Individual Assignment on Taxation Law: FBT and Capital Gains Analysis

This taxation law assignment addresses two primary issues: the computation of fringe benefit tax (FBT) liability for Spiceco Pty Ltd and the determination of net capital gains or losses for Daniel Ray. The FBT section explores the statutory formula and operating cost method for calculating car fringe benefits, recommending the operating cost method for minimizing tax liability. The second part of the assignment analyzes capital gains tax (CGT) implications, including the sale of a main residence, an artwork, a luxury yacht, and shares. It determines which transactions trigger CGT events, calculates the cost base and proceeds, and arrives at a net capital gain or loss for the year ending June 30, 2019, incorporating relevant sections from the Fringe Benefits Tax Assessment Act 1986 and the Income Tax Assessment Act 1997.

Running head: TAXATION LAW
Taxation Law
Name of the Student
Name of the University
Author Note

1TAXATION LAW
Answer 1
Issue
The computation of the fringe benefit tax liability in relation to Spiceco Pty Ltd pertaining
to the income year 2018/19 based on the assumption that Spiceco Pty Ltd is willing to curtail
the fringe benefit tax liability. What are the different methods of computing the same. Which
method will be best suited for the situation.
Rule
Fringe benefit implies any benefit that an employee for his associated person third party as
agreed upon is extended with by the employer as a remuneration incidental to his
employment and is required to be text in the hands of the employer. The definition of fringe
benefit has been provided under section 136 pertaining to the Fringe Benefits Tax
Assessment Act 1986 (Barkoczy 2016).
Such remuneration includes any interest or right that is given in relation towards any real
or personal property or any service or facility. The extension of such a benefit can be e made
by your past future for current employer. However the same is assessed under the taxable
income of the employer.
A car fringe benefit is accrued when the employer provides a car to his employee for the
purpose of being used in personal purposes as defined under section 7 belonging to the Fringe
Benefits Tax Assessment Act 1986.
There are two formulae provided for the computation of car fringe benefit under the Act.
The two formulae the statutory formula and the operating cost method formula. The statutory
formula has been provided in the Act under section 9(1). The operating cost method formula
has been provided in the Act under section 10(2).

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Statutory Formula [s 9(1)]:
[0.2 * BV * (n/ t)] - C
BV = Base value of the car
n = no. of days the car operated by the employee
t = no. of days in that income tax year
C = contribution of the employee
Operating Cost Method [s 10(2)]
[C * ( 100% - BP)] – R:
C = operating cost for holding the car, which includes insurance, fuel, maintenance, and
registration.
BP = percentage used for business purpose
R = contribution of the employee.
Application
In the instant case, Lucinda has been provided with a car by Spiceco Pty Ltd for being
used for her personal purposes. This needs to be regarded as fringe benefit as provided under
section 136 pertaining to the Fringe Benefits Tax Assessment Act 1986. It can be more
precisely regarded as a car fringe benefit as defined under section 7 belonging to the Fringe
Benefits Tax Assessment Act 1986. This is because fringe benefit implies any benefit that an
employee for his associated person third party as agreed upon is extended with by the
employer as a remuneration incidental to his employment and is required to be text in the
hands of the employer and a car fringe benefit is accrued when the employer provides a car to
his employee for the purpose of being used in personal purposes.

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The FBT year 2018 to 2019, the cost pertaining to the fringe benefits are as follows:
Base Value of the Car = $18000
Operating Cost = $3300 (repairs) + $2200(insurance) + $900(fuel)
Contribution of Lucinda = $1000
FBT Computation Formula Calculation Amount $
FBT to be considered
under the assumption
of FBT minimisation
Lower of the
amounts arrived at
under the two
methods
2542
Statutory Formula
section 9(1)
[0.2 * BV * (n/ t)] -
C
= [0.2 * 18000 *
(365/365)] – 1000
2600
Tax payable under
this method
(2600 * 2.0802 *
47%)
2542
Operating Cost
Method Formula
section 10(2)
[C * ( 100% - BP)] –
R
= [(3300 + 2200 +
990) * (100% - 70%)]
– 1000
947
Tax payable under
this method
(947 * 2.0802 * 47%) 925.87
Conclusion
The method of FBT computation to be used will be the Operating Cost Method Formula.

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Answer 2
Issue
The computation of net capital gain or loss arising from the transactions affected by
Daniel Ray in the year ending on 30 June 2019.
Rule
The permanent disposal of a Capital asset gives rise to CGT gain or loss but for the
purpose of rendering the assets to be a Capital asset the same needs to be acquired after to
20/09/1985. The assets purchased before this date needs to be construed as procedure assets
and it needs to be e excluded while assessing CGT events. A CGT liability to exist need to
satisfy two essentials. The first thing is the existence of a post-CGT asset and the second is
the occurrence of a CGT event ask can be meet evident under section 104.5 of the Income
Tax Assessment Act 1997. Such CGT assets when disposed of as per section 104. 10 is
required to be brought under the A1 category. The CGT gain that arises from such a situation
is needed to be related bye deducting the cost base from the proceed. However the existence
of CGT event is required for the charging of CGT. Again for the purpose of the occurring of
such a CGT event the formation of a contract affecting the disposal or the termination of the
taxpayer being the owner is required to be made evident. On the other hand, the proceeds that
are accrued from the transfer of property, which has been used as a main residence by way of
sale will be treated as an exemption from being charged with CGT as per section 118.10 of
the Act (Woellner et al. 2016).
Item which has been owned as well as used buy a taxpayer for the only purpose of
enjoyment or you said in a personal capacity will be required to be rendered as collectible
under section 108. 10 of the Act. This includes jewellery, coin, artwork and other items of
similar nature. Any collectible which is over the price of $500 is required to be treated as cgt

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acid and the procedure of the same is required to be treated as duty game and needs to be
subject to taxation undersea CGT. Collectible under the prescribed price will be exempt from
CGT under section 110.10 of the Act.
CGT asset as defined under section 108. 5 of the Act is a legal as well as equitable right.
Can we building, land, shares, options, debts owed, foreign currency e or even contractual
rights. Disposal of any of these acids will be treated as a A1 category CGT event.
The sale with respect to shares is also regarded as CGT event and proceed earned from the
same will be received under CGT. Any loss or profit incurred with respect to the same will be
treated as a CGT gain or CGT loss. The reduced cost base, if any, will exclude III element as
per section 110.5 5 of the earth that is the cost of owning. This will include interest and it
needs to be excluded from the third element as the same would render the transaction to be a
loss where the taxpayer has in actuality earned a profit.
For the purpose of computing CGT gain (s 110.25),
CGT Gain = Cost Proceed – Cost Base (E 1 + E 2 + E 3 + E 4 + E 5) [CP>CB]
E 1 = acquisition cost
E 2 = incidental cost
E 3 = owning cost
E 4 = capital expenditure
E 5 = title preservation cost
For the purpose of computing CGT loss (s 110.25)
CGT Loss = Cost Base (E 1 + E 2 + E 3 + E 4 + E 5) – Cost Proceed [CP>CB]
E 1 = acquisition cost

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E 2 = incidental cost
E 3 = owning cost
E 4 = capital expenditure
E 5 = title preservation cost
For the purpose of computing CGT gain (s 110.55), when cost base if a reduced cost base,
CGT Gain = Cost Proceed - RCB (e 1 + e 2 + e 3 + e 4 + e 5) [CP>RCB]
E 1 = acquisition cost
E 2 = incidental cost
E 3 = excluded
E 4 = capital expenditure
E 5 = title preservation cost
Application
In the instant situation, firstly, Daniel has resolved to sale his house, which he has been
using as a main residence for 30 years and has been initially required for $70,000. Although
the asset is a post-CGT asset, but the sale of the same for a price of $865000 will not be
brought under the CGT regime. This is biggest although he has paid $15,000 to the real estate
agent and the buyer has deposited $85,000 with respect to the property but after the elapsing
of 14 days the contract for the steel has been terminated and deposited amount had been
forfeited. This will regarding the event to be outside the purview of CGT event as there was
no transfer affected with respect to the house.
Daniel affected the sale with respect to artistic piece that has been painted by Margaret
Preston. She purchase date on on 20th September of the year 1985 for a price of $15000. Seal

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of the painting accrued of proceed of $125000 on the 31st of May 2019. This needs to be
treated as a CGT event as it is a post-CGT asset. This is because a CGT liability to exist need
to satisfy two essentials. The first thing is the existence of a post-CGT asset and the second is
the occurrence of a CGT event ask can be meet evident under section 104.5 of the Income
Tax Assessment Act 1997.
Thirdly a luxury yacht has been sold by Daniel for $60000, which he had purchased on
2004 for price of $110000. This implies a CGT event and the proceed a CGT receipt.
Moreover the receipt being lower than the proceed it needs to be treated as a CGT loss.
Lastly Daniel has purchased shares of BHP on 10th of January 2019 for a price of
$75,000. This has been sold by Daniel on 5th of June 2019 for price of $80000. Hence, in this
case the proceeds $80,000 and the acquisition price $75,000. The 50% discount will not be
permitted as the shares work held for less than a period of 12 month. Acquisition of the same
avail loan of $70,000 on which has been paying and interest of $5000. That he has been in
cold weather incidental cost of $250 and $750 as stamp duty and brokerage fee. Hence
excluding the interest it needs to be treated as a capital gain but including the interest will
render the transaction as a capital loss. Hence, interest will be excluded from the transaction
of the same.
Particulars Amount ($) Amount ($) Amount ($)
Capital gain from proceed of painting (1) 110000
CP 125000
Less: CB 15000
Capital gain from proceed of shares (2) 4000
CP 80000
Less: RCB ( 75000+750+250) 76000

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Capital loss from the proceed of yacht (1) 50000
CB 110000
CP 60000
Net Capital Gain (1)+(2)-(3) 64000
Conclusion
The net CGT gain for the year ending in 30th June 2109 is $64000.

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Reference
Barkoczy, S., 2016. Foundations of taxation law 2016. OUP Catalogue.
The Fringe Benefits Tax Assessment Act 1986 (Cth)
The Income Tax Assessment Act 1997 (Cth)
Woellner, R., Barkoczy, S., Murphy, S., Evans, C. and Pinto, D., 2016. Australian Taxation
Law 2016. OUP Catalogue.