Taxation Law Assignment: FBT and CGT Implications - HA3042 T1 2019

This assignment delves into two key areas of taxation law: Fringe Benefits Tax (FBT) and Capital Gains Tax (CGT). It begins with a computation of FBT for Spiceco Pty Ltd, exploring different computation methods and suggesting the most advantageous one. The assignment then transitions to CGT, focusing on Daniel Ray's net capital gain for the year 2019, including the treatment of capital gains and losses from various assets like a house sale, artwork, a yacht, and shares. The analysis incorporates relevant sections of the Income Tax Assessment Act 1997 to determine CGT liability, exemptions, and applicable discounts. The final calculation provides a comprehensive overview of Daniel's net CGT for the specified income year.

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

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Question 1
Issue
The computation of the FBT for Spiceco Pty Ltd in the year 2018/19 based on the
assumption that the company has decided to minimise the liability of FBT. The different
methods of computing the FBT liability. The best method that can be suggested for the
computation FBT to arrive at the desired outcome.
Rule
Section 136, the Fringe Benefits Tax Assessment Act 1986: Fringe benefit depicts a kind
of benefit that an employee is allowed by the employer or any person associated with me
employee or third party on the arrangement with the employee is extended with by the
employer in relation to the employment in the year of taxation. Such kind of benefit may
come in the form of an interest with respect to a real as well as personal property. It may also
include our any service or facility extended in that relation. However such a benefit when
extended in a particular year of income by the employer is to be treated as a tax liability for
the employee only and will be included in the taxable income assessment of the employer.
Such an employer may be past, present or future.
Section 7, the Fringe Benefits Tax Assessment Act 1986: Any such fringe benefit that
accrue with respect to a car that has been extended by the employer to employee to be used
by employee in a personal capacity is required to be treated as a car fringe benefits (Barkoczy
2016).
Section 9(1), the Fringe Benefits Tax Assessment Act 1986: it contains the Statutory
Method of FBT computation:
[0.2 * BV * (n/ tn)] - A

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BV = Base value
n = no. of operating days
tn = no. of days in the year of income
C = contribution of the employee
Section 10(2), the Fringe Benefits Tax Assessment Act 1986: it contains the Statutory
Method of FBT computation:
[C * ( 100% - BP)] – R
C = operating cost during the period of holding, which includes maintenance, insurance,
registration and fuel.
BP = business percentage
C = contribution of the recipient.
After the calculation of the car fringe benefit the tax liability of the same needs to be
calculated by applying the FBT rate.
Application
The facts of the case presents that the Spiceco Pty Ltd has extended a car to Lucinda who
is employed with them to be used for the purpose of being used personally. This needs to be
treated as a fringe benefit as per the definition that has been provided with the section 136
pertaining to the Fringe Benefits Tax Assessment Act 1986. Again, the car that has been
provided by the company to the employee can be treated as a car fringe benefit that has been
provided under section 7 pertaining to the Fringe Benefits Tax Assessment Act 1986.
OPERATING COST METHOD
Particulars Amount Amount

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REPAIRS 3300
INTERES
T 884
Depreciation 4250
INSURANCE 200
FUEL 990
TOTAL OPERATING COST 9624
PRIVATE USE
TOTAL KILOMETER 20000
WORK USE 14000
PRIVATE USE 6000
PERCENTAGE OF PRIVATE USE 30
Taxable value of FBT
(TOC*PRIVATE USE) 2887.2
Deemed Depreciation Amount
Car Base Value 18000
Less Employee contribution 1000
TR
2011/3
Base Value 17000
Depreciation rate 25%
Deemed Depreciation
(BV*25%*365)/
365 4250
Deemed Interest Amount
Car Base Value 18000
Less Employee contribution 1000
TR
2011/3
Base Value 17000
Statutory Interest rate 5.20%
TD
2018/2
Deemed Interest
(BV*5.2%*365)/
365 884

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STATUTORY FORMUAL METHOD
Details Amount
Car Base Value 18000
Less Employee contribution 1000
TR
2011/3
Base Value 17000
Statutory rate 20%
days for private use PU 365%
days in FBT year TD 365
Taxable value
(BV*20%*(PU/TD) 3400
Conclusion
Statutory method is better for the FBT computation.
Question 2
Issue
The computation of the net capital gain pertaining to Daniel Ray for the year of income
2019. Treatment of the capital gain as well the treatment of capital loss.
Rule
Section 104.5 of the Income Tax Assessment Act 1997: When a capital asset is disposed
off permanently it accrues a CGT gain or a CGT loss. Again such capital asset is required to
be acquired on a date prior to 20th of September 1985. Any asset acquired prior to the
mentioned date is a pre-CGT asset and will not be included in the assessment of CGT
liability. The CGT liability is said to have incurred if it can be established that the two
essentials of a CGT liability is present in a certain circumstance. The first of these two
essentials is the occurrence of a CGT event. Secondly a presence of the CGT asset is also
required.
Section 104.10 of the Income Tax Assessment Act 1997: The permanent disposal of CGT
asset by way of sale is required to be treated as an A1 category CGT event. In such a case the

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lower of the cost base and the cost received is required to be deducted from the other one for
the purpose of arriving at the CGT gain or loss. The presence of a CGT event is required for
incurring CGT liability. CGT event in relation to such a disposal is said to have occurred
when the actual transfer of the ownership or the formation of the contract effecting that
ownership being transferred has already taken place in relation to that CGT asset.
Section 118.10 of the Income Tax Assessment Act 1997: The proceeds that is accrued
from the sale of a property which has been used for residential purposes or to be more precise
as a main residence of a person is required to be considered as an exemption while computing
the CGT liability of a person.
Section 108.10 of the Income Tax Assessment Act 1997: The item owned or possessed by
a taxpayer for personal enjoyment or personal usage will be required to be treated as a
collectible and will be subject to taxation as a CGT asset. This form of items include artwork,
jewellery, antique objects and any other objects of similar nature.
Section 110.10 of the Income Tax Assessment Act 1997: Again to be considered as a CGT
asset such a collectible is required to be worth more than $500. Any collectible below that
price level will be excluded from the CGT computation. Such a commodity will be permitted
as an exemption from the CGT computation.
Section 108.5 of the Income Tax Assessment Act 1997: CGT asset can also be an
equitable as well as a legal right. This form of asset include land, shares, building, options,
foreign currency, contractual rights as well as debts. A permanent disposal of such an asset
will be categorised as A1 CGT event.
Section 110.55 of the Income Tax Assessment Act 1997: Shares are treated as CGT assets,
the sale of the same as CGT event. Consequently any proceed that is accrued from such a sale
will also be assessed under the CGT computation. While computing the CGT liability, when

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the cost base is a reduced cost base the third element that is owning cost is required to be
excluded. Such cost includes interest and the reason for such an exclusion is that a
transaction, which has incurred a gain towards the taxpayer would be treated as a loss if such
an interest would have been included (Barkoczy 2016).
Section 110.25 of the Income Tax Assessment Act 1997:
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
E 2 = incidental cost
E 3 = owning cost
E 4 = capital expenditure
E 5 = title preservation cost
Section 110.55 of the Income Tax Assessment Act 1997:
CGT Gain = Cost Proceed - RCB (e 1 + e 2 + e 3 + e 4 + e 5) [CP>RCB]

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E 1 = acquisition cost
E 2 = incidental cost
E 3 = excluded
E 4 = capital expenditure
E 5 = title preservation cost
Application
In the present instance Daniel decided to sell his house, which was the main residence of
him for 30 years and the acquisition cost of which was $70000. The sale of the house was
expected to on a proceed of $865000. The sale of the house also includes cost of paying the
real agent and amount of $15000 and the buyer has already metre deposit of $85,000.
However, the sale was not an effected sale and was a proposed sale. Moreover after 14 days
the contract for sale has been cancelled. As there was no actual transfer of ownership, this
event will not be treated as a CGT event and will be excluded from the computation of CGT.
The seal of the painting painted by Margaret Preston for price of $125000, which has been
acquired for a price of $15,000 on 20th September 1985 needs to be included in the
computation of CGT liability. This is because it has been acquired on the prescribed date and
not prior to the prescribed date for the consideration of CGT.
The luxury yacht has been acquired for a price of $110000 and sold for a price of $60,000.
This needs to be treated as a CGT loss as the cost proceed is less than the cost base.
The shares purchased by Daniel was acquired for a cost of $75,000 on 10th of January
2019. The shares has been sold for a price of $80,000 on 5th June 2019. This need to be
treated as a CGT event A1 but the 50% discount will not be allowed. This is because the

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shares would not held for more than 12 months. However for the acquisition of the same
Daniel had taking a loan of $70,000 on which he was supposed to be an interest of $5000.
Moreover, an additional expense of $250 as a stamp duty and $750 as a brokerage fee has
also been incurred. In this case, the inclusion of the interest while computing the CGT in the
cost base will render the transaction to be a CGT loss but in actuality it has caused a gain to
the taxpayer. Hence interest will not be included while computing the CGT liability of the
taxpayer. In this case instead of the cost base the reduced cost base will be considered.
Particulars Amount ($) Amount ($)
Capital gain from proceed of painting
CP 125000
CB 15000
Total 110000
Capital gain from proceed of shares
CP 80000
RCB ( 75000+750+250) 76000
Total 4000
(-) Capital loss from the proceed of yacht
CB 110000
CP 60000
(-) Total 50000
Net CGT Gain 64000
Conclusion
The net CGT of Daniel can be discussed as above.

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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.