Taxation Law Report: Case Studies and Calculations

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Taxation Law
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Table of Contents
Introduction.................................................................................................................................................3
Question 1...................................................................................................................................................4
Question 2...................................................................................................................................................7
Question 3...................................................................................................................................................8
Consequences of Capital Gain on Different Items sold by Felicia................................................................8
Consequences of Capital Gain sale of Antique Desk-...............................................................................8
Consequences of Capital Gain on sale of Yacht.......................................................................................9
Consequences of Capital Gain on sale of Shares.....................................................................................9
Consequences of Capital Gain on Sale of Car........................................................................................10
Consequences of Capital Gain on sale of Main Residence.....................................................................10
Consequences of Capital Gain/loss on sale of Rental Property To Daughter.........................................11
Conclusion.............................................................................................................................................12
References.................................................................................................................................................13
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Introduction
This Report Focuses on Calculation of Tax Payable by Shareholder and Consequences of Capital Gain Tax
on various Items. This Report is divided into two parts. In this First Part of this Report Case of Screnity
pty Ltd is given which is Paying Dividend to Three Shareholders of the company Namely John, Paul and
Beetle Pty ltd. John is an Australian Resident while Paul is A non-resident. Beetle Paty ltd is a registered
company in Australia. Second Half of first part focuses on Fringe Benefit tax .under this Part taxable
value of different items is to be calculated for the purpose of Frinage Benefit tax. Last Part of first part
focuses on Calculation of Capital Gain Tax and Consequences of Capital Gain Tax which were purchased
in the Last 12 Months. In the Part B of this Report A presentation is to be made on an Area of Taxation
Law which includes Brief Discussion of Taxation Law along with its Objective.
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Question 1
In this problem case of Serenity Ltd is given which has paid Fully Franked dividend of $7000 to three
shareholders of the company. Fully Franked dividend is a part of dividend on which the tax is already
paid by the company. In this Case shareholders of the company are entitled to receive dividend amount
plus credit for the amount of Tax which is already paid by the company. Fully Franked Credit is also
known as Franking Credit or imputation Credit. This Company pays tax at the rate of 30% .Here Tax
payable/Refundable for Each Shareholder has to be calculated.
1. In the first part amount of other income of John is given who is an Australian resident.
Gross total income = Dividend + Other Income
Calculation of Tax Payable/Refundable byJohn
Perticulars Amount
Income from other sources $5,000
Dividend Received $7,000
Gross Total Income $12,000
Tax on Total Income as per Slab Nill
Tax Already Deposited By Company $2,100
(30% of 7,000)
Refundable amount of Tax $2,100
In this Case john Income of John is divided into 2 Parts so as to get actual figure. First Income received
from other source and second dividend income. Gross Total Income of john is $12,000 which includes
income from other sources and dividend received. According to the Resident Tax rate 2018-19 if the
total income of any Australian Resident is Less than $18,200 then no tax is calculated on his income. So
the income Earned by John is exempted From Tax and the Tax which is already deposited by the
company i.e. $ 2100(30% of 7000) will be Refundable to company (Quillgroup, 2016).
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2. In the second part income of Paul is given who is a Non Resident and he has earned $37,000 as
Income from Wages and $7000 as Dividend. Here Total income of Paul is $ 44,000(37,000+7000)
Calculation of Tax Payable by Paul
Perticulars Amount
Income in the form of Wages $37,000
Dividend Received $7,000
Gross Total Income $44,000
Tax on Total income as per Slab $14,300
(32.5% of $44,000)
Tax Already Deposited by the
company $2,100
(30% of 7000)
Tax Payable $12,200
($14300-$2100)
As per the provisions of Capital Gain Tax if a Foreign Resident is earning up to $90,000 in the financial
year then he has to pay tax at the Rate of 32.5% on his total income. Here Paul is earning total $44,000
which includes dividend income and income from wages. As per the income tax rates he has to pay Tax
of $14,300 to Government (32.5% of $44,000) and tax of $2100 is already deposited by the company so
he has to pay a net tax of 12,200.
3. In the third part income of Beetle Pty Ltd is given which is a registered company in Australia. This
Company has total income of $90,000. Beetle Pty ltd is also Qualifies for small business Entity tax whose
rate is 27.5%.
Calculation of Tax Payable by Beetle Pvy Ltd
Perticulars Amount
Income from Other Sources= $90,000
Dividend Received $7,000
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Gross Total Income $97,000
Small Business Entity tax on Gross total Income
(27.5% of $97,000) $26,675
Tax already Deposited by the company $2,100
Tax Payable $24575
($26675-$2100)
In this case Beetle Pty Limited is Earning Income of $97000 which includes $9000 which is earned from
other sources and $7000 as Dividend income. In case of registered companies Small Business Entity Tax
is charged on total Income. Rate of Small Business Entity tax is given as 27.5% and the total amount of
tax is $ 26675 and $2100 is already deposited by the company so this amount will be deducted from the
Tax payable ($26675-$2100) and Tax of $24575 has to pay by the company (Business.gov.in, 2018).
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Question 2
Fringe Benefit tax (FBT)
Fringe Benefit Tax is a type of Tax that a Employer has to pay to Government in relation to Benefits That
has been Given to Employee. Generally in Certain Companies employees are given many Essential
Facilities buy The Employer and the Tax on these Facilities has to paid by the Employer. Fringe Benefits
Includes Medical and Dental Insurance, Housing Allowance Education allowance etc. Statutory Interest
rate For Fringe Benefit Tax For the year ending 2019 is 5.20%.
Item
Payment By
Employer
Tax deduction paid by
Employer
Calculatio
n of Fringe
Benefit tax
(Interest
Rate is
5.20%)
Taxable
value for
Fringe
Benefit
Tax
Briefcase $300 $300 $15.60 $284.40
Hecs-Help
Charges $850 Nill $44.20 $805.80
Taxi Fares $300 $100 $15.60 $284.40
Interest Expanses $500 $500 $26.00 $474.00
Loan at 3.20% $50,000 Nill $2,600.00
$47,400.0
0
In this Case Employer has made Payment of 5 Facilities which includes Briefcase, help charges, tax
charges, Taxi Fares, interest Expenses and a loan whose Interest rate is 3.20%.Rate of Fringe Benefit Tax
is Given as 5.20 % and it is calculated on Briefcase(5.20% of $300) Help Charges (5.20% of $850) Taxi
Fares(5.20% of 300) Interest expenses (5.20% of 500) and loan(5.20% of $5000) and when the Interest is
deducted from the Payment done By Employer then Remaining Value is termed as taxable value for
Fringe Benefit Tax (Maleki & Sameti,2017).
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Question 3
In the Financial year 2018- 19 Felicia sale Various Assets Which Were Acquired In the Previous year.
These Assets includes Desk, Shares Car, Yacht, Main Resident of Felicia and a Rental Property which Was
sold to Felicia’s Daughter.
Perticulars Cost ($)
Capital
Proceeds(Sales
price) ($)
Capital Gain/ Loss on these
Items ($)
Conseque
nce
Antique desk 4,000 2,500 -1,500
Capital
Loss
Yacht 9,000 11,000 2000
Capital
Gain
Shares 5,000 10,000 5000
Capital
Gain
Mercedes Residence 150,000 300,000 150,000
Capital
Gain
Main Residence 500,000 1,000,000 500,000
Capital
Gain
Rental Property sold to
Daughter 1,000,000 500,000 -500,000
Capital
loss
Consequences of Capital Gain on Different Items sold by Felicia
Consequences of Capital Gain sale of Antique Desk-
In this case Felicia has sold an Antique Desk whose cost price is $ 4,000 and it was sold at a price of
2,500. Here Felicia has suffered a capital loss of $1500. And As per the Provision for Capital Gain Tax act
if any person has suffered any Capital loss on sale of Assets then it will be fully exempted. Capital losses
are adjusted from other capital Gain (Maleki & Sameti,2017).
Calculation of Capital Loss on Antique desk Amount($
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)
Sales Price of Antique Desk 2500
less: Cost Price of Antique Desk 4000
Capital Loss on Sale 1500
So as per CGT Act the whole capital Loss of $1500 will Be Exempted from Tax.
Consequences of Capital Gain on sale of Yacht
In the Financial year 2018 Felicia has sold a Yacht whose cost price is $9,000 and it was sold at a price of
11,000. In this particular case Felicia has received a capital Gain of $2000 (Property update, 2019)
Calculation of Capital Gain on Yacht
Amount($
)
Sales Price of Yacht 11,000
less: Cost Price of yacht 9,000
Capital Gain on sale 2,000
According to the Provisions of CGT Act if a person has received any Capital Gain on sale of assets and if
the personal assets are acquired for less than $10,000 then capital Gain on such asset will be exempted.
In this Case the condition of Exemption is Fulfilled i.e. the cost price of asset is Less than $10,000 so the
Amount of Capital Gain Received on sale of yacht will be Exempted (Maleki & Sameti,2017).
Consequences of Capital Gain on sale of Shares
In this Case Felicia has the shares of $5,000 at the Starting of financial Year which were Sold by her at
the end of Financial Year at a sales price of $10,000. So in this Case Felicia has received a capital Gain of
$5,000 on sale of shares (Maleki & Sameti, 2017).
Calculation of Capital Gain on shares Amount($)
Sales Price of shares 10,000
less: Cost Price of shares 5,000
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Capital Gain on sale of Shares 5,000
As per the Provisions of Capital Gain Tax, Capital Gain on sale of Shares Is taxable weather it is short
term capital Gain or Long term Capital Gain. In this Case Felicia has received a capital Gain of $5000 on
sale of shares and she has to Pay Tax on these shares.
Consequences of Capital Gain on Sale of Car
In this case Felicia has a Mercedes car whose Purchase Price is $1,50,000 and she has sold This Car For
$3,00,000 in the year 2018.She has Received a capital Gain of $1,50,000 on sale of Capital.
Calculation of Capital Gain on car
Amount($
)
Sales Price of car 300,000
less: Cost Price of car 150,000
Capital Gain on sale of car 150,000
According to the Provisions of Capital Gain Tax Exemption is allowed on car only if car is purchased for
$10,000 or less. In this Particular case Capital Gain on Sale of Car will not be exempted because the cost
price of Car is More than $10,000(KPMG International Cooperative, 2018).
Consequences of Capital Gain on sale of Main Residence
In this case Felicia Ha sold his Residential House Which was purchased by One Year ago. Cost Price of
House One Year ago was $500,000 and it is sold for $1,000,000. Clearly Felicia has received a capital
Gain of $500,000 on sale of Residential House (KPMG International Cooperative, 2018)
Calculation of Capital Gain on Residential House
Amount($
)
Sales Price of Residential House 1,000,000
less: Cost Price of Residential House 500,000
Capital Gain on sale On Residential House 500,000
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As per the Provisions of Capital Gain Tax Gain On sale of Residential House is exempted if it is Used For
Only Residential Purpose for the Whole Year. In this Case is Assumed that house is Used for Residential
Purpose of Owner for the Whole Year so the amount of Capital Gain arising from sale of Residential
House will be Exempted ((Property update, 2019)
Consequences of Capital Gain/loss on sale of Rental Property to Daughter
In this Case Felicia has sold a Rental Property to his Daughter. This Property was rented for the last One
Year. Cost Price of This Property is $1,000,000 and Felicia has sold this Property to Her Daughter in
$500,000.And in this Transaction she has Received a Capital loss of $500,000 (KPMG International
Cooperative, 2018).
Calculation of Capital loss on Rental Property
Amount($
)
Sales Price of Rental Property 1,000,000
less: Cost Price of Rental Property 500,000
Capital loss on sale On Rental Property 500,000
And As per the Provisions of Capital Gain Tax Act Capital Loss On sale of Assets will be exempted. In this
case Felicia is not bound to pay any Tax on Capital loss which was arising from the sale of Rental
Property.
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Conclusion
This report is divided into two parts. First Part includes Various Problems related to Franking and Capital
Gain Tax. First part of this Report is again divided into Three Parts. First Sub part of First Part Covers the
Tax Payable or Refundable by Two Persons Namely John and Paul And One Australian Company Named
Beetle Pty Ltd. Company has paid dividend of $7000 to each of three shareholders. Second Sub Part of
First Part Covers the Calculation of Taxable value is done for the Purpose of Calculating Fringe Benefit
Tax. In the third Sub Part of First part Capital Gain tax is calculated on different items which were sold by
Felicia in the financial year. Consequences of tax is also Explanted in this Report I.e. Weather the capital
gain is Exempted or Not and if exempted then Reason of exemption is Explained. In the Second part of
this Report Objective, history of Tax Measure, Important amendments are explained with the Help of
Power Point Presentation.
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