Taxation Law Assignment: Fringe Benefits and Capital Gains Tax

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Taxation Law
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Table of Contents
Question 1...................................................................................................................................................3
Question 2...................................................................................................................................................5
a).............................................................................................................................................................5
b).............................................................................................................................................................7
c...............................................................................................................................................................7
Reference.....................................................................................................................................................8
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Question 1
Fringe benefits are the ones which are provided by an employer to an employee apart from the
salary and wages paid to them. The fringe benefits can be provided to the employee as well as to
the family members of the employees by the employer (Ato, 2019). The benefits or the perks
which are included among the ambit of the fringe benefits are various. Some of these perks are;
letting the employees use the cars of the employer, paying for the entertainment expenses of the
employee, paying for the car parking of the employees, waiving off of the debt of the employee,
fringe benefits provided on loans taken by the employee, fringe benefits in the form of property
for the employee etc (Business, 2018).
The fringe benefits on the car can be calculated using two approaches known as statutory method
and the operating cost method by the employer. The onus of paying the tax on fringe benefits lies
on the employer and not on the employees. In order to pay for the fringe benefits tax, an
employer has to get it registered with the Australian taxation office (Activpayroll, 2017).
The deemed depreciation rate on the car is 25% with effect from 31st March 2009 as per the
Australian taxation office. This is deemed a deprecation rate provided by the Australian tax
authorities(Ato, 2019).
The method used to calculate the tax on the fringe benefit of the car in the case above is the
statutory method. The statutory method is applied at a straight tax rate of 20% on the taxation for
calculating fringe benefits. The formula for calculating the tax on fringe benefits for the car is as
follows:
Value of tax = ((A × B × C) ÷ D) – E
A= base value of the car
B= the statutory percentage to be applied i.e. 20% in the current case
C= the period for which the car was being used for the personal usage of the employee
D = days of the year for which fringe benefit needs to be calculated
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E = the amount of contribution made by the employees in the purchase of the car
From the above formula, the fringe benefit on the car can be calculated as follows:
Items Amount in dollars
the cost price of the car 18,000
the base price of the car (working note ) 13,500
number of days the car has been used by the employee 109.5
a contribution made by the employee on the car purchase 1000
the statutory rate of tax as per ATO 20%
Calculating the taxable value of the fringe benefits
statutory formula for tax on the car ((A × B × C) ÷ D) - E
(13,000*20%*110*)/365-1000
taxable value = -216.4383562
Calculation of depreciation on the car
the cost price of the car 18,000
rate of depreciation 25%
amount of deprecation 4500
the base price of the car 13,500
From the above calculation, the depreciation of the car is 4500. However, the amount of tax
calculated on the car is not positive which means that the taxable value to be paid on the car
fringe benefit to be paid by the employer Spiceco Pty limited is nil for the current year 2018-19.
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Question 2
Capital gain refers to the difference between the amount received in selling off the capital asset
and the amount spent in buying of the capital asset(Ato, 2019). If the amount earned from selling
off of the capital asset is more than the amount spent in purchasing the asset then it is regarded as
being a capital gain. However, a capital loss is incurred when the amount spent on purchasing the
asset is more than the amount earned while buying the asset. This is applicable on the purchase
and sale of capital assets such as house property, real estate property, and shares acquired and
purchased, collectibles acquired for more than $ 500 and other capital assets.
When a capital gain is earned by an assessee it is added to the total taxable income of the
assessee and a total tax is paid by them at the end of the year.
a)
The capital gain of Daniel has been calculated as per the following table:
Items
Purchase
Price $
Selling
Price $
Capital
gain $
% of
tax
Taxatio
n $
Residential House $70,000 $865,000 - -
Painting 15,000 $125,000 $110,000 28% $30,800
Yacth 110,000.00 60,000.00 -50,000.00
shares (working note )
working
note
working
note 4,000 2,000
net capital gain of Daniel $64,000 $32,800
the capital loss set off from the
previous year $10,000
tax liability of the current year $22,800
Working Note 1
Particulars Amount $
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share price $75,000
sale of shares (working note 2) 79,000
capital gain $4,000
discount $2,000
tax amount $2,000
Working note 2
sale of shares $
sale price $80,000
brokerage 250
other cost paid 750
remaining sales value $79,000
In the case of Daniel, the first property that the person has sold is a residential house, has been
residing in which for 30 years. The Australian Taxation office suggests that there is no capital
gain/loss obligation incurred by the person while selling off the residential house. However, if
the person sells off another house property in which the person doesn’t reside then the capital
gain tax obligations arise(Ato, 2019).
Collectibles mean the assets which are purely purchased for the personal use of the assessee or
the associates of the assessee. The items which are included in the collectibles are paintings,
sculptures, and photographs. The jewelry items, coins, and medallions, jewelry, postages, and
stamps, etc are included under the heading of collectibles. For the second transactions, it is
related to collectable as it entails of the sale of a painting which Daniel has sold for $125000 and
had acquired for an amount of merely $ 15000.
In the case of Daniel, the sale of shares and the sale of the yacht are also included among the
capital gain tax and have been calculated as per norms of Australian Taxation Office.
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For the second transactions, it is related to collectable as it entails of the sale of a painting which
Daniel has sold for $125000 and had acquired for an amount of merely $ 15000.
b)
a capital gain is referred to as a situation in which the purchase price of an asset is less than the
disposal price of the asset which results in earning of the capital gain for a firm. Daniel has
earned a capital gain for the current year as the selling price of all the assets sold by Daniel
exceed the overall purchase price of the assets when a calculation for tax is made cumulatively.
Daniel has actually incurred a capital gain for this accounting year and therefore the capital gain
can firstly be used to set the capital loss off that has been incurred by Daniel in the past year due
to a loss made on the shares of AZJ shares LTD Company. The capital loss on shares can be set
off against the income of the current year and also it can be set off from any head. It is even
possible to set off the capital loss incurred on shares from the capital gains of the future year.
The biggest advantage is that the capital gain can be forwarded to the next years as well if the
capital loss does not get set off from the capital gain of the current year(Ato, 2019).
c.
A capital loss is a situation when the purchase price of an asset purchased is more than the sale
price of the asset sold by the firm/ individual. In other words, if the selling price is less than the
purchase price for an asset then it is referred to as a capital loss for the person selling the
asset(Ato, 2019).
The capital loss has not been incurred by Daniel in this case but if in case a capital gain was
incurred by the person then this would not attract any capital gain tax obligations for Daniel. In
case of a capital loss, no tax needs to be paid by the person. Only in case of capital gain, tax
obligations arise for an individual or a firm.
as given in the case above, a capital loss from the previous year has been carried forward in the
next year by the firm and thus this has been set off/ subset with the profit/ gain of the current
year incurred in the firm. in case, there was no profit in the current year as well then the loss
would have been carried forwarded to the next year in the firm.
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Reference
 active payroll. 2017. Australian Fringe Benefits Tax. [Online] Activpayroll Available at:
https://www.activpayroll.com/news-articles/australian-fringe-benefits-tax [Accessed on: 24th
May 2019]
 ATO. 2019. Capital gains tax. [Online] ATO. Available at:
https://www.ato.gov.au/General/Capital-gains-tax/ [Accessed on: 24th May 2019]
 ATO. 2019. Collectables and personal use assets. Online] ATO. Available at:
https://www.ato.gov.au/Super/Self-managed-super-funds/Investing/Restrictions-on-
investments/Collectables-and-personal-use-assets/ [Accessed on: 24th May 2019]
 ATO. 2019. Fringe benefits tax - a guide for employers. [Online] ATO. Available at:
https://www.ato.gov.au/law/view/document?DocID=SAV/FBTGEMP/00008&PiT=9999123
1235958/ [Accessed on: 24th May 2019]
 ATO. 2019. Guide to capital gains tax 2018. [Online] ATO. Available at:
https://www.ato.gov.au/Forms/Guide-to-capital-gains-tax-2018/ [Accessed on: 24th May
2019]
 ATO. 2019. Types of fringe benefits.[Online] ATO. Available at:
https://www.ato.gov.au/General/Fringe-benefits-tax-(FBT)/Types-of-fringe-benefits/
[Accessed on: 24th May 2019]
 ATO. 2019. Working out the taxable value of a car fringe benefit. [Online] ATO. Available
at: https://www.ato.gov.au/General/Fringe-benefits-tax-(FBT)/Types-of-fringe-benefits/Car-
fringe-benefits/Working-out-the-taxable-value-of-a-car-fringe-benefit/ [Accessed on: 24th
May 2019]
 Business. 2018. Fringe Benefits Tax (FBT). [Online] Business Available at:
https://www.business.gov.au/finance/taxation/fringe-benefits-tax [Accessed on 24th May
2019]
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