Taxation Theory, Practice & Law: Capital Gains and FBT Analysis

This assignment addresses key concepts in taxation, focusing on capital gains and fringe benefits tax (FBT). It begins by determining the net capital gain of a client, analyzing various assets like vacant land, an antique bed, a painting, shares, and a violin. The calculations consider purchase prices, selling prices, and additional expenses, applying relevant tax models like the discount and indexation models. The second part of the assignment advises on analyzing FBT for an employee named Jasmine, considering car usage, and calculating the taxable value of fringe benefits. It details the steps for FBT calculation, including statutory formula and operating cost methods, along with a discussion of the pros and cons of offering fringe benefits. The assignment also analyzes the tax consequences of a loan used by Jasmine for purchasing securities, providing a comprehensive overview of taxation principles and their practical application.

Taxation Theory,
Practice & law

Table of contents
INTRODUCTION...........................................................................................................................1
QUESTION 1...................................................................................................................................1
Determining the net capital gain of client..............................................................................1
Question 2........................................................................................................................................2
Advising jasmine in analysing FBT on various assets...........................................................2
Analysing the tax consequences as per loan amount will be used by jasmine in purchasing
securities.................................................................................................................................7
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
Taxation theories and laws were developed by the government, includes lots of taxes
which should be practice in the organization. The assignment is based on taxation theory and
practice law. Various taxes which are payable and not payable by the employees in organization
are consisted by the taxation theories. Tax in country were introduced to defend the nation and to
maintain the institution of good government for the benefit to public. The net capital gain and
capital loss according to the information provided in the scenario will be presented in this
assignment. The study of this report will give the information about the fringe benefits tax with
the steps to solve. The study has evaluated the fringe benefit tax liability in tax credit relation.
Further, assignment will provide the non-fringe benefit amount for the provided information.
QUESTION 1
Determining the net capital gain of client.
The amount of profit ascertain from sale of different assets like stock, real state, bond is
called capital gain. The amount is said to be capital gain when selling price of capital gain
exceeds its purchase price. The capital gain is identified when the selling price is more than the
cost price of the particular goods. . This profit is counted as an income of the payee and
therefore, tax is charged for the year at which transfer of the capital \takes place . The capital
loss is just opposite to it. It arises when the selling price of the asset is lower than its purchase
price. Capital gains are of two types realized capital gain i.e. this investment which is sold for
the profit which is obtain from the investment and another one is unrealized capital gain, which
is not sold yet, but can earn profit when they are sold.
The information and the calculation of capital gain with its interpretation has been
discussed.
Block of vacant land
The contract has been done to sell the block of vacant land for $320000 in 3 June of
current. The client has taken this land on January 2001 for $100,000 and done $20000 extra
expenses on waste rates land taxes etc. at the time of her ownership. According to the contract of
sale, client has got amount $20000 at time of signing agreement and remaining amount is to be
given on 3rd January of the next tax year. The capital gain for its sale of land was calculated
under in the table.
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Interpretation:
The calculation of capital gain is done above in the table. In this the evaluation of cost
based index has been done by taking purchase price and additional charges occurred at the time
of sale into consideration. The purchase price of the land was $100000 in 2001 and at the time of
selling has incurred additional charges for $20000. So, the cost base unindexed was $120000.
after selling she get the amount of $320000 and from that the cost base index has been deducted
to obtain the gross capital gain. As per the section 54b, the asset which are inherited after 11:45
am on 21st September, 1999, the discount model apply. In this the exemption is given only in half
of the amount of capital which is $100,000.
Antique bed
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The bed has been purchased by client for $3500 on 21st July, with its insurance. In
present year, market value of bed is $25000, which was stolen from her house. She has now
claimed for insurance and for that, she has received $11000. calculation of capital gain is done in
the table
Interpretation
The calculation of capital gain is done by taking purchase price and additional charges of
insurance claim into consideration. In first step, calculation of cost based index is done for 12
November. The purchase price of bed was $10,157.22 and after adding additional expenses of
$4011.88, by including indexation rates the total cost based index incurred is 14169.09 in current
year on 21st January, the insurance claim was received for $11000. The gross capital gain was
$11000. As per the section, the property purchased before 11:45 am on 21st September 1999 the
indexation model will be applicable.
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Paintin
In this scenario, the painting from famous artist has been purchased by client for $2000
on 2nd May, 1985. The price of the painting has taken rise from sudden demise of artist. The
client decided to sell painting in an auction for $125,000 on April 3rd of present year.
Calculation of capital gain obtained from sale of painting is calculated under-
Interpretation:
In this case, as per the calculation is done, it is feasibly identified that on May 1985,
when she purchased the painting the price of that painting was $2000 including indexation model
rate, amounts $5941.95. When she decided to sale it in April 2018, the painting amounted to her
$125,000. She has received the capital gain of $ 119058.05. As per the section the property
purchase before 11:45 am on 21st September 1999 the indexation model will be applicable.
Shares
The scenario depicts substantial share portfolio received by clients many years ago. The
calculation of capital gain of client received from issue of share has been calculated under.
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Interpretation
1. In first case, 2011, the purchase price of share was $15 per share, number of
commonwealth share were $1000 and $750 was charges applicable on stamp duty. The
total cost incurred was $15750. On july 18 when client decided to sell her share than
selling price of share was $47 with the quantity of 1000 share, incurred brokerage amount
has been deducted which was $ 550. net sales volume was $46450. capital gain received
by client was $30700.
2. In second case, 2011, the purchase price of share was $12 per share, number of phb iron
ore Ltd shares were 2500 and $15000 was charges applicable on stamp duty. The total
cost incurred was $31500. On july 18 when client decided to sell her share than selling
price of share was $25 with the number of 2500 share, incurred brokerage amount has
been deducted which was $ 1000. Net sales volume was $61500. capital gain received by
client was $30000.
3. In first case, 2011, the purchase price of share was $5 per share, number of share of
young kids learning limited were $1200 and $500 was charges applicable on stamp duty.
The total cost incurred was $6500. On July 18 when client decided to sell her share than
selling price of share was $0.5 with the quantity of 1200 share, incurred brokerage
amount has been deducted which was $1000. net sales volume was $-400. capital loss
received by client was $6900.
4. In first case, 2011, the purchase price of share was $1 per share, number of shares of
build limited were $10000 and $1100 was charges applicable on stamp duty. The total
cost incurred was $11100. On july 18, when client decided to sell her share than selling
price of share was $2.5 with the quantity of 10000 share, incurred brokerage amount has
been deducted which was $ 900. net sales volume was $24100. capital gain received by
client was $53800.
Therefore adjusting the values of capital gain of the share of all the case, the overall capital
gain was $39900.
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Violin
In this case the client is fond of playing violin. She has acquired her violin on 1st
June 1999 for $5500. on may 21st she sold her violin for $12000. the evaluation of capital gain
obtained from violin is being done under.
Interpretation
In above calculation the cost price of violin in june 1999 was $5500 and she decided to
sell it and got the $12000. By excluding the gst benefit she received the capital gain of $2906.3.

Interpretation:
Question 2
Advising jasmine in analysing FBT on various assets
Fringe Benefits Tax
The important part of business which is very useful for indulging the staff is Fringe
Benefit Tax. Organization must take care of obligations for taxation before providing fringe
benefits to employee. This is a category of tax which employer pays to employee's in order to
get benefit to them in place of salary and wages. This tax differs totally from income tax. The
calculation of this is done on taxable value of fringe benefits given to person working in an
organization. It is mandatory for employer to register Fringe Benefit Tax under Australian
Taxation Office (ATO) before giving fringe benefit to person working inside it.
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Employers are bound to pay some fundamental tax under benefits of his or her
employees , called Fringe Benefit Tax (Nijland and Dijst, 2015.). It was an attempt to
comprehensively accused the tax on those benefit, which hedge the taxman. The tax consisted of
many ranges of services , long term care insurance, relocation assistance, legal assistance plan
facilities which are directly or indirectly given to employee's by its enterprise. The steps for
calculation is discussed under-
Steps Descriptions
Step 1 Computation of Fringe Benefit Tax amount given to workers.
Step 2 Figuring through value of FBT in which GST is not entitled.
Step 3 Compute the amount of fringe welfare in which GST is accessible.
Step 4 Multiply the value by 1. 8692 after the evaluation of non GST value.
Step 5 Later on valuation of GST amount of fringe benefits calculated by multiplying it
with 2.0647
Step 6 Add both the figures.
Step 7 The figure obtained is known as taxable value of fringe benefits on which FBT will
get practical. Rate of FBT is 47%
Pros and cons of offering fringe benefits
Pros
 The fringe benefits provided to employees helps in retaining them for a long term.
 Enterprise acquire the tax reward of deducting plan sharing, life insurance, considering
health insurance and pension plans.
Cons
 Increase in administration cost of businesses.
 Due to more fringe benefits employees should face the less salary.
Car and its repair
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There are two methods for the calculation of value of fringe benefit. The first one is
statutory formula and other is operating cost. Here in this method the statutory formula is being
used. In scenario, jasmine used car provided to her by organisation for official purpose as well
as for personal use. Car runs for 10000 kilometres at end of year. In expenses of $500 were
incurred. Some important statutory rates are given for the ease of solving the question.
Kilometers Statutory rates
Fewer than 15000 km 20.00%
15000 km to 24999km 20.00%
25000km to 39999km 20.00%
More than 40000km 20.00%
Interpretation: The evaluation for FBT of employee named Jasmine is conducted in
above table. Rapid heat Pty ltd have to make compensation for that figure which Jasmine has
incurred expenses on car in accounting year (Filatova, 2014). According to section 20 FBT for
car expense, where operating expenses of employee's vehicle is compensate according to the
distance travelled by car by employers. To exempt the benefits, for instance, deductions are
given reportedly to centime per kilometers traveled.
In this scenario, section 20 of Fringe Benefit tax is applicable. It is clearly
observed that amount incurred in additional expenses of $550 is added into tax taxable amount of
fringe benefits. The calculation includes situation of GST figure of 50 [550 * 1/11] which get
separated from entire due figure and this amount of money is later used to provide the FBT total
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payment. The car was valued at $33000 with the statutory rate 20%. The expenses of tenure for
car were $330. Therefore, the total payable value for fringe benefit is $6058.
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Loan
In accounting year 2017-2018 Rapid Heat Pty Limited has rendered loan to its employee.
She uses that loan for her personal use. A holiday home was taken by the Jasmine costing
$450000. Amount of loan was $500000 for which she has purchased a home amount $450000
and remaining amount she has transferred to her husband for purchase of share. The fringe
benefits of loan category arises when an organization provides loan to its employee .
As per Sub Division A – Loan Benefits (Section 17 Fringe Benefits Tax Assessments and
Exempt Loan Benefits) Division 4 – Loan Fringe Benefits, the value which is taxable for loan
fringe benefit is difference between interest that would have accumulated during Fringe Benefit
Tax, year enactment interest rate had applied to prominent day-to-day proportion of loan, and
any interest that actually increase (Crawford and et.al, 2015).
The benefit of the loan given to employee are charged with less rate of interest than
predefined benchmarks. The Jasmine uses only $450000 for property purchase and for rest
amount shares has been purchased, In this case according to the appropriate section law says
that remaining amount for which share are taken will provide money in return, so taxable fringe
benefit amount payable is only $450000.
Benchmarks rate for Fringe Benefit Tax
year Interest rates.
2017 5.65%
2018 5.25%
2019 5.65%
Interest amount for 450000@4.25%= $19125 (450000*4.25/100)
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Electric heater
interpretation
The electric heater from organisation has been taken by Jasmine during the accounting
year. It is considered that when employee's take any product from its own company where She
is working that may reduce selling price of that product as compare from outsiders (Burman and
et.al 2016). This deduction for electric heaters comes under fringe benefit tax. Transaction
consisted of -
selling price for outsiders = $2600
Amount charged to Jasmine + $1300
So Jasmine has got benefit of $1300 and also comes under taxable amount to
organization.
Computation of tax liability for entire fringe benefits-
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Analysing the tax consequences as per loan amount will be used by jasmine in purchasing
securities.
Interpretation:
If Jasmine uses transferred loan amount that was $50000 for purchasing share by herself
that value would never be considered for fringe benefits to Rapid Heat Pty Limited. This value
of $50000 is not taken for FBT because it she will purchased share and they give some returns.
As per legal section of fringe benefits this deduction is not consider for FBT (Brinkley, 2018).
The evaluation for revised benefits is given under in table by Rapid Heat Pty Limited.
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Particulars Calculations Amount
Interest (loan) 400000*4.25/100 $17000
Non exempted value on
interest
17000*1.8691 $31,774.7
Amount of fringe benefits $49,120
Fringe Benefit tax $23,086
deduct: sum of Good Service
Tax credit
$3,050
Net owed amount for Fringe
Benefit tax
23086-3050 $20,036
CONCLUSION
The above study concludes that taxation theories and other tax propounded by
government for the welfare of employers and employee's is very important for every
organization to have. The assignment as consisted of meaning of capital gain. The assignment
has also presented net capital gain of the client according to information. The study of tax
theories and laws includes meaning of fringe benefits and all steps to solve this. Later, Present
report has evaluated fringe benefit liability in tax credit relation.
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REFERENCES
Books and Journals
Brinkley, C., 2018. Fringe benefits: adding rugosity to the urban interface in theory and practice.
Journal of Planning Literature. 33(2). pp.143-154.
Burman, L.E., and et.al 2016. Financial transaction taxes in theory and practice. National Tax
Journal. 69(1). p p.171.
Crawford, G.C., and et.al, 2015. Power law distributions in entrepreneurship: Implications for
theory and research. Journal of Business Venturing .30(5). pp.696-713.
Filatova, T., 2014. Market-based instruments for flood risk management: a review of theory,
practice and perspectives for climate adaptation policy. Environmental science & policy.
37. pp.227-242.
Nijland, L. and Dijst, M., 2015. Commuting-related fringe benefits in the Netherlands:
Interrelationships and company, employee and location characteristics. Transportation
Research Part A: Policy and Practice. 77. pp.358-371.
Ojong, C.M., Anthony, O. and Arikpo, O.F., 2016. The impact of tax revenue on economic
growth: Evidence from Nigeria. IOSR Journal of Economics and Finance (IOSR-JEF).
7(1). pp.32-38.
Paolella, L. and Durand, R., 2016. Category spanning, evaluation, and performance: Revised
theory and test on the corporate law market. Academy of Management Journal. 59(1).
pp.330-351.
Tang, R. and Wan, J., 2015. Fringe benefits tax and fly-in fly-out arrangements: John Holland
Group Pty Ltd v Commissioner of Taxation. Australian Resources and Energy Law
Journal. 34(1). p.17.
Weber, R., 2014. Tax increment financing in theory and practice. In Financing economic
development in the 21st century (pp. 297-315). Routledge.
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