Taxation Theory and Practice: Analysis of Australian Taxation

This report provides a comprehensive analysis of Australian taxation laws and practices. It begins with an introduction outlining the scope and objectives of the report, focusing on the calculation of assessable income, taxable income, and the application of Australian taxation laws. The report then addresses two key questions. Question 1 involves the computation of capital gains from various assets, including vacant land, an antique bed, a painting, shares, and a violin, with detailed calculations based on relevant tax regulations and case laws. Question 2 focuses on Fringe Benefit Tax (FBT) consequences for a company, Rapid-Heat, analyzing specific fringe benefits provided to employees and calculating the FBT liability, including expenses related to a company car. The report concludes by summarizing the key findings and implications of the analysis.

Taxation Theory, Practice 1
Running Head: Taxation Theory, Practice
Taxation Theory, Practice

Taxation Theory, Practice 2
Introduction
The report includes the analysis of various resources during the current year in conformity with
that of Australian Taxation Laws. The asset yields have been measured so that the assessable
income of the individuals can be calculated and the taxable income for him/her can be evaluated
accordingly. The actual stipend of the regulatory authority can be done with the outlines of
taxation as the reference of the case laws has been provided. The Fringe Benefit tax is also
analyzed according to the Australian Taxation. All the concepts in the report are illustrated as per
the latest outlines of taxation so that the deep analysis can be rendered.

Taxation Theory, Practice 3
Question 1
Assumption: The assumption has been made that the client is residing in Australia and is an
Australian resident so the computation of their capital gains has been done accordingly. The
authority that is responsible for handling all the issues related to the taxation is the Australian
Taxation Office (Austill, 2018).
A) Block of vacant land
The vacant land was acquired for the amount of $120000. It encloses the cost of sewerage, water
and land taxes which is $100000 and $20000. The amount for acquisition cost of the land will be
regulated as per the current selling price. Until the contract for the sale has been entered (Austill,
2018) the income will be treated as the credit gain in the year. Observation concludes that the
vacant land has been taken into consideration after September 1999 so the estimation for same
will be done in a specific manner (Austill, 2018). The discount method has been used to calculate
the taxation as the land was acquired on January 1and the 50% of the discount will be allowed
(Austill, 2018). Therefore, it can be said that the income which is received as the stipend for the
first year will be counted as the owner of capital assets.
Therefore,
Sales Price=$320000
Purchase Price=$100,000
Cost of Local council, water and sewerage = $20000
Capital Gain = (320000-100000- 20000)
=$200000

Taxation Theory, Practice 4
B) Antique bed
The antique bed costing for $3500 was bought by her on 21 June 1986 and was kept with her for
a longer period of time which is for more than a year to analyze if the long-term capital gain will
be raised for the antique bed. To determine the actual capital gain for can be same the indexation
factor of the selling price has to be calculated. The inflation index will be used for adjusting the
cost at which the antique bed was bought.
So, the total value of indexation for the purchases including the alteration expenses for the
antique is amounted to be $7886.92. As it has been observed that the antique bed in the long-
term capital gain so this is the amount which is liable for the taxes according to the Australian
Taxation Laws and with this, through the discounted values the actual value which has to be paid
so that the transparency and the effectiveness can be maintained is determined.
Therefore, the capital gains which is liable for taxation is $3113.
The capital gain which is found by the discounted method will be referred as the value is lesser
than the value achieved through the indexation method.
Selling Price = $11,000
Purchase Price = $3,500
Cost of Alterations = $1,500
So, by applying the formula of capital gain or loss on this transaction:
Capital gain/ loss = $11,000 - $3,500 - $1,500
= $6,000
C) Painting
In the given case, it the amount of $125000 for the current tax year (Australian taxation office,
2018) has been paid for the painting sold in the art auction. So, the capital gain includes the

Taxation Theory, Practice 5
number of sales which has been received by her due to the only reason that this is the actual
selling price of the painting. The indexation factor will be used in this scenario too as it is used
for evaluating the value of taxable income.
Selling Price = $125,000
Purchase Price = $2,000
Application of formula of capital gain/ loss on the transaction of selling painting:
Capital Gain/ Loss = $125,000 - $2,000
= $123,000
This amount will be liable for the taxation according to the Australian Taxation Laws.
Hence, the cost which is counted as the capital gain for the sale of painting will be $123,000
D) Shares
The client is having the substantial share portfolio and dealing with the business of selling and
purchasing the shares, observed in the given plot. It can be said that the income which is earned
from the sale will not be treated as the capital gain (Australian taxation office, 2018) because the
shares are purchased and sold by the client to various organizations. The client is doing the
business of shares is the reason for the same. The client is also not liable for the capital gain
taxes as the treatment for this income will be done under the heed income received from the
business and profession not under the head income from capital gains. According to the
provisions in the Australian Taxes, the brokerage fees and the costs of stamp duty which is paid
by the client will be included in the purchasing price or the initial price of the shares and the cure
for same will not be done separately. The revenue for the client includes the amount which has
been raised from the transfer of shares and will be treated under the head income received as
profits, not as the capital gain. It can also be analyzed from the information provided that earning

Taxation Theory, Practice 6
the profits or to increase their earning through dividends and other sources are found to be the
main motive of the client by above analysis (Australian taxation office, 2018).
(a) Securities of Common Bank Ltd
Sales Price = Selling Price of Each Security * Total Number of Shares
= $47 * 1000 = $47,000
Total Purchase Cost = Purchase Price of Each Security * Total Number of Securities
= $15 * 1000 = $15,000
Cost of Brokerage Charges = $550
So, by putting the above values in the formula of capital gain:
Capital gain on Shares of Common Bank Ltd = 47,000 – 15000 – 550
= $30,700
(b) Capital gain or loss on sale of securities of PHB Iron Ore Ltd
Purchase Price of Shares = Purchase Price of Each Stock * Total Number of Stocks
= $12 * 2500 = $30,000
Value of Sales of Shares = Per Security Selling Price * Number of stocks/ securities
= $25 * 2500 = $62,500
Cost of Brokerage Charges = $1,000
Stamp Duty Paid on the Stocks of PHB Iron Ore Ltd = $1,500
So, value of capital gain on the sale of shares of PHB Iron Ore Ltd can be ascertained through
use of following formula:
Capital Gain = Total Sales Price – Total Purchase Price – Brokerage Cost – Cost of Stamp Duty
= 62,500 – 30,000 – 1,000 – 1,500
= $30,000

Taxation Theory, Practice 7
(c) Capital Gain or Loss on the Sales of Shares of Young Kids Learning Ltd
Total Purchase Price = Per Share Purchase Price * Total Shares Purchased
= $5 * 1200
= $6,000
Total Sales Price of Young Kids Learning Ltd Shares = Per Share Selling Price * Total Shares
= $0.50 * 1200 = $600
Cost of Stamp Duty Paid = $500
Cost of Brokerage = $100
So, by putting the above values in formula of capital gain:
Capital Gain = Total Sales Price – Total Purchase Price – Brokerage Cost – Cost of Stamp Duty
= 600 – 6000 – 100 – 500
= -$6000
(d) Capital Gain or Loss on Sale of Shares of Share Build Ltd
Total Purchase Price = Purchase Price for Each Share * Total Shares Purchased
= $1 * 10,000 = $10,000
Total Sales Price = Selling Price of Each Share * Total Shares Sold
= $2.50 * 10,000 = $25,000
Expense of Stamp Duty faced on the Shares = $1,100
Cost of Brokerage Charges Faced on the Shares = $900
So, by putting the above values in the formula of capital gain:
Capital Gain = Total Sales Price – Total Purchase Price – Brokerage Cost – Cost of Stamp Duty
= 25,000 – 10,000 – 900 – 1,100
= $13,000

Taxation Theory, Practice 8
E) Violin
A violin has been sold to the neighbour who is in Queensland. The capital gain will also get
raised as the violin has not only been bought for the business purposes but also the profit has
been earned from the sales of the violin. Following the fact, there is a lesser deviation between
the selling price of the violin and the market price of the violin in case there will be capital
change (Australian taxation office, 2018).
Purchasing Price of the Violin = $5,500
Selling Price of Violin = $12,000
So, by putting the above values in the formula of capital gain and loss:
Capital Gain or Loss = Selling Price of Violin – Purchase Price of Violin
= 12,000 - 5,500
= $6,500
In order to find out the net capital gain or net capital loss, all the capital gains from all the
sources which have been achieved will be added.
Determination of Net Capital Gain or Net Capital Loss
Particulars Value ($) Total Value in
$
Capital gain by selling the vacant land 20,000
Amount received from insurance company as claim for
the antique stolen
6,000
Selling the painting 123,000
Sale of 1000 securities of Common Bank 30,700
Sale the securities of PHB Iron Ore Ltd 30,000
Sale of securities of Young Kids -6,000
Sale of securities of Share Build Ltd 13,000
Selling the violin 6,500
Total Capital Gains from Different Transactions $223,200 $223,200
Less: Net Capital Loss of Previous Year -$8,500

Taxation Theory, Practice 9
Less: Capital Loss arising from selling the piece of
sculpture in previous year
-1,500
Net Capital Gain $213,200
Question 2
A) Advise Rapid-Heat of its FBT consequences arising out of the above information,
including calculation of any FBT liability, for the year ending 31 March 2018.
In the plot shared, it has been found that all the employers are getting a specific type of benefits
from taxes. The valuation of the taxable income is done by computing the actual value of FBT.
The Fringe benefits tax (FBT) tax is the one which is given to employees by the employer. The
FBT is calculated by taking care of various steps. The amount of the benefit is dependent upon
the provisions which are incorporated in the Australian taxation (Australian taxation office,
2018). Another factor that needs to be taken care of is the change in the value of GST. It
uncovers the fluctuation in the amount of FBT by the various methods of valuation. In some of
the cases, GST will be charged while in some the GST will not be charged, apart from the given
cases.
FBT will be charged according to the valuation rules. The special tax has been applied to the
provisions which are associated to the Fringe Benefits Tax (Australian taxation office, 2018).
Analysis of the Expenses which are incurred in the care facility:
Jasmine has a car for her own purpose. The taxes are applicable in accordance with the
kilometres, that car has travelled as per the outlines of the Australian Taxation Laws. The rate of
the taxes which is charged is 20% but in this scenario, the GST for the car will not be applicable.
In the given case, the car has travelled for 10000 km in the last year. Now, the distance which the
car has travelled will be charged accordingly. The value of car = 33000*100/110
=$330000

Taxation Theory, Practice 10
Fringe Benefit = 30000*20/100
=$6000
The $500 which has been obtained is inclusive for the GST amount
So, the fringe benefit for this will be $500
= (550-[550*1/11])
Interest Income Analysis:
Following the outlines of the Australian Taxation, the loans will not be taken into consideration
which is for the personal purpose but the interest on these loans will be applied and used for the
deduction (Carnegie, 2014).
Interest =$450000*4.25/100
=$19125
This total of the interest which will be deducted but it can be collected by analyzing the assessing
income.
Heater Treatment
The selling price of the heater is more than that of at which the heater was purchased so here the
fringe benefits tax can be observed. The value for the same is $1300.
Taxable value= (Car Value*2.0802) + (repair expenses * 2.0802) + (Interest on loan * 1.886)
= (6000*2.0802) + (500*2.0802) + (19125*1.8868)
= $49606.35
The FBT will be charged for the following case at the rate of 47%
Fringe benefit tax = 49606.35*47/100
= 23314.98
Fringe Tax liability = Tax on the benefit –GST credit

Taxation Theory, Practice 11
= 23314.98 – 3050
= $20264.98
B) How would your answer to (a) differ if Jasmine used the $50,000 to purchase the
shares herself, instead of lending it to her husband?
When Jasmine has purchased the shares for her personal use rather than selling it to the husband,
a cure for the same will change.
Value of Interest which is taxable= (400000*4.25/100)*1.8868
= 32075.6
Formula of Total Taxable Amount = Type 1 x 2.0802
= 534,850 x 2.0802
= $1,112,594.9
In this way, the FBT tax chargeable from Rapid Heat can be determined through below available
formula:
FBT Tax = Total Taxable Amount x FBT Tax Rate
= $1,112,594.9 x 47%
= $522,919.603

Taxation Theory, Practice 12
Conclusion
It can be concluded from the complete report that the cure for all the gains and also the activities
are done in accordance with the Australian Taxation Laws. The fringe tax benefit which is
evaluated in this report shows that there are interests who are liable for the taxes but not the loans
which are taken by individuals for their personal purpose. Along with it, the requirement of the
taxation laws has also been realized. This has given it a real picture so that the actual taxable
income of the individuals can be assessed. The discounted factor and the indexation factor both
are used for the amount which is lesser and the evaluation of capital gains. This is considered the
capital gain for the firm. Hence, it all sums up that the report provides the fair understanding of
the Australian Taxation which can be used for the treatment of the taxable income. Therefore, it
can be said that the overall report gave the understanding about the proper treatment of the
taxation in Australia and the about the methods through which the actual value of the taxes can
be determined.

Taxation Theory, Practice 13
References
Austill. (2018). INCOME TAX ASSESSMENT ACT 1997 - SECT 82.135 Payments that are not
employment termination payments. [Online]. Retrieved from:
http://www5.austlii.edu.au/au/legis/cth/consol_act/itaa1997240/s82.135.html
Australian taxation office. (2018). Amounts not included as income. [Online] Retrieved from:
https://www.ato.gov.au/Individuals/Income-and-deductions/Income-you-must-declare/
Amounts-not-included-as-income/
Australian taxation office. (2018). Capital gains tax. [Online]. Retrieved from:
https://www.ato.gov.au/General/Capital-gains-tax/
Carnegie, G., (2014). Pastoral accounting in colonial Australia: a case study of unregulated
accounting. Germany: Routledge.
Moretto, N., Kendall, E., Whitty, J., Byrnes, J., Hills, A.P., Gordon, L., Turkstra, E., Scuffham,
P. and Comans, T., (2014). Yes, the government should tax soft drinks: findings from a
citizens’ jury in Australia. International journal of environmental research and public
health, 11(3), 2456-2471.