In-Depth Report on Capital Gains Tax and Fringe Benefits Tax

This assignment provides a detailed analysis of Australian taxation law, focusing on capital gains tax (CGT) and fringe benefits tax (FBT). It addresses various scenarios related to the sale of assets, including vacant land, antiques, paintings, shares, and personal use items like a violin, determining the CGT implications for each. The document also examines fringe benefit taxation issues, such as the provision of a car and expense reimbursements to employees, referencing relevant sections of the Fringe Benefits Tax Assessment Act 1986 (FBTAA). The analysis includes computations of net capital gains and discussions on the application of CGT discounts and exemptions. The assignment concludes by addressing issues related to expense payment fringe benefits and in-house expense payment fringe benefits under the FBTAA 1986.

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

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Table of Contents
Introduction:...............................................................................................................................2
Answer to question 1:.................................................................................................................2
Answer A: Block of Vacant Land:.........................................................................................2
Answer B: Sale of Antique Bed:............................................................................................3
Answer C: Painting:...............................................................................................................3
Answer D: Shares:..................................................................................................................4
Answer E: Violin:..................................................................................................................4
Answer to Question 2:................................................................................................................7
Answer to question 2 A:.............................................................................................................7
Answer A:..............................................................................................................................7
Issues:.....................................................................................................................................7
Laws:......................................................................................................................................7
Applications:..........................................................................................................................9
Conclusion:..........................................................................................................................11
Answer to 2 B:.....................................................................................................................11
References:...............................................................................................................................12

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Introduction:
The concept of capital gains tax is applied to the asset that are acquired or other event
taking place on or after the September 1985. Consequently, the terms of the pre-CGT and
post-CGT is commonly used to refer the assets that is purchased or events that take place
after the CGT event date (Seto 2015). The system of capital gains tax is applied on the system
on the disposal of the assets or from any other specified events.
Answer to question 1:
Answer A: Block of Vacant Land:
If an individual taxpayer has obtained the vacant land to use for the private purpose or
for the investment the land is generally regarded as the capital asset that will be subjected to
the capital gain tax when the land is sold by the taxpayer (Hoffman et al. 2014). As stated by
the Australian taxation office vacant land that is held by the taxpayer as the capital asset and
will be treated similar to any other asset for the purpose of capital gains. The taxpayer is
under the obligation of preserving the records of the date and costs for obtaining the land and
their ongoing expenses particularly the council rates and the interest on loan (Burns and
Ziliak 2017). The expenses however cannot be claimed as the income tax deductions but will
be included in the cost base of the land while computing the capital gains or capital loss when
the land is sold.
In the current case the taxpayer contracted to sell the vacant block of land for a sum of
$320,000. The taxpayer also reported outgoings on local council, water, sewerage rates and
land tax during the period of ownership of the land. The CGT event A1 happened under
“section 104-10 (1)” when the taxpayer sold the land (Stiglitz and Rosengard 2015). The
taxpayer under “section 102-5, ITAA 1997” will be required to include the net sum of capital
gains in their taxable income.

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Answer B: Sale of Antique Bed:
Under subdivision 108-B collectable definition has been provided. Under section 108-
10 (2) a collectable is anything that is mainly used by the taxpayer and their associate for
their personal enjoyment and use (Becker, Reimer and Rust 2015). “Section 118-10 (1),
ITAA 1997” defines that collectables with the purchase value of $500 or less will be
exempted from the provision of CGT.
Present instances from the case derived suggest that the antique bed was stolen from
the premises of the taxpayer. It was later found that antique bed was not the part of the
taxpayer’s list of specified matters in the policy of insurance.
Additionally, under “section 104-25 (1)” when the asset is destroyed or damage a
CGT event C1 takes place (Auerbach and Hassett 2015). The receipt of compensation in the
current case for the stolen bed give rise to CGT event C1 since the compensation received
was for the lost asset.
Answer C: Painting:
Usually the functions of CGT operates prospectively and it is applicable if the CGT
event takes place for the assets that are purchased on after the 20-9-1985. For majority of the
CGT events, there are exceptions given the CGT asset is acquired before 20/09/2018
(Godber, Thornton and Stewart 2017). Therefore, an asset that is purchased before the CGT
event is introduced are usually held as the exempted CGT asset.
As evident in the current situation it is noticed that the painting was acquired by the
taxpayer on 2nd May 1985. The taxpayer sold the painting in the current tax year for
$125,000. As the asset was acquired before the introduction of CGT or before 20/09/1985
therefore, the asset will be considered as the pre-CGT asset that is exempted from the CGT
event.

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Answer D: Shares:
For an individual taxpayer or investors CGT is applicable to the gains that is made
from the shares or units when the CGT event takes place particular when the asset is sold
(Bronfenbrenner 2017). It is worth mentioning that the shares in the company or the units
trust together with the managed funds are considered as the same way as any other asset for
the purpose of capital gains tax.
Profits made by the taxpayer from the sale of shares are usually treated as the ordinary
income (Fairfield and Jorratt 2016). The taxpayer in the current situation reports capital gains
from shares that was held in PHB, Build Ltd and Common Ltd. In the later events the
taxpayer also reported loss from the sale upon selling the shares of young kids learning. The
taxpayer in the present situation can set-off the capital loss from the sale of young kids
learning shares against the capital gains made from the sale of PHB, Build Ltd and Common
Ltd.
Answer E: Violin:
The personal use assets are dealt under “subdivision 108-C”. The definition of
personal use asset is defined under “section 108-20 (2)” as the asset that are usually regarded
as the non-collectable asset where the assets held by the taxpayer are for the personal
enjoyment and use (Faccio and Xu 2015). These assets are boats, furniture, electrical goods
or any household items. The personal use asset does not include the land and buildings.
While section 108-30 explains that the cost of ownership of the personal use asset is not
included.
As stated under “section 118-10 (3)” the cost base of the personal asset that is less
than $10,000 or less should be ignored (Pearce and Pinto 2015). The taxpayer is only
required to keep the details of the asset that is bought for more than $10,000.

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Evidence obtained from the case study explains that purchased the violin at the cost of
$5000. The violin constituted a personal use asset since it was used by asset for private
purpose only. As understood the cost of the asset was less than the stated limit of $10,000.
Therefore, the sale of violin and deriving capital gains thereon should not be ignored as it is a
personal use asset and exempted from CGT.
Below stated is the computation for the net capital gains made during the year.

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Particulars Amount ($) Amount ($)
Net Capital Gains on Sale of Vacant Land
Proceeds from sell of Vacant Block of Land 320000
Cost base 100000
Add: Ownership Expenses 20000
Add: Deposit 20000
Total Cost base 140000
Gross Capital Gains 180000
50% CGT Discount 90000
Capital gains on sale of shares
Proceeds from Common Ltd Shares (1000@ $47 per
share) 47000
Less: Cost Base (1000@15) 15000
Less: Brokerage fees 550
Less: Stamp Duty 750
Gross Capital gains 30700
50% CGT discount 15350
Shares in PHB Iron Ore Ltd
Sales Proceeds 62500
Less: Cost Base 30000
Less: Brokerage Fees 1000
Less: Stamp Duty 1500
Gross Capital Gains 30000
50% CGT Discount 15000
Shares in Young Kids Learning Ltd
Sales Proceeds 600
Less: Cost base 6000
Less: Brokerage Fees 100
Less: Stamp Duty 500
Loss on Sale of Shares -6000
Share Build Ltd
Sales Proceeds 25000
Less: Cost Base 10000
Less: Brokerage Fees 900
Stamp Duty 1100
Gross Capital gains on Sale of Shares 13000
Total Capital gains 1,27,350
Less: Capital Loss Carryforward 7000
Total Net Capital Gains 1,20,350
Calculations of Capital Gains Tax
For the year ended June 2018

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Answer to Question 2:
Answer to question 2 A:
Answer A:
Issues:
Will the taxpayer in the current issue be subjected to fringe benefit taxation from the
events that are reported in capacity of the employee under the “FBTAA 1986”? Is the
taxpayer accountable to pay the FBT for the car provided in respect of the employment? The
issue also rotates on ascertaining that whether the reimbursement of the expenses give rise to
the FBT with respect to the “S 39A of FBTAA 1986”? Additionally, the issue also gives
explanation regarding the loan fringe benefit given to the employee under “sub division A of
FBTAA 1986”.
Laws:
With respect to the “subsection 1D of the FBTAA 1986” an employer’s fringe
benefit represents the assessable sum for the year commencing from the 1st April 2000. The
word benefit and fringe benefit possess greater meanings for the purpose of FBT (Tang and
Wan 2015). The benefits comprise of the rights, privileges and the services. As defined under
the FBT legislation, an employer providing fringe benefit to the employee with respect to the
employment constitute benefit. The benefit provided some person is because they are the
employed as employee. The employee can anyone ranging from the former employee to the
future employee. An employee is that person that will be entitled to receive the salary or the
wages or the benefits in lieu of the salary or wages.
An employer will be held responsible for the fringe benefit tax given the employer
makes any payment to the employee or the company, or the holder of office that that are
subjected to obligations of withholding or the employer provides the benefits in lieu of the

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payments. Being the employer, a person is required to pay the FBT irrespective of the
circumstances whether the employer is the sole trader, partnership, unincorporated
association or the authority of government (Hodgson and Pearce 2015). This is also
irrespective of the fact that the employer pays the FBT to the employee or any other party. It
is worth mentioning that the FBT is payable irrespective of the situation whether they are
liable to pay the other taxes particularly the income tax.
A car fringe benefit under “section 7, FBTAA 1986” includes the benefit that arises
most commonly under the circumstances where the employer makes the car that they hold
available for the employee’s private use (White and Townsend 2018). For an employer the
car they generally hold is the car they make available for employee’s usage. The employer
generally makes the car available for the employee’s personal usage when the car is really
used for the private purpose by the employer. A car fringe benefit only arises when the car is
available by the employee for their private use during any day when the car is not at the
premise of their employer or the car is garaged at the home of the employee.
The “FBTAA 1986” states the general rule that travel from and to the work place will
be treated as the private use of the vehicle. Where the car is in the workshop for the purpose
of extensive repairs it is not regarded as the private use of the employee (Pearce and Hodgson
2015). However, the car will be treated as under the private use of the employee when the car
is in the workshop for the routine services or maintenance. The commissioner of taxation in
“Lunney v FCT (1958)” provided an explanation that travelling from the home and to the
place of work give rise to the employee personal use of car.
Referring to the “Division 5 of the FBTAA 1986” an explanation relating to the
expense payment fringe benefit might originate when the employer makes any form of
reimbursement for the expenses that the employee incurs (Godber, Thornton and Stewart

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2017). Alternatively, the expense fringe benefit arises when the employer pays the third party
in satisfaction of the expenditure that is occurred by the employee. In either of the cases the
expenditure might be business outgoings or the private outgoings or may be the combination
of both. The chargeable value of the expenditure fringe benefit represents the value that is
reimbursed or paid by the employer. Additionally, an in house expense payment fringe
benefit happens when the expenditure that is in incurred by the employee is reimbursed by
the employer.
Under “division 10A of the FBTAA 1986” the car parking fringe benefit happens for
each when the employer provides the employee with the space for parking car that is used by
the employee (Shields and North-Samardzic 2015). “Division 10A, FBTAA 1986” explains
that the car parking fringe benefit happens when all the below stated following conditions are
met;
a. The car is parked at the premises which the employer owns or leases
b. The car is parked inside the one kilometre area where the facilities of commercial
parking is available and charges fees for the entire day parking.
c. The car is parked for more than four hours during the day
d. The car is provided in relation to the employment of the employee
“Division 4 of the FBTAA 1986” provides explanation regarding the loan and debt
waiver fringe benefit (Seymour 2017). A loan fringe benefit happens when the employer
provides the employee with the loan and charges a very lower amount of interest rate all
through the FBT year. It is worth mentioning that the lower rate of interest is one which is
lower than the statutory rate of interest.

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Applications:
The case study opens up with the explanation that Jasmine is the employee of Rapid
Heat Pty Ltd that sells electric heaters. As the part of the employment, Jasmine was required
to travel a lot due to the work purpose. Rapid in such situation provided Jasmine with the car
for the work purpose. Jasmine can use also use the car for the private purpose as well. In such
a situation “section 7, FBTAA 1986” will be applied for Rapid Heat since the employer
provided the car to Jasmine for the work purpose as well as for the private purpose (Barkoczy
2016). Rapid Heat made the car available for the Jasmine personal usage as well as for the
work purpose during the course of the employment. With respect to the judgement made in
the “Lunney v FCT (1958)” the use car by Jasmine is a fringe benefit. While Rapid Heat Pty
Ltd will be liable for the fringe benefit tax for providing the car to Jasmine.
In the late part of the case it is noticed that Jasmine used the car to travel 10,000 km
and also occurred expenses of $550 on the minor repairs that is reimbursed by the Rapid-
Heat. It is worth mentioning that the employer reimbursed Jasmine with the sum of repair
expenses that was incurred for minor repairs. In such a situation under “division 5 of the
FBTAA 1986", the expense payment fringe benefit has arisen for Rapid Heat Pty Ltd (Foster
2016). This is because the employer Rapid Heat disbursed the employee with the
reimbursement for the expenses that Jasmine incurred for minor repairs on car. The
chargeable value of the expenditure fringe benefit for Rapid Heat represents the value that is
reimbursed or paid to Jasmine.
In the later events it is noticed that Jasmine did not used the car when she was
interstate and she parked the car at the airport and another five days when the car was parked
at the workstation for the purpose of scheduled repair. Referring to the “division 10A of the
FBTAA 1986” no parking fringe benefit arises for Rapid Heat Pty because the car was not
parked at the premises of the Rapid Heat Pty (Shields and North-Samardzic 2015).

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Furthermore, though the car was provided to Jasmine by Rapid Heat in respect of the
employment but the car was not parked inside the one kilometre area where the facilities of
commercial parking was not available. As a result, no fringe benefit tax will be applicable for
Rapid Heat Pty Ltd in this situation.
The case study explains that Rapid Heat Pty Ltd provided Jasmine with the loan of
$500,000 at the annual interest rate of 4.25%. Therefore, in such a situation a loan fringe
benefit has arises for Rapid Heat Pty since the loan is provided in respect of the employment.
Particular Amount ($) Amount ($)
Base value of the car 33000
Statutory rate @20%
Car Available for Private use (Days) 350
Number of days in the FBT year 365
Taxable Value of the Car Fringe benefit 6328.77
Particular Amount ($) Amount ($)
Taxable value of fringe benefits of car $6,328.77
Taxable value of fringe benefits for car reimbursement expense $550.00
Taxable value of total fringe benefits $6,878.77
FBT rate 49%
Taxable Value of Fringe Benefit $13,487.78
Fringe Benefit Tax $6,609.01
Computation of Fringe Benefit Tax
Computation of Fringe Benefit Tax under Statutory Method
Statutory method
Taxable value of fringe benefits
Conclusion:
As evident from the above stated discussion, Rapid heat Pty Ltd would be held
accountable for the loan fringe benefit taxation during the FBT year however, Rapid Heat Pty
Ltd can claim an allowable deduction for the same because the expenses were incurred during
the course of the employee’s employment.

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Answer to 2 B:
As defined under the “section 8-1 of the ITAA 1997” a taxpayer is permitted to claim
for the allowable deductions under the general provision when the expenses incurred were for
gaining the taxable income. Similarly, in the hypothetical situation if Jasmine used the
amount of $50,000 to purchase the shares herself rather than giving loan to her husband on
interest free, she might have been allowed to claim an allowable deduction for the interest on
loan sum. However, she has lent the loan amount on interest basis to her husband therefore no
deductions will be permitted under the general provision of “section 8-1, ITAA 1997”.

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References:
Auerbach, A.J. and Hassett, K., 2015. Capital taxation in the twenty-first century. American
Economic Review, 105(5), pp.38-42.
Barkoczy, S., 2016. Core tax legislation and study guide. OUP Catalogue.
Becker, J., Reimer, E. and Rust, A., 2015. Klaus Vogel on Double Taxation Conventions.
Kluwer Law International.
Bronfenbrenner, M., 2017. Income distribution theory. Routledge.
Burns, S.K. and Ziliak, J.P., 2017. Identifying the elasticity of taxable income. The Economic
Journal, 127(600), pp.297-329.
Faccio, M. and Xu, J., 2015. Taxes and capital structure. Journal of Financial and
Quantitative Analysis, 50(3), pp.277-300.
Fairfield, T. and Jorratt De Luis, M., 2016. Top Income Shares, Business Profits, and
Effective Tax Rates in Contemporary C hile. Review of Income and Wealth, 62, pp.S120-
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Foster, D., 2016. Executive share incentives at the crossroads: fringe benefits. Tax Breaks
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Godber, P., Thornton, G. and Stewart, M., 2017. Speed dating in the new tax era: The BEPS
Convention kicks off. Tax Specialist, 21(1), p.16.
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Convention kicks off. Tax Specialist, 21(1), p.16.
Hodgson, H. and Pearce, P., 2015. TravelSmart or travel tax breaks: is the fringe benefits tax
a barrier to active commuting in Australia? 1. eJournal of Tax Research, 13(3), p.819.

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Hoffman, W.H., Raabe, W.A., Maloney, D.M., Young, J.C. and Smith, J.E., 2014. South-
Western Federal Taxation 2015: Corporations, Partnerships, Estates and Trusts. Nelson
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Specialist, 19, pp.2-8.
Pearce, P. and Pinto, D., 2015. An evaluation of the case for a congestion tax in
Australia. The Tax Specialist, 18(4), pp.146-153.
Seto, T., 2015. Federal Income Taxation: Cases, Problems, and Materials. West Academic
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Seymour, E., 2017. Taxation: strategies for financial planners. Financial Planning in
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guidance. Taxation in Australia, 52(11), p.608.

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