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

This assignment analyzes taxation principles, focusing on capital gains tax (CGT) and fringe benefits tax (FBT). It begins by outlining CGT provisions according to ITAA97, detailing how capital gains and losses are calculated, and providing examples for various assets including land, antiques, paintings, and shares. The assignment then presents a statement of net capital gain or loss for the tax year. The second part of the assignment addresses FBT, explaining its application and calculation for different scenarios, such as loans, cars, and electric heaters. It details the calculation of FBT on loans, considering benchmark interest rates, and on car fringe benefits using the statutory formula. The assignment concludes with a statement of total taxable FBT, providing a comprehensive overview of tax liabilities and calculations.

TAXATION THEORY, PRACTICE AND
LAW

Table of Contents
Question 1..................................................................................................................................2
Capital gain taxation provisions.............................................................................................2
Statement presenting net capital gain or net capital loss for the year ended on 30th June of
current tax year.......................................................................................................................6
Question 2..................................................................................................................................7
(a)...........................................................................................................................................7
(b)...........................................................................................................................................9
References................................................................................................................................11

QUESTION 1
Capital gains taxation provisions
The general and specific provision relating to the evaluation of capital gain tax liability is
provided in Section 100 to 149 of ITAA97. According to section 102-5 (1) of ITAA97 capital
gains are computable as statutory revenue and is treated as part of assessable income. Further,
section 104-10 CGT event applies when the asset is procured subsequent to 19/9/85 and
should have been transferred to another person. On the other hand, if the asset is not vented
although ownership will transform even than the provision of CGT will be used. Moreover,
the capital gain is determined if capital proceeds are more than the cost of assets. At the same
time, the capital loss is assessed if it is less than the cost of the asset.
Further, any type of property or legal right which is not a property will be regarded as an
asset for CGT purpose as per section 108.5 (1). In addition to this, rights regarding individual
service and the right to bring an action for personal service grievances are not considered to
be an asset for CGT purpose (Faccio and Xu, 2015).
Applicability
CGT functions through treating net capital gains like a taxable income in the tax year under
which an asset is vended or predisposed of. Further, it is to be considered that if an asset is
held for a minimum period of 1 year than any gain on it will be firstly discounted on 50% for
entity taxpayers, for superannuation funds by 33%. Moreover, capital losses could be
compensating against capital gains. Net capital losses in a tax year could not be compensated
against normal income but might be conceded further indefinitely.
Note: 1 Block of Land
Capital Gain on Sale of Block of Land
Selling price of asset $320000
Cost of asset (Working Note 1) $120000
Capital gain $200000
Cost of asset
Purchase Cost $100000

Cost incurred in local council $20000
Total $120000
As per above specified provisions even though the total amount of sales consideration has not
been received but the ownership has transferred in current year, thus the capital gain will be
taxed in present year only.
Note: 2 Antique Bed
Capital Gain on Sale of Antique Bed
Selling price of asset $0.00
Cost of antique bed $5000
Compensation Received $11000
Capital Gain $6000
Cost of acquisition of Antique Bed
Purchase cost $3500
Alteration Cost $1500
Total Cost $5000
Taxation provision relating to a scenario in which an asset is lost or destroyed has been
specified in section 24 of ITAA 97. The provision asserts that in case an asset is lost or
destroyed than same will be deemed to be the disposal of an asset (Jacob and Jacob, 2013).
However, the fact that compensation relating to same has been received or not will not
change the core of the provision that asset is required to be deemed to be treated as
disposable. Moreover, the compensation which has been received will be reduced from the
capital loss if any occurred.
Note: 3 Painting
Capital Gain on Sale of Painting
Selling price of painting $125000

Cost of painting $2000
Capital Gain $123000
Note: 4 Shares
 Common Bank Share
Selling proceeds
(1000*$47) $47000
Cost of acquisition
(1000*15) $15000
Brokerage Fees $1000
Stamp duty cost $1500
Total cost of acquisition $17500
Capital Gain $29500
 PHB Iron Ore
Selling proceeds
(2500*$25) $62500
Cost of acquisition
(2500*12) $30000
Brokerage Fees $1000
Stamp duty cost $1500
Total cost of acquisition $32500
Capital Gain $30000
 Young Kids Learning Ltd.
Selling proceeds

(1200*$0.5) $600
Cost of acquisition
(1200*$5) $6000
Brokerage Fees $100
Stamp duty cost $500
Total cost of acquisition $6600
Capital Loss ($6000)
 Share Build Ltd
Selling proceeds
(10000*$2.5) $25000
Cost of acquisition
(10000*$1) $10000
Brokerage Fees $900
Stamp duty cost $1100
Total cost of acquisition $12000
Short Term Capital gain $13000
As the shares of Share Build Ltd have been bought and sold within 12 months, other method
will be applied for calculation of capital gain and no indexation or discount method can be
applied to same.
Note: 5 Violin
Capital Gain on Sale of Violin
Selling Price of Violin $12000
Cost of Violin $5500

Capital Gain $6500
Note: 6 Carried forward loss
The individual is entitled to deduct carried forward capital loss from current year capital gain,
and remaining gains are taxable.
Statement presenting net capital gain or net capital loss for the year ended on 30th June of the
current tax year
Particular Amount in $
Short Term Capital Gain
Capital gain from the sale of share build .com (Note 4) 13000
Long Term Capital Gain
Block of Land (Note 1) 200000
Antique Bed (Note 2) 6000
Antique Painting (Note 3) 123000
Long-term capital gain / capital loss from shares (Note 4)
Common Bank Shares - $29500
PHB Iron Ore - $30000
Young Kids Learning - ($6000) 53500
Violin (Note 5) 6500
Total long-term capital gain for the current year 389000
Taxable long-term capital gain (389000*50%) 194500
Total taxable capital gain
($13000+$194500) 207500
A capital loss of the previous year (Note 6) (1500)
Net capital gain 206000

QUESTION 2
(a)
Fringe benefits tax (FBT) refers to tax duty which is to be compensated by the manager for
the benefit offered by them to their workers, family or acquaintances (Fringe benefits tax –
rates and thresholds, 2017). It is diverse from the calculation of income tax. It estimated by
taking into account the value of the benefit which is offered by the employer. According to
the background aspect of this tax, the responsibility of payment of this tax is on employees
for collectability of tax. The benefits which are considered as FBT are specified below but are
not limited to same:
 The provision for motor vehicles offered in a direct way or by a lease.
 Further, reimbursement of personal expenditure even if it is a component of basic
salary packages.
 Provisions for entertainment and repast, services of car parking.
 Interest-free or lower rate loan.
It is necessary to reveal the taxable amount calculated on fringe benefits which are provided
to workers, under Pay-as-you-go on a yearly basis as part of compensation summary for
every financial year that is 30 June 2018 at the end. After considering the aspect which is
described above, it can be observed that FBT is a tax responsibility enforced on the manager
and does not have an impact on tax duty of the workers. At the same time, it influences their
earnings thresholds on a conditional basis according to personal conditions of the worker.
There are two gross-up rates which can be utilized for the calculation of taxable amount, as
per provisions of FBT and they are:
 Higher Gross rate: This is taken into use when a worker is permitted for the credit of
GST which is compensated for the benefit offered to the workers.
 Lower gross rate: The tax rate is utilized in a situation when the conditions which are
described above are not fulfilled.
Note1: FBT on loan provided at a lower rate
A loan fringe benefit occurs when the loan is granted to a worker or employee by a company,
and no interest or very low interest is charged on the same (Chapter 8 - Loan and debt waiver
fringe benefits, 2017).

Loan given to Jasmine = $ 500000
Interest on loan charged by Rapid Heat = 4.25%
Bench mark interest rate of loan for year ended on 30th June 2018 = 5.30% ( Division 7A –
benchmark interest rate, 2018)
 $500000*4.25% = $21250
 $500000*5.30% = $26500
Thus, the FBT will be ($26500-$21250) $5250 without application of deductible rule.
Interest on the amount of funds which have been lend to the husband for investing in shares,
i.e. $50000 is (50000*5.3%) which is equal to $2650
Amount of interest paid to the company at the rate of 4.25% for the funds which were lent to
the husband for investment
$50000*4.25%, i.e. equal to $ 2125
The taxable value of FBT in relation to loan is ($5250-$2125) $3125
Note 2: FBT on car
Cost of Car = $33000
Amount reimbursed by employee= $550
No. of days car was used = 310 days
{356 -10 (10days when jasmine was interstate) -5 (5 days when the car was scheduled for
annual repairs) – (30days of April month as the car was provided on 1st May)}
The statutory rate is at 20% or 0.2.
The taxable value of the car fringe benefit by making use of the statutory formula:
= (33,000*20%*310/365) - 550
= $5055
Note: 3 FBT on Electric Heater

Any benefit provided by the employer to an employee due to the relation to employment is
considered a fringe benefit. In the present case, as the heater is provided at a lower cost due to
an employer-employee relationship only same will be applied for FBT.
Benefit = Cost at which heater is provided to the general public -Cost at which heater is
provided to Jasmine.
$2600-$1300
= $1300
Taxable value of FBT =$1300*47%
= $611
Statement presenting total Fringe Benefits Tax Value
Particular Amount in $
FBT on Loan (Working note 1) 3125
FBT on Car (Working Note 2) 5055
FBT on Heater 611
Total Taxable FBT 8791
(b)
Tax liability will be same even if shares are purchased by jasmine because the loan has been
provided for purchasing holiday home and not for the purpose of investing in shares.

REFERENCES
Capital gains tax. 2017. [Online]. Available through
<https://www.ato.gov.au/General/Capital-gains-tax/Working-out-your-capital-gain-or-loss/
Working-out-your-net-capital-gain-or-loss/>. [Accessed on 12th September 2018]
Chapter 8 - Loan and debt waiver fringe benefits. 2017. [Online]. Available through
<https://www.ato.gov.au/law/view/document?_What_is_a_loan_fringe_benefit_>. [Accessed
on 12th September 2018].
Division 7A – benchmark interest rate. 2018. [Online]. Available through
<https://www.ato.gov.au/Rates/Division-7A---benchmark-interest-rate/>. [Accessed on 12th
September 2018]
Faccio, M. and Xu, J.2015. Taxes and capital structure. Journal of Financial and
Quantitative Analysis. 50(03). Pp.277-300.
Fringe benefits tax – rates and thresholds. 2017. [Online]. Available through
<https://www.ato.gov.au/rates/fbt/>. [Accessed on 12th September 2018]
Jacob, M. and Jacob, M. 2013. Taxation, dividends, and share repurchases: Taking evidence
global. Journal of Financial and Quantitative Analysis. 48(04), Pp.1241-1269.