HI6028 Taxation Theory, Practice & Law Assignment T2 2018 Analysis

This document presents a comprehensive solution to a taxation assignment, focusing on capital gains tax (CGT) and fringe benefits tax (FBT). Part A analyzes CGT implications for a client's asset disposals, including vacant land, an antique bed, a painting, shares, and a violin, referencing ITAA 97 and relevant sections. The analysis calculates capital gains or losses for each asset, considering acquisition costs, incidental expenses, and disposal values. Part B addresses FBT, specifically examining the tax implications of a car loan and other benefits provided by a company, Rapid-Heat Pty Ltd, to an employee, Jasmine. The solution evaluates FBT on car utilization using the statutory method, calculating the value of the benefit and grossed-up value. It also touches upon FBT on loans, considering interest rates and conditions. The assignment provides a detailed breakdown of tax calculations and relevant legal provisions.

qwertyuiopasdfghjklzxcvbnmqwerty
uiopasdfghjklzxcvbnmqwertyuiopasd
fghjklzxcvbnmqwertyuiopasdfghjklzx
cvbnmqwertyuiopasdfghjklzxcvbnmq
wertyuiopasdfghjklzxcvbnmqwertyui
opasdfghjklzxcvbnmqwertyuiopasdfg
hjklzxcvbnmqwertyuiopasdfghjklzxc
vbnmqwertyuiopasdfghjklzxcvbnmq
wertyuiopasdfghjklzxcvbnmqwertyui
opasdfghjklzxcvbnmqwertyuiopasdfg
hjklzxcvbnmqwertyuiopasdfghjklzxc
vbnmqwertyuiopasdfghjklzxcvbnmq
wertyuiopasdfghjklzxcvbnmqwertyui
opasdfghjklzxcvbnmqwertyuiopasdfg
hjklzxcvbnmrtyuiopasdfghjklzxcvbn
mqwertyuiopasdfghjklzxcvbnmqwert
yuiopasdfghjklzxcvbnmqwertyuiopas
dfghjklzxcvbnmqwertyuiopasdfghjklz
TAXATION

Taxation
Part A
Question 1
On the basis of the framework of income tax assessment act 97 at have been observed that the
capital gains tax can be asserted on the disposal as a whole. Changes that have been incurred
by the organization in between the cost base and proceeds that have been ordered by the
organization from the assets are used to attract capital gains. This will help the organization
to determine a path for earning capital gains or losses. However, for this particular scenario,
the process of taxation for capital gains was not conducted in an effective manner because of
which incorporation of the usual income was noticed (Cartwright, 2013). Under the fourth
section of ITAA 97, it has been mentioned necessary to determine any type of capital gains
tax so that analysis can be made on the presence of capital gain or loss that have been
incurred by the organization.
a. Vacant land:
If a property owned by an organization is not being utilized in a proper manner, it will attract
capital gains tax. Also, this vacant land will be previewed under CGT as asset disposal in
general. On the basis of section 108.5, it has been observed that the assets with attract capital
gains includes all type of property, legal and other rights which are not signified as property.
In relation to this, the basic assets forming the part of capital gains tax are Goodwill, land,
building, interest associated with partnership assets, unit trusts, etc (Kenny, 2016).
After making the clear analysis on the above scenario it has been clearly observed that if the
vacant land will be disposed of, it will attract the scope of capital gains tax which has been
recorded at the value of $320,000. Also in the rear 2001, it was observed that the company
acquired and vacant land for an amount of $100,000. This land also had many incidental
expenses related to its which attracted a Tax amount of $20,000 as well. Has a total capital
gains tax that was computed for the above scenario could be evaluated by subtracting the
incidental expenses from the Asset disposal value.
Therefore, total capital gain= 320000 - (acquisition rate + water costs, sewage cost, council
rates, etc)
= $200,000.
2

Taxation
In relation to the previously mentioned scenario, it can also be observed that the total capital
gains tax that was collected from the lands owned by the organization amounted to $200000.
Hence, the entire value should not be submitted on the date of transfer instead only an
amount of $20,000 should be submitted.
b. Antique bed
The company had a lot of collectibles that came under the preview for capital gains tax.
Collectibles like artwork; antiques, jewellery, etc. were owned by the company and were
reflected in the statements attracting the capital gains tax on the basis of section 108.5. One of
the most primary collectibles of the organization was a bed of Louis XIV which was not
considered to be a part of pre CGT asset and was therefore prohibited from the exemption
(Kobestky, 2005).
This bed was stolen on 12th November and this information was to be referred as at the
disposal date. The taxpayer is bound to register a complaint to the insurance organization and
claim the entire amount back. Only a claim of $11,000 was received by the taxpayer for the
antique bed. The incidental cost of such asset amounted to $3,500. However, search expenses
and incidental costs can be presented in the following way:
(Quarter index value when the asset is sold/ quarter index value of the purchase of asset) *
Incidental expenses
In accordance with this, index figure in the procurement of bed (July 21, 1986) = 43.2, index
figure during the occurrence of incidental cost (October 21, 1986) is equal to 44.4 and index
figure in relation to loss on antique (November 12, 2017) is equal to 112.1, respectively.
Moreover, indexation of such incidental expenses = 112.1/44.4 = 2.525
Further, indexation of base expense = 112.1/43.2 = 2.595
Total capital loss or gain from an antique bed
After the process of indexation, the incidental expense shall value at 2.525*1500 = $3787.5
and after the indexation process, the purchase expense shall value at 2.595*3500= $9082.5
Therefore, net base expense = $3787.5+$9082.5 = $12870
Claims received from the insurance organization = $11000
3

Taxation
Thus, the total capital loss from the same is equal to $12870 subtracted with $11000 that
amounts to $1870 respectively.
Thus, since the date of procurement is prior to September 20, 1985, it must be noted that the
same must not come under the scope of the pre-GST asset. Overall, the same is also
exempted from the applicability of capital gains tax.
c. Painting
In accordance with the requirements of section 108.5, it has been clearly mentioned that the
painting also comes under the approach of capital gains tax. Hence, in the above scenario, the
painting that has been prepared by the organization on 2nd may 1985 at a value of $2000 is
also to be charged for CGT. Therefore, it should be kept in mind that it is not procured as a
pre-CGT asset and hence is also exempted from the applicability of capital gains tax
(Woellner et. al, 2017).
d. Shares
On the basis of the requirements stated in section 108.5 of the ITAA act, shares are
considered to be both tangible and intangible in nature and therefore, it falls under the
boundary of capital gain tax. If the shares are held for the purpose of trading then it attracts
section 6 and applicability of ITAA 97 will be taken away. Such income then will be
considered as an ordinary income. In the given scenario, some shares of Young kids, PHB
Iron Ore and the Common bank were purchased on 21st September 1999 and these shares
were offered for sale on the event date. As we can see, the shares have been held for more
than twelve months so a discount of 50% will be applicable. The shares of Share Building
Ltd has been purchased and sold in the same year and so the discount rate is not applicable
(Woellner et. al, 2017).
A. Expected profits from selling shares of Common Bank
Total capital gain = Disposed value less (stamp duty + purchase expenses)
= $(47000-550) less ($15000+750) = $30700
B. Expected profits from selling the shares of PHB Iron Ore
Total capital gain = Disposed value less (stamp duty + purchase expenses)
= ($62,500-1000) – ($30000+1500) = $30,000
4

Taxation
C. Expected profits from selling the shares of Young Kids Learning
Total capital gain = Disposed value less (stamp duty + purchase expenses)
= $(600-100) – (6000+500) = $6000
D. Expected profits from selling the shares of Shares Build Ltd
Total capital gain = Disposed value less (stamp duty + purchase expenses)
= ($25000-900) – ($10000+1100)
= $13000
Therefore, total capital gain= (30700+30000+6000+13000) = $67,700
e. Violin
In respect to this asset, it is accounted for the purpose of personal utilization on the basis of
section 108(5) that leads to attraction of the capital gain tax. It can be considered as a
personal asset because it was obtained for personal pleasure which lies under section
108.20(2). Also, such violin was bought for $ 5500 on 1st June 1999. On disposing of the
asset the gains that were obtained are as follows:
Total gain= value of asset disposal + asset’s cost base
= ($12000) – (incidental expenses + procurement rate)
Therefore, in relation to the disposal of the same, total gain reports at $6500
5

Taxation
Part - B
The employer of the company offers some complementary services and advantages to the
working staff of the company and for that, it spends a specific amount which is known as the
FBT (fringe benefits tax). All these can be summed up to be called the advantages that the
company is giving to its working staff which can also be attributed to the payment of non-
wages. An example can be given to of a company, Rapid-Heat Pty Ltd who are the
manufactures and constructors of bathtubs who have been seen to offer services related to
FBT to one of the working staff. In the year 2017 to 2018, it can be seen that a working staff
Jasmine gave a car loan and other products that were manufactured by the company. All this
was done for one specific reason and that was to show some complementary services being
made in the company to the government books and records. FBT evaluation can be made in
these possible ways.
Fringe benefits tax on car utilization
The authority of the company has to give fringe benefits tax and this is the reason that
Jasmine has been offered a car loan with respect to personal compliance. It has also been seen
that if the car brought up as FBT is failing to undergo the explanations then it will be
vulnerable and will expose other FBT hidden facts also. Some situation also exists in which
the FBT is not applicable to the car. Operating costing method and statutory method are the
two processes in which the evaluation of the FBT can be done (Fullerton et. al, 2017).
The statutory method is always preferred over the operating one as the latter requires log
books which all the key information about travelling and its expense to show of the desired
results which can be subject to changes as per personal changes and kilometre differences.
the company can be seen to offer the car to Jasmine for a price of $33000 and making it
available to her on the same date (Sadiq et. al, 2017). Jasmine has been showing the
reimbursed amount for the car to be about $550 and it travelled only for ten thousand
kilometres and this shows that the company did not have the chance to make the car available
for fifteen days in a year also. If the available information is void or vague and id no
6

Taxation
information is available, then the statutory method is said to be used and the same can be
evaluated in the following manner:
Value of benefit = (AxBxC)/D
Where, A= cost of car, B=statutory percentage, C=vehicle used for private purpose, D=
number of days in year, E= employees contribution. The following information can be
collected in relation to the given case.
A = 33000, B = 0.20, C = 320, D = 335 and E = 0
Thereforee, the valuation process can be continued in the manner as follows:
Overall, value of benefits = (33000*0.20*320)/335-0 that gives 6304
Hence, the grossed-up value comes at 6304*2.1463 that gives 13531
The above steps clearly shows that how in a company, the FBT can be evaluated and this case
it is related to the car.
Fringe benefits tax on the loan
The FBT on the loan is to be charged in only certain cases in which the loan amount interest
is charged on a low scale if compared to others which are generally a line about which the
low rate and the other terms are decided basically (Barcokzy, 2010). In certain cases it can be
seen that the staff who has been entitled to the loan is not able to make the payments with
time running out and if the authority does not ask for the same from the staff then this must
not be considered as a fringe benefit as it does not comply with the terms o the FBT.
In the current situation, it can be seen that the company provided Jasmine with a loan of
$50000 at a rate of interest of 4.45%. After this, it was seen that an additional amount of
about $450000 was offered to buy a holiday home and the returning amount was given in the
form of Telstra shares to Jasmine’s husband. The rate of threshold working in the current
situation can be seen to be 5.95%. Thus, the fringe benefit that can be incurred on such loan
7

Taxation
amount is = (Rate of benchmark minus rate that is charged by the employer) * the amount of
loan
It is observable from the given study that the fringe benefits value on loan = (5.95%-4.45%) *
500000*7/12 = 4375
Grossed-up amount= 4375*1.9608= 8579
If the loan which is provided by the company authority to Jasmine is used in a manner from
which there are income and profits arising, then such value are not taken into consideration
while evaluating the FBT (Nethercott, Richardson & Devos, 2013). Also it must be seen that
the company’s claim on the same is void as the shares have been gathered by Jasmine’s
husband as so deduction is the only possible way.
a. Fringe benefits tax on products
FBT applicable on the products made by the company is charged if the company sells it to
their respected employees at a rate which is lower than the one prevailing in the market. If
such a case arises then the charging rate of the FBT in the company must be dropped so as to
maintain a final requisite amount (Kenny et. al, 2016). It can be seen that the products which
are sold for about $2600 in the market are being given to Jasmine at a rate of $1300 and so
the company is liable to pay the FBT between $2600 and $1300. Therefore, value of fringe
benefit tax on the products = $2600-1300 = $1300
Thus, the company’s grossed-up amount is 1300 * 2.1463 that gives 4078
The average amount that the company is bound to pay as part of the FBT is as follows:
Grossed-up car value= 13531
Grossed-up value of loan= 8579
Grossed-up products’ value = 4078
Net total = 26188
If the rate of charging the FBT id about 49.25%, the the final amount will sum up to be
$12897. it can be thus said that the products made by the company area applicable to FBT
and the same amount must be paid off by the authorities.
8

Taxation
b. It can also be thought that id the employee Jasmine was able to use the car to an
amount of $50000, then the company would be able to purchase the shares of Telstra
and this would be the result that the company authority will get and interest deduction
of about $50000. so the new value can be evaluated as follows:
Value of loan’s fringe benefits = (5.95-4.45%) * 450000 * 7/12 = 3938
Grossed-up amount is equal to (3938*1.9608) that gives 7721
The summed up or the overall FBT that will be charged can be derived from the formula and
working beneath:
Grossed-up car value = 13531
Grossed-up loan value = 7721
Grossed-up products’ value = 4078
Net total = 25,330
In accordance with the calculations and the rates, the FBT will be charged at 49.25 % which
sums up to be $ 12475 which must be paid by the company as an FBT.
9

Taxation
References
Barcokzy, S. (2010) Australian Tax Casebook. CCH Australia Ltd
Cartwright, M. (2013). Death to the Australia Tax?. Retrieved from:
https://www.ato.gov.au/Individuals/Deceased-estates/Being-an-executor/Tax-
responsibilities
Fullerton, I.G, Deutsch, R, Friezer, M.L, Hanley, P & Snape, T. (2017). The Australian
Tax Handbook Tax Return Edition 2017. Thomson Reuters: Australia
Kenny, B. V. (2016). Australian Tax 2016. Thomson Reuters (Professional) Australia
Limited
Kenny, P, Blissenden, M, & Villios, S. (2016). Australian Tax 2017. Thomson Reuters:
Australia
Kobestky, M. (2005). Income Tax: Text, Materials and Essential Cases. Sydney: The
Federation Press
Nethercott, L., Richardson, G.,& Devos,K.. (2013). Australian Taxation Study Manual.
Oxford university Press
Sadiq, K, Coleman, C , Hanegbi, R, Jogarajan,S, Krever, R, Obst, R, Teoh, J & Ting,
A. (2017). Principles of Taxation Law 2017, Law book Australia
Woellner, R, Barkoczy, S, Murphy, S, Evans, C & Pinto, D. (2017). Australian taxation
law 2017. Oxford University Press Australia
10