employee at a particular time, once in a year. The said phenomenon takes
place in respect of a financial year beginning with 1st of April to 31st of March of the
following year (Barkoczy 2016). FBT is one of the taxes which needs to be paid by the
employer and its gross up rate for 2018- 2019 financial year is 2.0802 and the rate is 47%.
Type 1 benefit is a benefit in which the Input Tax Credit can be claimed by an employer.
Section 7 of FBTAA throws light to Car Fringe benefits. This occurs when a car is
received by an employee from the employer for personal use.CFB can be found to be
calculated by using two different ways. Firstly, the statutory formula method defined under
the provision enumerated in Section 9(1) of FBTAA and secondly, the method of Operating
Costs enumerated under section 10(2) of FBTAA.
The statutory formula method is (0.2 * Base value of the received car * the total
number of days of year when the employee is provided the CFB / Total Taxable days of the
year)- the total payment amount of the recipient.
Under the method of operating cost; the formula is C * (100%-BP) – R,
where C denotes the cost of operation during the period of hold and it includes fuel
price, maintenance charge, registration fee and insurance payment as per s 10(3)(a). BP
denotes the percentage of business and R denotes the contribution, if any, made by the

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recipient. As per s.11, the Imputed Rate of Interest for the FY 2018-2019 is 5.2 percent as
given by TR 2018/3.
The TR 2011/3 states that when there is a contribution of the employee to the car’s
purchase price, the C.P (Cost Price) is reduced by amount of contribution made by the
concerned employee.
In fact it is seen that Lucinda has contributed $1,000 for the price of the car.
Additionally, the base value of the car amounts to $ 18000. That is to say, the base value
must be reduced by the employee’s contribution of $ 1000. In that regard, it can be said that
the value is $ 17000.
OPERATION COST METHOD OF CALCULATION
OPERATING COST METHOD
Particulars Amount
REPAIRING COST for Car 3300
Imputed INTEREST 884
Deemed value of Depreciation 4250
INSURANCE cost incurred 2200
FUEL cost incurred 990
TOTAL COST OF
OPERATING
PRIVATE USE
TOTAL KM run by car 20000
WORK USE of car by 14000

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employee
PRIVATE USAGE by
employee
6000
PRIVATE USE PERCENTAGE 30
Taxable FBT value
(TOC*PRIVATE USE) 3487.2
Deemeed Depreciation Amount
Cost Value of Car 18000
Employee's constibution 1000 TR
2011/3
Base Value 17000
Depreciation rate 25%
Deemed Depeciation
(BV*25%*365)/365 4250
Imputed Interest Amount
Car Base Value 18000
Less Employee contribution 1000 TR
2011/3
Base Value 17000

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Statutory Interest rate 5.20% TD
2018/2
Deemed Interest
(BV*5.2%*365)/365 884
STATUTORY FORMULA METHOD
STATUTORY FORMUAL METHOD
Details Amount
Car Base Value actual 18000
Less Employee made constibution 1000 TR
2011/3
Base Value adjusted 17000
Statutory rate of method 20%
private use PU 365%
Total Days 365
Taxble value
(BV*20%*(PU/TD) 3400
From the above calculation, it can be inferred that the statutory formula method is
comparatively better.

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Answer 2:
Section (a)
PART 1
Here in the instant situation the issue is to analyze the consequences of the capital
gain for the sale of assets.
Capital gain can be said to be one of the statutory incomes; requires capital gain’s
assets presence and an event of capital gain. One of the most capital gain events is CGE A1
which occurs when the tax payer dispose the capital gain asset. it is entrenched under s.
104.10(1) of ITAA 1997. The event’s timing is also very significant for the ascertainment
whether the said event has taken place in which Financial Year in this regard and whether the
asset is prior or post to the CGT. It is pertinent to note that a post CGT asset is allowed to be
denoted with the status of a CGT asset. It includes the assets acquired after 20th September of
the year 1985. As stated under the provisions/rules of s 108.5, a house is also included in a
CGT asset. Therefore, it is apparent from the said context that the selling of the house will
definitely and positively trigger a CGT event. As per the decision made in the case of
McDonalds v FCT (1998), an A1 CGT Event is considered to have occurred when the said
asset is sold or disposed. The Capital Gain or Loss is calculated in the formula which is CG
or CL= CP – CB. CP represents the Capital proceeds which is the price that is gained during
the sale of the asset and it also includes a house as per the provisions sated under the
provisions of s116.20 and it is also significant to note that it also includes the amount that
accrued to be received.
In addition to this, the CB consists of 5 elements which indicate that the cost to be
incurred by the TP in respect of the asset is elaborated under s. 110.25(1). The Element 1 of
CB is the Cost Price. Hence, for house, E1 is 70000dollars as entrenched in s110.25(2). E2 of
CB as entrenched in s110.25(3) is the 15000dollars paid to real estate agent. The time of

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formation of contract is 29.06.2019. The CP will amount to $ 865000. And the Net capital
gain for Mr. Daniel is 780000. Thus he can claim a 50 percent discount under division 115.
There are also few criteria which need to be met to avail the discount. It can be said that the
assests which are being hold for 1 year, acquired after 21.09.1999 and concerned person is
the individuals as laid down in s115.10, 115.15 and 115.25. Henceforth, total CGT appears to
be 390000. On the contrary, Daniel has been residing for 30 years in such property; that
shows it has become his main residence. So there is no reason for Daniel to pay the taxes for
capital gain since contract is retracted and Daniel retained the deposit. Therefore all events
that may take place in the next financial year (FY) have no importance.
Part 2:
Capital gain can be said to be one of the statutory incomes; requires capital gain’s assets
presence and an event of capital gain. One of the most capital gain events is CGE A1 which
occurs when the tax payer dispose the capital gain asset. it is entrenched under s. 104.10(1) of
ITAA 1997. The event’s timing is also very significant for the ascertainment whether the said
event has taken place in which Financial Year in this regard and whether the asset is prior or
post to the CGT. It is pertinent to note that a post CGT asset is allowed to be denoted with the
status of a CGT asset. It includes the assets acquired after 20th September of the year 1985.
The Capital Gain or Loss is calculated in the formula which is CP – CB. CP is the Capital
proceeds which is the price that is gained during the sale of the asset. Moreover, CB contains
5 elements (E) which indicates that the price to be paid by TP for an asset is laid down in
s110.25(1). The EI provides the cost price. It is also significant to note that it also includes
the amount that accrued to be received. There fore, the price is borne in relation to the TP of
the asset concerned. Here in this case, Margaret Preston’s painting has been acquired $15000
under section 110-25(2). The painting has been acquired in the 20th day of September 1985,
henceforth it is a CGT asset as it was not incurred prior to 23:55 hours of the 19th day of

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September of 1985, the CP, here is 125000 that is the price gained from the sale. And the
asset sold on Sept 21, 1999, the asset being hold for a year, the total CGT amounts to 55000,
therefore Daniel meets all the aforementioned criteria as he is an individual too. Hence all
conditions were met by Daniel.
Part 3:
Capital gain can be said to be one of the statutory incomes; requires capital gain’s assets
presence and an event of capital gain. One of the most capital gain events is CGE A1 which
occurs when the tax payer dispose the capital gain asset. it is entrenched under s. 104.10(1) of
ITAA 1997. The event’s timing is also very significant for the ascertainment whether the said
event has taken place in which Financial Year in this regard and whether the asset is prior or
post to the CGT. It is pertinent to note that a post CGT asset is allowed to be denoted with the
status of a CGT asset. It includes the assets acquired after 20th September of the year 1985.
The Capital Gain or Loss is calculated in the formula which is CP – CB. CP is the Capital
proceeds which is the price that is gained during the sale of the asset. Moreover, CB contains
5 elements (E) which indicates that the price to be paid by TP for an asset is laid down in
s110.25(1). The EI provides the cost price. It is also significant to note that it also includes
the amount that accrued to be received. There fore, the price is borne in relation to the TP of
the asset concerned. Here in this case the 1st element is inclusive of the cost price,that is to
say the 1st element of the luxury yacht’s cost base results into $110000 under section
110.25(2). The CP is $60000 which means the CL amounts to $ 50000. However, the said
section 108.20(2) stated that CL on personal asset use is not taken into account therefore
disregarded, then this loss is also disregarded. Here the cost base is said as reduced cost base.
Part 4:
Capital gain can be said to be one of the statutory incomes; requires capital gain’s assets
presence and an event of capital gain. One of the most capital gain events is CGE A1 which

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occurs when the tax payer dispose the capital gain asset. it is entrenched under s. 104.10(1) of
ITAA 1997. The event’s timing is also very significant for the ascertainment whether the said
event has taken place in which Financial Year in this regard and whether the asset is prior or
post to the CGT. It is pertinent to note that a post CGT asset is allowed to be denoted with the
status of a CGT asset. It includes the assets acquired after 20th September of the year 1985.
The Capital Gain or Loss is calculated in the formula which is CP – CB. CP is the Capital
proceeds which is the price that is gained during the sale of the asset. Moreover, CB contains
5 elements (E) which indicates that the price to be paid by TP for an asset is laid down in
s110.25(1). The EI provides the cost price. It is also significant to note that it also includes
the amount that accrued to be received. There fore, the price is borne in relation to the TP of
the asset concerned. Additionally there are five elements. The Element E1 of the CB of
shares is $75000 under the provision of section 110.25(2). Daniel incurred a capital loss and
RCB is not inclusive of 3re element of Section 110-25(4) therefore the loans will not be part
of calculation in this case being an undeductible expenditure. The element E2 is inclusive of a
$250 stamp duty. The capital proceeds, as enumerated under section 116.20 which is the
selling price. CP in the instant case is $ 80000 which will be modified by the reduction of $
750 under the head of brokerage fees under the provisions of section 116.30. Here in this
situation total loss of capital is $ 4000 (75250-79250). There is a further capital loss incurred
in the previous year on the heads of shares which leads to a reduction of total CG by $ 10000.
The net CG or CL for Daniel in FY 2018-2019 is:
House – 0
Painting – 55000
Yacht – 50000 (not regarded)
Shares – 4000

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Loss incurred from previous year – 10000
Total capital gain is – 49000
Section b:
Daniel is liable for payment of income tax in relation to the net capital gain of the present
financial year as it is a statutory income. The gain, then gets added in his assessable income.
Section c:
In regard to a net CL of the financial year it can be stated that Daniel has the eligibility to get
the amount in the subsequent financial year as an offset done for the pertaining shares,
provided, the collectibles is not able to be offset only in contrary to the collectibles. Loss of
Private property asset is not able to be offset against loss.

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References:
Barkoczy, S., 2016. Foundations of taxation law 2016. OUP Catalogue.
Fringe Benefits Tax Assessment Act 1986
Income Tax Assessment Act 1997 (Cth)
McDonalds v FCT (1998)