Taxation Analysis: Capital Gains, Assets, and Tax Liabilities Report

This report provides a comprehensive analysis of Australian taxation laws, focusing on capital gains and asset valuation for an individual client in New South Wales. It explores the tax implications of various assets, including vacant land, an antique bed, a painting, shares, and a violin. The report meticulously calculates capital gains and losses for each asset, considering relevant dates, purchase costs, and sale values. It applies Australian taxation office regulations to determine tax liabilities, including the impact of pre-CGT assets and the treatment of insurance claims. The report also provides interpretations of the tax laws and calculations, offering insights into the client's tax obligations and financial outcomes. The report concludes with advisory recommendations for effective taxation strategies.

Taxation Theory Practice
and Law

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
a. Block of Vacant Land.........................................................................................................1
b. Antique bed........................................................................................................................2
c. Painting...............................................................................................................................3
d. Shares.................................................................................................................................4
e. Violin..................................................................................................................................6
TASK 2............................................................................................................................................7
a Advise Rapid-Heat about FBT consequences....................................................................7
b. Variation to answer if the Jasmine used 500000 as share investment................................8
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10

INTRODUCTION
The Taxation system has evolved over period of time as it is now much more developed and
progressive than regressive. The tax paid by individual citizens to the government is being used
by the concerned government for the purpose of development as well as growth of the nation in
the long run. As a Tax consultant within New Southwales, Australia, the different types of assets
which are being bought and sold by the client during the tenure will be discussed below in detail.
In the First part, different types of assets along with their capital gains will be argued and in the
Second part an advisory will be given to concerned client for the purpose of taxation in an
effective way.
TASK 1
The taxation System in Australia is quite developed. New South Wales is an Australian
State in which the taxation policies of the government are applicable. The various cases that are
being discussed here are based on the provisions of the law applicable on this particular region.
There are various types of Taxation like Direct or Indirect Taxation that prevails in Australia and
the cases that are being discussed underneath comes under the purview of Direct Taxation. The
client here is an individual and is not having an established business as such. Therefore, the rate
of tax that will be applied is based on the individual tax rates that prevails in the concerned
region.
a. Block of Vacant Land
Facts Related to Case: The client, here is an investor as well as an antique collector, who
has decided to sell a block of land that is possessed by him since 2001. He purchased the same at
a rate of $1,00,000 and incurred $20,000 as a local council tax thus his total cost in that year
turned out to be $1,20,000. Now the client wants to sell the same at a rate of $3,20,000.
Relevant Law: As per the provisions of Law, Capital gain tax will be attracted to client in
current case. The law states that any immovable property sold at a higher price than at which it
was purchased then capital gain liability is attracted, if the same is sold on profits. The difference
between the cost price and sale value is regarded as profits and attracts tax liability based on the
prevalent rate in law. As per Australian Taxation Office Vacant Land is a capital asset like any
other property and hence tax liabilities are also attracted on the same. The expenses that are
incurred by the client in making the purchase can be claimed as a deduction while making
calculation of tax liability.
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Calculation of Capital Gain/ Loss on Amount Received from Sale of Land
Date Particulars Amount
January, 2001 Purchase of Land $1,00,000
Local Council Tax $20,000
Total Cost of Land $1,20,000
3rd, June, 2017 Contract Price of Sale of Land $3,20,000
3rd, June, 2017 Less: Advance Deposit $20,000
3rd,Jan,2018 Balance Payment Received $3,00,000
Capital Gain $200,000
Taxable Capital Gain @
10%
$20,000
Tax Rate 19 cents per dollar over and
above $18,201
Net Tax Liability $342
Interpretation: Capital Gain arises when a capital asset is being sold at a price which is
higher than the cost at which it was acquired. The tax is calculated on difference amount. Hence
in this case in order to arrive at capital gain the cost incurred on purchasing land has been
deducted from the contract price. The amount is then taxed based on the relevant law, There is
no tax liability on capital gain which is below $18,201 and on the above amount tax rate of 19%
is charged on every dollar. Hence in this case the net amount is 20,000-18,201= $1799 on which
19% Tax is charges which is equal to $342.
b. Antique bed
Facts Related to the Case: Under this case, The Client had purchased a antique bed for
$5,000 in July,1986 that was including all the expenses. This can be regarded as a capital asset,
but due to certain conditions the asset was stolen from her house. The value of Asset at that time
was $25,000 based on the valuation made at that time. In November of the current tax year, the
bed was stolen and she has filed a claim for the same with insurance company in January for
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$25,000. The Insurance Company rejected the Claim on the Ground that it does not come under
the definition of specified Item of Policy. Though She was Paid $11,000 in the month of January
Itself.
Relevant Law: Under the current Scenario, There are two Acts which mainly applies
these are Income tax assessment act, 1997 and second is Insurance Act, 1984. As per the
provision of these Acts, Claims that are being received from Insurance Companies are regarded
as compensation and not regraded as sale of assets therefore it does not attract capita gain. The
Amount of compensation received from insurance company by the client can be used for setting
off against the loss of client.
Calculation of Capital Gain/ Loss on Amount Received from Insurance Company.
Date Particulars Amount
21st July 1986 Purchase made of antique bed $3500
29th Oct 1986 Changed Made within the Bed $1500
Total Cost incurred on Bed $5000
31st Oct 2017 Valuation of Bed based on
Current Marker Value
$25000
12th Nov 2017 Bed was Stolen
13th Nov 2017 Claim Of Insurance was Filed
21st Jan 2018 Insurance Claim received as
per the relevant Provisions
$11000
Tax Rate N/A
Net Taxable Amount 0
Interpretation: The above Calculations clearly states that the amount received from insurance
company is treated as compensation and not a sale of a capital asset. Thus there is no liability of
tax that is attracted on client and thus the net taxable amount comes at 0. Though the Antique
item was a capital asset in beginning. But after the incident of theft, The amount received from
insurance is regraded as compensation.
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c. Painting
Facts Related to Case: Under the current Case, client has sold an expensive painting for
$1,25,000 that has been acquired by her on 2 May 1985 for $2000 from a publicly recognised
Australian Artist. The painting was sold at auction in April 2018 The concerned amount as per
the law will be considered as Capital Gain because Painting is an example of Art and comes
under the definition of Capital Asset.
Relevant Law: The painting was acquired in the year 1985 and was sold way after in 2018.
Capital Gains Tax is applicable on only those assets that are being purchased after 20Septemeber
1985. This painting will be liable for Pre CGT. According to this pre capital gain tax, the rate of
taxation is same as per the current slab but the tax will be paid by different form. Paintings which
are acquired from well known artists are also known as capital gains (Dowling, G. R. 2014).
The determination of capital gain amount and net taxable amount is mentioned below:
Date Particulars Amount
2 May 1985 Painting Purchased $2000
3 April 2018 Painting Sold $125000
Capital gain $123000
Taxable capital gain $123000
Tax rate 20797 plus 37 cents for each
dollar over 90000
Net tax payable amount 33007
Interpretation: From the above calculation, it can be said that a capital gain of around $1,23,000
was arrived at by her. This amount was arrived at by deducting the amount of purchase from the
sale of the Painting. The painting was sold in $1,25,000 while it was purchased for only $2,000
hence a profit of 1,23,000 was made which is regarded as Capital Gain by the Law. The tax rate
that is applied on the sale of capital gain of this painting is 20,797 plus 37% of the amount which
exceeds $90,000.
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d. Shares
Facts Related to Case: Under the current case the client was having share portfolio and he has
been acquiring as well as selling shares from a longer period of time. In the portfolio of client
there were different types of shares that were there. The acquisitions of shares involved cost in
the form of stamp duty as well as brokerage also Securities Transaction Tax is imposed down by
the government on purchase of securities. The Share portfolio of client is as follows:
Shares Price
1000 Shares 47 dollars
2500 shares 25 dollars
1200 shares .50 dollars
10000 shares 2.50 dollars
Relevant Law: Shares as well as securities that are being purchased after 20 September,1985 are
liable for capital gain Tax. 10,000 shares in Share build limited have decreased over time, and
thus the loss occurred on the same will be considered as capital loss and is eligible for deduction
within the current year only from the capital gains that has occurred on other securities in an
effective way (Greiner, R., & Gregg, D. 2011).
Calculation of Capital Gains on sale of shares
Date Particulars Amount
2001 Shares Purchased $15000
4th July 2017 Shares Sold $47000
Expenses in sale of shares $1300
Capital gain $30700
2001 Shares Purchased $30000
14th February, 2018 Shares Sold $62500
Expenses in sale of Shares $2500
Capital gain $30000
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2005 Shares Purchased $6000
22nd January, 2018 Shares Sold $600
Expenses in sale of Shares $600
Capital loss -$6000
5th July, 2017 Shares Purchased $10000
22nd January, 2018 Shares Sold $25000
Expenses in sale of Shares $2000
Capital gain $13000
Net capital gain $67700
Taxable capital gain $67700
Tax rate $3572 plus 32.5 cents for each
dollar over $37000
Net tax payable amount $13887.2
Interpretation: From the above Statement,it has been analysed that capital gain from sale of
various securities is $67,700. The gain has been arrived at after deducting a capital loss of 6,000.
Capital Gain of $67,700 is liable for taxation that has been arrived by applying a rate of 32.5%
after $37,000. The Standard Taxation is $3572. After calculating capital gains and losses of all
the securities, it has been evaluated that the net taxable amount is $13887.2
e. Violin
Facts Related to Case: Under the Current Case Scenario, The client is a collector of musical
instruments and do own several violin with herself. On 1st of May, she decided to sell one of her
violin to her neighbour for $12000, which was acquired by her on 1st June 1999 for around
$5500.
Relevant Law: The capital gain tax is going to be attract on the sale of violin and the rate that
will be applied for the purpose of taxation will be same as individual income tax rate. This is
because the violin that is sold by her to neighbour was not in the usual course of business but it
was sold as a personal capital asset, thus it attracts capital gain on the same.
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Calculation of net tax payable amount and capital gain
Date Particulars Amount
1 June 1999 Violin Purchased 5500
1 May 2018 Violin Sold 12000
Capital gain 6500
Taxable capital gain 0
Tax rate Not applicable
Net tax payable amount 0
Interpretation: There is no Tax Liability that accrues on the client, this is because there is no
need to pay tax, if the the capital gain is less than 18001 dollars, the amount is exempted from
tax and does not attract any tax.
The above Capital gain has occurred from various sources and these have to be merged
together in order to arrive at the total capita gain that has to be paid..
The calculation of Net Capital Gain are as follows:
Particulars Amount
Capital gain from block of
land
$200000
Capital gain of painting $123000
Capital gain of violin $6500
Net capital gain of shares $67700
Total capital gain $397200
Less: Capital loss of previous
year
$8500
Net capital gain $388700
Others:
Insurance claim received under $11000
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household contents policy
Particulars Amount
Net tax payable amount of block of land $342
Net tax payable amount of painting $33007
Net tax payable amount of violin $0
Net tax payable amount of shares $13887.2
Net tax payable amount on insurance claim of
antique bed
$0
Total taxable amount for the current
assessment year
$47236.2
The tax liability of the client after considering all the capital gain as well as loss of
previous year is $388700 dollars on which the tax liability of the person is $47,236 .
TASK 2
Facts related to Case: Jasmine one of employee in Rapid-Heat Pty Ltd, is provided a car whose
actual purchase price is $33000(including GST). She decided to travel around 10,000 km by her
car and $550 on minor repairs. In the month of September, the company of client has provided
her a loan of about 500,000 at a interest rate of 4.25%. From which she lends around 50,000$ to
her husband and with rest amount she purchased a home. During the year she also purchased an
electric heaters for $1300 which was manufacture by Rapid-Heat.
a Advise Rapid-Heat about FBT consequences
FBT, Fringe Benefit Tax is a tax that the employer has to pay, if an employer provides certain
benefits to employees. Fringe benefits is a kind of tool that is being used by the company to
attract quality staff within the business (King, D. 2016). But some of the tax has to be paid by the
Employee as well. This is separate to income tax and is calculated on the taxable value of fringe
benefits provided. Rapid Heat has provided a car to Jasmine, which is regarded as a fringe
benefit and thus Company has to pay a tax on car fringe benefits and on purchase of electric
heater.
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purchase price of car $33000
amount spent on repair $550
car was travelled about 10000 km so tax rate 26.00%
actual sell price of heater $2600
jasmine purchase price $1300
taxable amount $1300
FBT rate for year 2018-19 47.00%
taxable value $611
taxable value of heater($33000*26%)- $550 $8030
Taxation on loan (500000*6.22%) $31100
Net taxable value $39741
Rapid Heat Pty. Ltd. Purchased a car for $33,000 and Ms. Jasmine Spent around $550 for
the purpose of maintenance. The distance travelled was 10,000 km. Therefore the rate of tax is
26%. After applying the statutory formulae the taxable fringe benefits of Jasmine is $8030. FBT
on purchase of heater is $611, at a tax rate of 47%.
b. Variation to answer if the Jasmine used 500000 as share investment
If jasmine would have invested around $50,000 in Share investment from the loan
amount of 5,00,00 instead of lending the same to her husband, then the fringe benefit tax and
income break up of her will look like as follows:
Particulars Amount
Loan Amount to Jasmine 500000
Purchase of holiday home 450000
Share investment 50000
Tax rate 6.22%
Taxable amount to Rapid
Heat(450000*6.22%)
27990
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From the above calculation, it is quite clear that the amount invested in shares by jasmine has
reduced the loan amount, because the amount invested is not taxable. The net taxable amount
comes at $27,990.
CONCLUSION
Thus, from the above discussion it can be said that the taxation laws as well as practices
is a very crucial element in Investment and business activities. A clear understanding of Capital
Gain tax is derived from the report considering various kinds of situations in an efficient manner.
In the Second Case scenario the concept of FBT is discussed in detail.
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