HA3042 Taxation Law Assignment: FBT and Capital Gains Analysis

This assignment delves into key aspects of taxation law, specifically focusing on fringe benefits tax (FBT) and capital gains. The solution begins by addressing FBT, outlining the computation methods (operating cost and statutory formula) and recommending the optimal approach for Spiceco Pty Ltd. The assignment then moves on to capital gains, detailing the calculation of net capital gain or loss for the year ending June 30, 2019, for Daniel, including the treatment of various assets like property, paintings, a yacht, and shares. It analyzes the tax implications of different scenarios, such as a house sale contract that wasn't completed and the sale of shares. The solution concludes by suggesting strategies for Daniel to manage a likely net capital gain and loss, including investment in a superannuation fund. The assignment draws on relevant legal and financial principles, supported by citations of academic sources and online resources.

Taxation law

Table of Contents
Question 1........................................................................................................................................3
Question 2........................................................................................................................................5
Computation of capital gain or net capital loss for the year ended 30 June 2019.......................5
What Daniel will do with a likely net capital gain in this financial year?...................................8
What Daniel will do with a likely net capital loss in this financial year?...................................9
References........................................................................................................................................9

QUESTION 1
Fringe benefits tax is imposed on the employer with respect to the non-cash benefits provided in
the course of employment to the employees (McCormack, 2017). In the given case, the employer
provides a car to an employee, which is covered under the fringe benefit.
FBT Liability = Taxable value of the Fringe benefit * Gross-up value * Rate of FBT
There are two methods of computation of fringe benefit with respect to the car (White, and
Townsend, 2018).
Operating cost method
Taxable Value = Operating Cost * Private use – employee’s contribution
Table 1 Statement of total operating cost
Particulars Notes Amount
Depreciation 18000*25% $4500
Interest 18000*5.25% $945
Repair $3300
Insurance $2200
Fuel $990
Total Operating Cost 11935
*Depreciation and interest in the deemed operating cost and respective rates are charged on the
basis of the year ending 31st March 2019 (Australian Taxation office, 2019).

Taxable value = 11935*30% - 1000
= 2580.5
Statutory Formula Method
Taxable Value = Base Value of car * prescribed percentage * car held by an employee during the
year – contribution by the employee.
The prescribed percentage for the year ending 31 March 2019 is 20%.
Taxable Value = $18000*20% -1000
= $2600
Conclusion
Table 2 Value of benefit as per both methods
Particulars Amount in $
Value of benefit as per operating cost method 2580.5
Value of benefit as per the statutory cost
method
2600
By considering the above analysis, it has been observed that the value of the benefit as per the
operating cost method is less compared with the statutory cost method. Therefore, it is
recommended to Spiceco Pty Ltd, to apply the operating cost method for computation of FBT
liability.

FBT Liability as per operating cost method
= $ 2580.5*1.8868*47%
= $2287.93
FBT Liability as per the statutory method
=2600*1.8868*47%
= 2305.66
QUESTION 2
Computation of capital gain or net capital loss for the year ended 30 June 2019
If the sale proceeds exceed from the cost of acquisition of asses, then results in capital gain, and
if the cost of acquisition is more the sales price, then it is considered as a capital loss
(Burkhauser, Hahn, and Wilkins, 2015). If the asset possessed by the assessed for exceeding a
time period of one year, then the particular asset is discounted with fifty per cent for company
taxpayer and 33.3% for superannuation. Further, the capital loss can be set off only against
capital gains (Evans, Minas, and Lim, 2015).
Computation of Long term capital gain/short term capital gain
Figure 1 Statement Showing computation of net capital gain/loss for Daniel for the year ended
30 June 2019
Particular Notes Amount
Long Term Capital Gain or loss

Property (House) at Doncaster 1 -
Painting 2 $110000
Yacht 3 $(50000)
Total long term capital gain or loss $60000
Taxable long term capital gain 4 $30000
Short Term Capital Loss
Shares in BHP Mining Company $9000
Total taxable capital gain $39000
Long term capital loss of the earlier year $(10000)
Net capital gain $29000
Notes
1. In case of a house located at Doncaster, Daniel made the contract for the sale of the house
for $ 865000. The cost of acquisition of the house was $ 70000. The property was held by
Daniel around 30 years. He paid the sale tax commission to the agent and buyer of the
property deposited $ 85000 to a bank account. However, after 14 days buyer of the
property was refunded to fulfil the contract because of not sufficient money. Therefore
Daniel forfeits the amount. In the legal case of Josephine Binns v. the U.S., the court
held that the sale was not completed. Therefore the amount forfeited is considered as the
income from the ordinary course, and in such situation, no capital gain/loss arises to the
individual (Wilkins, 2015). By applying the same judgment, on the house located at
Doncaster, no capital gain or loss arises to Daniel.
2. Computation of capital gain or loss in case of Painting

Figure 2 Capital Gain / Loss in case of sale of Painting
Particulars Amount
Amount received on sale of the painting $125000
Cost of Purchase $15000
Capital Gain $110000
3. Computation of capital gain/loss in case of Yacht
Figure 3 Computation of capital gain/loss in case of Yacht
Particulars Amount
Amount Received on sale of Yacht $60000
Cost of Purchase $110000
Capital Loss ($50000)
4. Taxable Capital Gain
= $60000*50%
= $30000
5. In the given case, it is stated that Daniel has paid the stamp duty on the purchase and
brokerage fee on the sale of shares. It is included in the cost of purchase of shares.
Further, the deduction related to the interest on the loan is allowed only if it is expected
that dividend will be received on the shares purchased (Chardon, Freudenberg, and
Brimble, 2016). Along with this, if the loan is taken by the person for the private use,

then deduction with respect to the interest is available to the extent which is used for the
buying the shares by that person. In other words, it can be said that no deduction is
available to the assessee if the loan is obtained for personal use. The same aspect is
applicable to the rented property (Fenna, and Tapper, 2015). If the person makes the use
of the property for personal purpose, then he/she cannot make a claim for deduction of
the interest (Capital Gains Tax. Timing of a real estate CGT event. 2019). In the given
case, Daniel held shares for a period of less than one year, which means he purchased the
shares on 10th January 2019 and sold shares on 5th June 2019. Therefore, the deduction of
interest is not available to Daniel, because it is not likely that he will receive the dividend
on these shares.
Figure 4 Computation of capital gain/loss in case of sale of shares
Particulars Amount
Amount Received on sale of shares $80000
Cost of purchase $70000
Payment of stamp duty $250
Payment of brokerage fee $750
Short Term capital gain $9000
What will Daniel do with a likely net capital gain in this financial year?
If it is likely that, Daniel earn the capital gain in this financial year, then he should make the
investment of the amount received on sale of investment in a superannuation fund. In the given
case, it is stated that Daniel wants to make the plan for his retirement; therefore, he makes the

plan for contribution in the superannuation fund. It is the good plan for the retirement as because
he will receive the fund only after reaching the age of 60, which is also tax-free, because he
personally makes the contribution in a superannuation fund (Capital Gain Tax. Working out your
capital gain. 2018).
What will Daniel do with a likely net capital loss in this financial year?
If it is likely that, Daniel incur the capital loss in this financial year, the treatment of capital loss
is based on the nature of capital gain. As per the ITAA 97, a person can carry off the capital loss
for an infinite period, and it is allowed to set off only against the capital gain.

REFERENCES
Books and Journals
Burkhauser, R.V., Hahn, M.H. and Wilkins, R., 2015. Measuring top incomes using tax record
data: A cautionary tale from Australia. The Journal of Economic Inequality, 13(2), pp.181-205.
Chardon, T., Freudenberg, B. and Brimble, M., 2016. Tax literacy in Australia: not knowing
your deduction from your offset. Austl. Tax F., 31, p.321.
Evans, C., Minas, J. and Lim, Y., 2015. Taxing personal capital gains in Australia: an alternative
way forward. Austl. Tax F., 30, p.735.
Fenna, A. and Tapper, A., 2015. Economic inequality in Australia: A reassessment. Australian
Journal of Political Science, 50(3), pp.393-411.
McCormack, C., 2017. Our clinging to the fringe is stultifying development. News Weekly,
(3010), p.7.
White, J. and Townsend, A., 2018. Deductibility of employee travel expenses: The ATO's
guidance. Taxation in Australia, 52(11), p.608.
Wilkins, R., 2015. Measuring income inequality in Australia. Australian Economic
Review, 48(1), pp.93-102.
Online
Australian Taxation office, 2019. Fringe benefits tax – a guide for employers (online). Available
through< https://www.ato.gov.au/law/view/document?DocID=SAV%2FFBTGEMP%2F00008>
[Accessed on 16 May 2019]
Capital Gain Tax. Working out your capital gain. 2018. Available through
<https://www.ato.gov.au/General/Capital-gains-tax/Working-out-your-capital-gain-or-loss/
Working-out-your-capital-gain/>. [Accessed on 16th May 2019].
Capital Gains Tax. Timing of a real estate CGT event. 2019. Available through
<https://www.ato.gov.au/General/Capital-gains-tax/Your-home-and-other-real-estate/Timing-of-
a-real-estate-CGT-event/>. [Accessed on 16th May 2019]