HA3042 Taxation Law: Fringe Benefits Tax and Capital Gains Analysis

This assignment solution delves into various aspects of Australian Taxation Law, focusing on Fringe Benefits Tax (FBT) and Capital Gains Tax (CGT). The first question analyzes the fringe benefit of a car using both the operating cost and statutory formula methods, referencing the Fringe Benefits Tax Assessment Act 1986 and relevant tax rulings. It calculates depreciation, imputed interest, and taxable values under both methods to determine the appropriate approach. The second question explores capital gain consequences for different asset sales, including a house, an artistic painting, and a luxury yacht, applying relevant sections of the Income Tax Assessment Act. It examines cost base calculations, discount eligibility, and exemptions for main residences and personal property items, ultimately determining the tax liabilities for each scenario. Desklib offers a wealth of similar solved assignments and past papers to aid students in their studies.

Running head: TAXATION LAW
TAXATION LAW
Name of Student
Name of University
Author Note

1TAXATION LAW
Question 1
In this case the main issue is the determination of the consequences of Fringe Benefit of
the Car using both the method of operating cost and the method of statutory formula.
The provisions relating to the Fringe Benefit Tax in Australia can be found in the Fringe
Benefits Tax Assessment Act 1986. A Fringe Benefit Tax can be defined under the section 136
(1) of the FBTAA as a benefit that is given by the arrangement of an employer to an employee or
an associate in respect to the employee’s employment (Barkoczy 2016). The benefit can be
including any rights, interests or personal properties. The tax year for FBT is considered to be
from 1st April to 31st March. Tax credit inputs can be seen to be claimed by the employers under
the type 1 benefits. The 2018-19 gross up rate of the fringe benefit tax is 2.0802 and the rate for
the fringe benefit tax is 47%.
The Fringe Benefits of Car can be found in the provisions of section 7bof the Fringe
Benefit Tax Assessment Act and can be seen to be taking place when an employee is given a Car
by the employer for the use of private purpose. The fringe benefits of a car can be calculated in
two ways mentioned under the FBTAA. The first way or the statutory formula method can be
seen to be defined under the section 9 (1) of the Act while the second way that is the cost
operating method can be seen to be defined under the section 10 (2) of the FBTAA.
The statutory formula for the calculation of the CFB is very simple. It is given as [CFB=
0.20 * Base value of the car * (number of days in year the employee received CFB/total tax
days) – payment received]
The formula of CFB under the cost operating method is C * (100% - BP) - R

2TAXATION LAW
Where, C is defined under section 10 (3) (a) as cost of operating for holding period,
maintenance, insurance, fuel and registration and BP = business percent and R = contribution of
the recipient. Under section 11 and 12 of the FBTAA the rate of depreciation is 25% and under
section 11 the rate of imputed interest is 5.20% (TR 2018/2).
In the TR 2011/3 it can be seen to be mentioned that the employer’s price of cost would be
reduced in case of contribution of the employee towards the price of purchase of the car.
In this case it can be seen that $1,000 was contributed by Lucinda towards the car’s cost and the
car’s base value is $18,000. Therefore by Linda’s contribution the reduction in base value will
amount to $17,000.
The depreciation of the car would be
Depreciation Amoun
t
Base Value of the
car
18000
contribution of the employee 1000 TR
2011/3
Base Value of the
car
17000
Depreciation rate
mentioned
25%
Depreciation deemed
(BV*25%*365)/
365
4250
The car’s imputed interest would be
Imputed Interest Amount
Actual Base Value of
theCar
18000
Employee’s contribution 1000
adjusted Base Value of
the car
17000
Statutory Interest rate 5.20%
Interest Deemed
(BV*5.2%*365)/365 884

3TAXATION LAW
In the statutory method the FBT of the Car can be found
STATUTORY FORMUAL METHOD
Details Amoun
t
actual Value of the Car Base 18000
Employee’s contribution 1000
adjusted Base Value of the car 17000
Statutory rate 20%
private use of the car 365%
Number of Days 365
Taxable value
(BV*20%*(PU/TD) 3400
The FBT of the car under the operating method is
OPERATING COST METHOD
Particulars Amount Amount
REPAIRS for the
Car
3300
INTEREST that is
Imputed
884
Depreciation Deemed 4250
INSURANCE 2200

4TAXATION LAW
FUEL 990
TOTAL OPERATING COST 11624
PRIVATE USE
TOTAL KILOMETER 20000
WORK USE of the car 14000
PRIVATE USE of the car 6000
PERCENTAGE OF PRIVATE
USE of the car
30
Taxable value of FBT
(TOC*PRIVATE
USE)
3487.2
Thus in conclusion it can be said in this case the method of statutory formula needs to be used.
Question 2A
Part 1
In the current case the main or primary issue is finding capital gain consequences for the
assets sale.
Capital gain can be described as a statutory income which can be seen to be requiring the
presence of a capital gain asset and a capital gain event. When the capital gain asset is disposed
by the taxpayer it is seen to be giving rise to the most common capital gain event CGE A1 which
can be asserted under section 104.10(1). It is also important in this context to find the timing of

5TAXATION LAW
the event and find out whether the asset pre or post CGT. An asset that has been acquired after
20th September 1985,that is post CGT period, is only considered as CGT asset. Under the
provision of section 108.5 a house can also fall under the category of CGT assets. It will mean
that the A1 event of the CGT would be triggered with the sale of the house. A1 timing of the
Capital Gain Tax event is considered when the asset has already been sold or a contract has been
entered upon for the asset’s sale. In the case the amount of capital gain or capital loss would be
calculated as (CP-CB) where CP= capital proceeds. Capital proceeds under section 116.20 are
defined as the price gained by the sale of an asset, including the price that is not yet received.
Additionally there are five elements present in the cost base. Cost base is defined under section
110.25 (1) as the price borne by the tax payer for the assets. Cost price is included in the first
element of the cost base. Under section 110.25 (2) of the IT Act, the first element of the cost base
of the house can be deemed as $70,000. As the timing of the contract forming event is seen to be
29th June 2019, hence the capital proceeds received would be amounting to $850,000. This is
reduced by the agent commission of $15000. Thus it can be seen that Ray’s net CG would be
$780,000 for which a discount of 50% can be claimed by him under the division 115 of the Act.
However for the discount to be applicable a few criteria are needed to be made. These criterions
have been discussed under the provisions of the sections 115.10, 115.15 and 115.25 of the act.
The criteria under section 115.10 needs the people to be individuals. Section 115.5 requires the
assets to be sold after the date 21st September 1999. The third criteria that has been mentioned
under the section 115.25 is the asset needs to be hold for 1 year. Thus the total Capital gain tax
can be seen to be amounting to 390,000. However by the facts it can be seen that the property is
Ray’s main residence as he has been living there for 30 years. The tax payer’s Capital Gain for
the sale of main residence can be seen to be exempted under the section 118.110. Hence Ray is

6TAXATION LAW
not liable to pay any CGT this year. The event of forfeiture and deposition of the contract that
has been retained by Ray can be seen to be events taking place in the next financial year so they
cannot be considered to be significant.
Part 2
In section 104.10 (1) it is stated that when a tax payer disposes of CGA the occurrence of
A1 CGE that is the most common capital gain event would be happening. Under section 108.10 a
collectible item is stated to be included in the CGT assets. In the event of A1 CGT the
calculation of capital gain or loss is done as (CP-CB) where CP is meant as capital proceeds that
can be defined as the price gained by the way of the asset sales as mentioned in section 116.20.
Additionally there are five elements present in the cost base. Cost base is defined under section
110.25 (1) as the price borne by the tax payer for the assets. Cost price is included in the first
element of the cost base. Therefore under section 110.25 (2) the first element of the CB for
Margaret Preston’s artistic painting piece would be amounting to $15,000. As the painting was
acquired on 20th September 1985 it would be considered as a Capital Gain Tax because it was
purchased after 11.55 pm of 19th September 1985. the price that has been gained through the sale
of the asset or the cost price in this case is $125,000. Thus the Capital Gain in this case can be
calculated as (125,000-15,000) that amounts to $110,000. However for the discount to be
applicable a few criteria are needed to be made. These criterions have been discussed under the
provisions of the sections 115.10, 115.15 and 115.25 of the act. The criteria under section 115.10
needs the people to be individuals. Section 115.5 requires the assets to be sold after the date 21st
September 1999. The third criteria that has been mentioned under the section 115.25 is the asset
needs to be hold for 1 year. Thus the total Capital gain tax can be seen to be amounting to
$55,000 as Ray is seen to be meeting all the above mentioned criteria as he is an individual

7TAXATION LAW
person, the asset was being sold on 31st May 2019 that is after 21st September 1999 and he has
held the asset for more than 1 year.
Part 3
In section 104.10 (1) it is stated that when a tax payer disposes of CGA the occurrence of
A1 CGE that is the most common capital gain event would be happening. Under section 108.20
(2) a personal property item is stated to be included in the CGT assets. As the luxury yacht was
purchased by Ray for his personal enjoyment it can be considered as a personal item of property.
As per section 118.10 (2) of the IT Act the personal property items are exempted if they are seen
to be costing less than $10,000. In the CGE A1 a capital loss or gain can be calculated as (CP-
CB) where CP is meant as capital proceeds that can be defined as the price gained by the way of
the asset sales as mentioned in section 116.20. Additionally there are five elements present in the
cost base. Cost base is defined under section 110.25 (1) as the price borne by the tax payer for
the assets. Cost price is included in the first element of the cost base. Under section 110.25 (2)
the first element of CB for the luxury yacht is $110,000 and its CP is $60,000. Therefore it can
be seen that total CL is of $50,000. However as seen in the provisions of section 108.20 (2) a
capital loss on the personal property assets are disregarded. Hence this loss can be seen to be
disregarded as well. In this case the CB can be defined as reduced cost base.
Part 4
In section 104.10 (1) it is stated that when a tax payer disposes of CGA the occurrence of
A1 CGE that is the most common capital gain event would be happening. Under section 108.5 a
personal property item is stated to be included in the CGT assets. In the CGE A1 a capital loss or
gain can be calculated as (CP-CB) where CP is meant as capital proceeds that can be defined as

8TAXATION LAW
the price gained by the way of the asset sales as mentioned in section 116.20. Additionally there
are five elements present in the cost base. Cost base is defined under section 110.25 (1) as the
price borne by the tax payer for the assets. Cost price is included in the first element of the cost
base. Under section 110.25 (2) the first element of CB for the shares is $75000. As reduced cost
base is not included in the 3rd element of Section 110.25(4) and since Ray is having CL the loan
interests would not be calculated. Interests are categorized within the 3rd element. $250 stamp
duty will be under the 2nd element. As stated under section 116.20 CP is the selling price so the
CP in the current case is $80,000 which would be reduced and modified as brokerage fees of
$750 under section 116.30. The total CL in this case is 75250-79250 that is $4,000. Additionally
previous year’s CL on shares would reduce the total Capital Gain by $10,000.
Ray’s Net Capital Gain or Capital Loss for the year 2018-19 is
House- 0
Painting- $55,000
Yacht $50,000 (disregard)
Shares- $4,000
Previous Year Loss- $10,000
Total CG- $49,000
Question 2b
As CG is a statutory income Ray is required to pay income tax on a net CG in the current
financial year. The CG would be added in Ray’s assessable income.

9TAXATION LAW
Question 2c
As the net capital loss in the current FY was done for the shares it can be stated that the amount
would be received in offset in the next FY by Ray. However it must be stated that collectibles
can only be offset against other collectibles and the loss on the assets of personal property cannot
be offset against any other loss.

10TAXATION LAW
Reference
Barkoczy, S., 2016. Foundations of taxation law 2016. OUP Catalogue.
Fringe Benefits Tax Assessment Act 1986
Income Tax Assessment Act 1936 (Cth)
Income Tax Assessment Act 1997 (Cth)
McDonalds v FCT (1998)