Taxation Law: FBT and Capital Gains Tax Analysis - HA3042 T1 2019

This assignment delves into Taxation Law, focusing on Fringe Benefit Tax (FBT) and Capital Gains Tax (CGT). It analyzes a case study involving Lucinda's car fringe benefit, comparing the Statutory Formula Method and Operating Cost Method for FBT calculation. The assignment also examines Daniel's Capital Gains Tax implications from selling a house, artwork, yacht, and shares, determining net capital gain and tax liability. The analysis includes calculations, relevant sections from the Fringe Benefit Tax Assessment Act 1986 (Cth), and considerations for discounts, losses, and assessable income, providing a comprehensive overview of FBT and CGT principles.

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

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Answer No.1:
Issue:
FBT or the Fringe Benefit Tax is the benefit taxable that every employer is required to
supply to his employees in connection to the employment relation. In the present case study,
Lucinda is given car as a fringe benefit by his employer Spiceco pty Ltd. Here the issue to
determine how car will be affecting FBT for Spiceco. The determination is processed by way
of two types of methods called the Operating Cost method and the statutory formula method.
Rules for Fringe Benefit:
The assessment of FBT is provided in the provisions of the rules enumerated in the
Fringe Benefit Tax Assessment Act 1986 (Cth). As per sec. 136(1), the fringe benefit is given
and it has two aspects mainly a positive aspect and a negative aspect. In the event where the
benefit is granted by the employer or an associate to his employee or associate in a financial
year, it can be said to be a fringe benefit as per positive aspect. On the other hand, the
negative aspect regards that the Fringe benefit should not fall from Para F to Para S of the
said section.
Further, FB can be classified into Type 1 and Type 2 benefits. Type 1 benefits
comprises of benefits in which the cost is including GST. The value for FBT in the FY 2018-
2019 is 2.082*47% on these types of benefits. There are several types of fringe benefits and
Car Fringe benefits is one of the types. The Car Fringe Benefits is provided under sec. 7 of
FBTAA. It states that a car fringe benefit occurs when an employer provides a car to his
employee for using it personally. The calculations for Fringe benefit on car is given under
sec. 9(1) and sec. 10(2) where the statutory formula method and the Operation Cost method
are given respectively. It is the statutory formula method that is being generally used by the

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employer to determine FBT but it is in the discretion of the employer to use the Operating
Cost Method that decreases the taxable valuation of FB.
FBT can be calculated by using the Statutory Formula Method by employing the
following formula as given under sec9 (1);
0.2 is the flat rate which SFM uses. The car base value of the car is the car’s purchase
price. But, this base value can be decreased by the amount equal to any contribution made by
the employee to its purchase price. This has been provided in the Taxation Ruling TR 2011/3.
R refers to the payment if any made by the employee for the car as the operating cost like the
fuel charges, insurance payment and others. The cost operating method employs the
following formula to calculate the taxable value of the car;
Where C refers to the Car’s operating cost which is given in the sec. 10(3) of the Act. The
operating cost is the addition of all the expenses incurred as the operating car like fuel charge,
registration fee, insurance policy cost in relation to the car in the period of holding. Usage for
business is made on the basis of reasonable estimate of the number of the kilometres run by
the car during the holding period. R depicts the payment of recipient as per sec. 10(3). It is
defined in similar terms in the manner it is defined in the statutory formula method.

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Application:
Calculation as per the Statutory Formula Method
Base value=18000-1000=17000 as Lucinda had contributed 1000 to the purchase
price. Further, the car is being used throughout the year. Lucinda had made no contribution to
the recipient’s payment.
0.2*17000*365/365-0 = 3400
Operating Cost Method
For calculating the value of FB of the car as per the Operating cost method, input
interest and deemed depreciation are to be calculated. Deemed depreciation for a car in the
Financial Year of 2018- 2019 FBT is calculated by using the formula given in sec. 11(1)
where the interest rate of 25% is applied for a car purchased after 10th May 2006. Hence,
deemed depreciation= (17000*25%*365)/365= 4250.
Imputed interest for a car for the 2018- 2019 FBT year can be calculated by
employing the formula given in sec. 11(2) and the interest rate applied is 5.20 % (TD 2018/2)
for cars purchased after 10 th May 2006. Deemed interest= (17000*5.20 % * 365)/ 365= 884
Hence, TV of FB of the car under the Operating cost method can be shown as follows:
Here, C= (3300 for repairs +884 for interest + 42500 as depreciation + 2200 paid for
insurance + 990 for fuel) = 11624
BP = 70%
Thus the Taxable Value = 11624*(100%-70%)-0 = 3487.2

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Hence, it is seen the Taxable Value as per statutory formula method is less, hence it is a better
method.
Net Fringe Benefit Tax as per this method = 3487.2*2.0802*47% =3409.41.
Answer 2 (a)
Analysis for Capital Gain Tax for Daniel
House located at Doncaster
Capital Gain Asset- Under the provisions enumerated under section 108.5, capital gain assets
means property. The assets are required to be owned after 20th September 1985. The house is
situated at Doncaster and is acquired after this date and hence it is a CGT asset.
Capital Gain Event: List of CGE is given under sec. 104.5. The most common of these is
event A1 given under s. 104.10 (1) and is triggered when CGA is being sold or gifted.
CGE A1 Timing – CGE A1 occurs on the day when asset is disposed off as per sec. 104.10
(2). Additionally, the time must be the date when contract of sale effected as found in
decision of McDonalds v FCT (1998). Hence, A1 of the house occurs on Saturday, 29th of
June 2019.
CG or CL = CP-CB
CP or the Capital proceeds is the amount the tax payer has already received or may get out of
the sale in connection with sec. 116.20. In the instant case, for the house, it appears to be
865,000 $. It has been modified or deducted by the fee of agent of sale of 15000 $ and results
into 850000 $.
Cost Base or CB is the value for buying and maintaining the assets as given as per section
110.25(1). It consists of five elements.
Element 1 as given in section 110.25 (2) denotes the price paid to acquire the house is 70000
$.
Discount - if a taxpayer is not a company and has acquired the asset before 20th September
1999 and hold it for minimum 12 months and discount can be claimed under section 115.
Total Capital Gain= (850000- 70000)- 50 % which amounts to 390000. But since, the house
is used a place of residence, the total CGT will be excluded according to section 118. 10.

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Moreover, the contract’s forfeiture occurs in the following year which is to be dealt in
2019/2020.
Artistic painting by Margaret Preston
Capital Gain Asset- as per section 118.10, a capital gain asset can be defined as a collectable.
The assets must be acquired after 20th September 1985. Since the painting is incurred on this
date and it is a collectable, thus it is a CGT asset.
Capital Gain Event- list of CGE is given as per section 104.5. The most general of these is
event A1 as given in section 104.10 (1) and is triggered when a CGA is sold or gifted. Sale of
Artistic piece of painting is A1 event.
CG or CL= CP – CB
Capital proceeds (CP) is the amount that tax payer has received or may get by the sale as
stated in given in section 116.20. Here for the painting, it is 125000 $.
Cost Base (CB) – the valuation of buying and maintenance of the assets as stated in Section
110.25 (1). It has got five elements.
E1 or the Element 1 as per section 110.25(2) is the price for acquiring the asset for the
painting of 15000 $.
Discount – when the Tax payer is not a company and the asset has been acquired before 20th
of September of 1999 and kept in hold for twelve months, then discount can be claimed as
per section 115.
Total Capital Gain for painting is $ (125000- 15000)- 50%= 55000 $.
Luxury Yacht
Capital Gain Asset- as per the rules given in section 108-20(2), capital gain asset can be
explained as any personal item of valuation more than 10000 $. The assets need to be

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acquired after 20th of September of 1985. As per the facts of the case, it has been acquired
after the said date, it is a personal property and is bought for personal enjoyment, hence yacht
is a CGT asset.
Capital Gain Event- list of CGE is provided as per section 104.5. One of the most common
type of these is the A1 event as given in section 104.10 (1) and is triggered when CGA is
being sold or gifted. Sale of luxury yacht is an event A1.
CG or CL = CP- CB
CP or Capital proceeds denote the sum that tax payer has received or may get by the sale as
given in section 116.20. Here the CP for yacht is 60000 $.
Reduced Cost Base (RCB) is the valuation of buying and maintaining the asset. But element
3 is to be disregarded.
Element 1 of section 110.25(2) is the price required to acquire the asset which in this case is
110000 $.
Total Capital Loss is 110000- 60000= 50000.
This loss should not be used to offset any kind of CG loss in the coming year or present year
as given in section 108.20(2).
Shares in BHP mining company:
Capital Gain Asset as per rules in section 108.5, capital gain assets can be illustrated as any
property which is need to be acquired after 20th of September of 1985. Since the shares
belongs to BHP mining company, acquired after the above mentioned date and is a type of
property it is a CGT asset.

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CGE- list of CGE is provided in section 104.5. the most general type is the Event A1 given in
section 104.10(1) and is incurred when CGA is transferred by means of Sale or gift. Sale of
shares forms a CGT A1 event.
CGE A1 Timing- it happens on the particular day when the asset is disposed off as per
section 104.10 (2).
CG or CL = CP-CB.
CP- capital proceeds is the amount of money incurred by the Tax payer already or may be
received as per section 116.20. here CP for the shares amounts to 80000. It is to be decreased
by 750 as cost of brokerage.
Cost Base (CB)- value of buying and maintaining the asset is given in section 25(1) which
has got 5 elements.
Element E1 as given in section 110.25 (2) is the cost for acquiring the asset. It is for shares is
75000 dllars. It has got Element 2 as the stamp duty of 250 $. Interest E3 of CB is regarded as
the deductible expense as if included in to Cost Base, it may result into capital loss and RCB
is not being included in E 3.
CG= 79250-75250= 4000
Tax Return Loss of Previous Year
Tax loss is to be used to offset capital gain in the current year. It forms the 10000 $ loss that
will be reducing the Capital Gain for Daniel
Net Capital Gain for Daniel
Hous- 0
Painting – 55000

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Yatch- 0
HP shares- 4000
Loss – (10000)
Total- 49000
Answer 2b:
If there lies any CG made by Daniel it will get added to the assessable income as the
statutory income as provided in section 102. He is liable to pay for tax as per the current tax
slabs.
Answer 2 c:
When there lies a Capital Loss for Daniel, he can use it to offset Capital Gain in the
following year. It should not be to cause deduction to reduce the TI.

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References:
Fringe Benefit Tax Assessment Act 1986 (CTH)
Income Tax Assessment Act 1997 (Cth)
Taxation Ruling 2011/3
TD 2018/2