HI6028 Taxation Theory, Practice & Law Assignment: Taxation Analysis

This assignment analyzes various taxation scenarios for a tax consultant's client, covering capital gains tax (CGT) and fringe benefits tax (FBT). The assignment addresses the tax implications of selling vacant land, the loss of an antique bed, the sale of a painting acquired before CGT introduction, and the sale of shares, including the calculation of capital gains and losses. It also examines whether the sale of a violin attracts CGT. Furthermore, the assignment delves into fringe benefits tax, specifically assessing whether a car provided to an employee constitutes a fringe benefit and the employer's FBT liability. The document includes detailed calculations and explanations based on Australian taxation laws.

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

1TAXATION
Contents
Introduction:....................................................................................................................................2
Answer to question 1:......................................................................................................................2
Answer to question 2:....................................................................................................................14
Conclusion:....................................................................................................................................19
References:....................................................................................................................................20

2TAXATION
Introduction:
In Australia, Income Tax Assessment Act, 1997 is the main legislation governing
provisions related to matters of income tax including capital gain tax. The concept of capital gain
tax in Australia was introduced in the year 1985. Provisions of capital gain tax applies on sale of
assets subsequent to the introduction of capital gain tax in 1985. The provisions of Income Tax
Assessment Act 1997 (ITAA 1997), taxation rules (TR), notifications by Australian Taxation
Office (ATO) and case laws, where ever applicable, shall be considered to calculate the net
capital gain or loss of the tax payer in this document.
Answer to question 1:
(a)
Issue:
Is the sale of vacant land by the client on June 3 for $320,000 raise taxable capital gain to her
and when is the capital gain event (CGT) for the above sale as she received the amount on
January 3 next year when the sale was registered.
Rules:
As per the ATO, except for personal assets such as resident, home furniture and other personal
assets and business assets, sale of all other assets raises capital gain or capital loss to the tax
payer. Capital gain or capital loss is the difference between the sale proceeds received from sale
of a capital assets and the cost of the asset. The concept of capital gain tax was introduced on 20th
September, 1985 thus, assets acquired since then are liable to capital gain tax (Australia, 2016).

3TAXATION
According to ATO, in case of sale of vacant land or real estate properties, the time of the CGT
event is when the taxpayer enters into the contract to sale the land or real estate and not when the
contract is settled. Thus, in case the contract was entered in the current income year but the sale
proceeds was to be settled in the next year, the seller would be liable to capital gain tax in the
current income year as the time of CGT event is the time when the contract was formed and the
seller entered into contract to sale the capital asset (Burkhauser, Hahn and Wilkins, 2015).
Application:
It has been specifically told that the client does not carrying any business thus, the vacant land
sold by her is not a business asset, neither it is a personal asset. The asset was acquired by the
client in January 2001 thus, the asset is liable to capital gain or capital loss since it is after
September 20, 1985. Out of the sale price of $320,000, the seller will get $20,000 on the date of
entering into the contract and the balance January 3, next year (Jacob, 2018).
Conclusion:
The entire sale consideration of $320,000 shall be subjected to capital gain in the current income
year as the contract was entered into on June 3 even though the majority of sale proceeds will be
settled on January 3 of next year. Hence, the capital gain from the sale would be as following:
Particulars Amount ($) Amount
($)
Sale proceeds 320,000.
00

4TAXATION
Less: Cost base
Cost of acquisition 100,000.00
Local council cost 20,000.00
120,000.
00
Capital gain before discount 200,000.
00
Less: CGT discount (200000 x 50%) 100,000.
00
Capital gain 100,000.
00
(b)
Issue:
Is the loss due to theft of antique bed is a capital loss to the client and to be deducted from capital
gains of the client to ascertain net capital gain?
Rules:
ATO has specifically excluded personal assets including resident and furniture from the
perspective of capital gain tax. Such assets are not capital assets for capital gain tax (CGT)

5TAXATION
purposes in the country (Dixon and Nassios, 2016). Thus, in case of sale or involuntary disposal
of personal assets such as loss due to destruction and other reasons, CGT is not applicable. The
client is a collector and investor in antiques. Thus, in case of loss or destruction of antique
collection of her she will be assessed accordingly (Chardon, Freudenberg and Brimble, 2016). In
case the antique item is a personal asset of the taxpayer then she will not be liable to pay CGT on
the disposal of such asset. Similarly for involuntary disposal of such item if resulted in receipt of
insurance claim, then such amount would be considered as the proceed from involuntary disposal
for calculation of capital gain or capital loss on such asset.
Application:
Antique bed stolen on November 12 of current tax year is not a personal asset as it was not used
as such by the client. Since, she is an investor and antique collector, collection of such items is
natural. Loss of such asset will be considered as an involuntary disposal of capital asset.
Insurance claim received for such loss would be considered as the proceeds from involuntary
disposal, accordingly, capital gain or loss shall be calculated (Richardson, Taylor and Lanis,
2015).
Conclusion:
Taking into consideration the above it is clear that the antique bed stolen from the house of the
client is not her personal asset thus, subjected to capital gain tax. Accordingly, the capital gain or
loss on such antique bed is calculated below.
Particulars Amount
($)
Amount
($)

6TAXATION
Sale proceeds 11,000
.00
Less: Cost base
Market value by the expert 25,000
.00
Capital gain / (capital Loss) (14,000.0
0)
(c)
Issue:
Is the sale of painting for $125,000 by the client that was purchased on May 2, 1985 attracts
capital gain tax is the main issue to be discussed here.
Rules:
According to ATO, all capital assets acquired since September 20, 1985 are subjected to capital
gain tax (CGT). This is because on the day of September 20, 1985, capital gain tax was
introduced in the country. Thus, assets acquired before the introduction of CGT, i.e. prior to 20th
September, 1985 are not subjected to CGT. Hence, any assets sold by a tax payer that was
acquired by him or her before 20th September, 1985 will not be liable to the provisions of CGT
(Evans, Minas and Lim, 2015).
Application:

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In this case the tax payer acquired a painting by $2,000 of a well-known artist on May 2, 1985.
Though the price of the painting has significantly raise subsequent to the death of the artists
however, the sale price of such painting is not subjected to capital gain tax as the painting was
acquired before the introduction of capital gain tax in the country. CGT was introduced on 20th
September, 1985 and the paining was purchased on May 2, 1985. Painting has been defined
under collectables by ATO and has been specifically mentioned as a collectable which is
subjected to CGT but since the asset was introduced prior to introduction of CGT in the country
hence, no capital gain or loss is applicable on the sale of such painting (Chung, 2017).
Conclusion:
The client is not liable to pay CGT on disposal of the painting as it was acquired before 20th
September, 1985, i.e. before introduction of CGT in the country.
(d)
Calculation of capital gain or loss on sale of shares by the client:
Particulars Amount
($)
Amount
($)
Amount
($)
Sale proceeds from commonwealth bank shares 47,000
.00
Less: Brokerage on sale proceeds 55
0.00
Net proceeds from sale 46,450

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.00
Less: Cost base
Acquisition cost (1000 x 15) 15,000
.00
Stamp duty 75
0.00
15,750
.00
30,700
.00
Sale proceeds from PHB Iron Ore Ltd shares 62,500
.00
Less: Brokerage on sale proceeds 1,000
.00
Net proceeds from sale 61,500
.00
Less: Cost base
Acquisition cost (2500x 12) 30,000

9TAXATION
.00
Stamp duty 1,500
.00
31,500
.00
30,000
.00
Sale proceeds from young Kids Learning Limited 60
0.00
Less: Brokerage on sale proceeds 10
0.00
Net proceeds from sale 50
0.00
Less: Cost base
Acquisition cost (1200x 5) 6,000
.00
Stamp duty 50
0.00

10TAXATION
6,500
.00
(6,000
.00)
54,700
.00
Less: CGT discount (54700 x 50%) 27,350
.00
Capital gain (Long term gain) 27,350
.00
Sale proceeds from Share Build Limited 25,000
.00
Less: Brokerage on sale proceeds 90
0.00
Net proceeds from sale 24,100
.00
Less: Cost base
Acquisition cost (10000x 1) 10,000
.00

11TAXATION
Stamp duty 1,100
.00
11,100
.00
capital gain (Short term gain) 13,000
.00
Total capital gain from sale of shares 40,350
.00
Notes:
Shares have been classified as capital assets in case held as an investment. Sale proceeds from
sale of shares will be subjected to capital gain tax if acquired on or after 20th September, 1985. In
This case except the shares in Share Build Limited, all other shares were held for more than 12
months before the CGT event. Thus, except for sale of 10,000 shares of Share Build Limited the
benefit of CGT discount method will be available for sale of all the other shares (Hodgson and
Pearce, 2015).
Accordingly, the capital gain or capital loss from sale of the above shares have been calculated in
the table above.
(e)
Issue: