Taxation Theory, Practice, and Law: Tutorial Questions Assignment

This document provides a comprehensive solution to a taxation assignment, addressing various aspects of the Australian tax system. The assignment covers six key questions, including fringe benefits tax (FBT), capital gains tax (CGT), goods and services tax (GST), taxation of companies, tax avoidance, and the taxation of trading stock, partnerships, and trusts. Each question is thoroughly analyzed, with relevant facts, rules, and calculations presented to support the conclusions. The solution includes practical examples and calculations to demonstrate the application of tax principles. Furthermore, the assignment explores the Voluntary Tax Transparency Code and the progression from GAAP to GAAR in the context of tax avoidance. The document concludes with a summary of the key concepts and a list of references used in the analysis.

Taxation Theory, Practice,
and Law
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Table of Contents
Introduction......................................................................................................................................3
Question 1 Fringe Benefits Tax.......................................................................................................3
Question 2 Capital Gains Tax..........................................................................................................3
Question 3 Goods and Services Tax................................................................................................4
Question 4 Taxation of Companies..................................................................................................5
Question 5 Tax Avoidance, GAAP, ITR, etc...................................................................................6
Question 6 Trading Stock, Partnerships and Trust..........................................................................6
Conclusion.......................................................................................................................................7
References........................................................................................................................................7
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Introduction
This project contains 6 questions related to Australian Tax System and its allied concepts.
Facts related to these specific tax laws in relevance to the questions asked are discussed below to
come to the related conclusions. Required calculations have also been made to demonstrate
practical application of the taxation problems.
Question 1 Fringe Benefits Tax
Facts:
GoodMates Pty Ltd has provided an amount of $5000 to an employee for one month at
no interest. Realising inability of the employee to pay back, loan repayment was waived off on
compassion basis.
Rules and/or cases:
If an employer waives an employee's debt repayment obligation, it is considered as debt
waiver fringe benefit. However, in case of written off of genuine bad-debt, it does not account
for debt waiver fringe benefit.
Application:
In this case, company realised that employee has no assets to pay back the loan and harsh
measures would endanger him further and therefore, decided to write it off as bad-debt. It is a
case of genuine bad-debt.
Conclusion
It can be concluded that it is a case of write off of genuine bad-debt and hence, doesn't
account for debt waiver fringe benefit. Therefore, company does not require to pay any fringe
benefit tax.
Question 2 Capital Gains Tax
Calculation:
Particulars Amount (in $) Indexed Amount (in $)
(A.) Purchase price 5000 6645
(B.) Incidental cost 50 66.45
(C.) Improvement cost 1500 1833
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(D.) Transportation cost 200 229.4
Cost Base = A + B + C + D 8773.85
(E.) Sale Value/Capital
Proceeds
12000
Capital Gain
=Capital Proceeds – Asset's
cost base
12000-8773.85 3226.15
(F.) Tax rate 30.00%
Capital Gains Tax 3226.15*30% 967.85
Working Notes:
Particulars Date Amount (in $)
Purchase of asset 31st March 1989 5000
Incidental cost 31st March 1989 50
Improvement cost 31st March 1990 1500
Transportation cost 31st March 1992 200
Sale 2020 (assuming 31st March 2020) 12000
Corporate Tax Rate 30.00%
Indexation factor
= A/B
= CPI for 30thSept1999 /
CPI for expenditure
quarter
31st March 1989 = 51.7
31st March 1990 = 56.2
31st March 1992 = 59.9
30th September 1999 = 68.7
1.329
1.222
1.147
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Question 3 Goods and Services Tax
Accounting for GST at Alex Ltd.
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It is a GST registered company and maintains accounts under accrual basis. Under
accrual basis, it has to attribute GST to tax periods in which either consideration for the sales is
received or invoice is issued. In this case, it is assumed that company has sold to Beta Pty Ltd on
01st August 2019 and raised invoice thereafter, making it liable to pay tax with the BAS reporting
for the month of August, 2019. Payment is subjected to the agreement and accounts settlement
cycle of the two firms.
Accounting for GST at Beta Pty Ltd.
It is not registered under GST. It will have to make payment to Alex Ltd. inclusive
of tax as and when they become due and won't be able to claim ITC on it.
Tax Calculation
Particulars Amount
Sales Value 20000
Add: GST @ 10% 2000
Total 22000
Question 4 Taxation of Companies
Computation of tax liability for Andre for the year 2019-20
Particulars Amount (in $)
Gross salary 79480
Australian sourced dividend income 1000
Franking credit 343
Total Assessable Income 80823
Less: Allowable deductions -500
Total Taxable Income 80323
Tax on taxable income 17652
Add: Medicare Levy (80323 * 2%) 1606
Less: Franking credit -343
Total tax payable 18915
Less: PAYG Withholding 16467
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Net tax payable 2448
Working Note:
 Residential status – Individual resident for full year
 Gross salary - $63013 + $16467 = $79480
 Calculation of franking credits and gross dividend:
Franking credits = ((Amount of dividend / (1 - corporate tax rate)) – Amount of dividend)
* franked rate
= ((1000 / (1 - 0.3)) – 1000) * .8
= $342.86
Gross dividend = $1000 + $342.86 = $1342.86 or $1343
Question 5 Tax Avoidance, GAAP, ITR, etc.
Factors affecting tax avoidance
As per Brown (2020), Board of Taxation of Australia brought Voluntary Tax
Transparency Code (VTTC) in 2015-16 to allow firms to make voluntary disclosures. It was
observed by the author that large firms are likely to make consistent disclosures as a sign of
'good tax citizen' status but that does not ensure change in tax avoidance using other book
measures. Contrarily, non-disclosers have shown a decrease in tax avoidance. This shows that
VTTC is merely a confirmatory mechanism for declaration, not for tax avoidance. De La Feria
(2019), also says that European Union has been moving from General Anti-avoidance Principle
(GAAP) to General Anti-avoidance Rule (GAAR) under Anti-Tax Avoidance Directive. Though
they contain key differences, author observed that it is a natural progression and EU GAAR is a
manifestation of EU GAAP and has been developing positive results in countries like UK to
control tax avoidance.
Question 6 Trading Stock, Partnerships and Trust
Computation of Net Tax liability of Maria for the year 2019-20
Particulars Amount (in $)
Partnership Profit 400000
Interest received from Partnership for loan 10000
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Total Income 410000
Less: Allowable deductions -300
Taxable income 409700
Tax 157462
Working Note:
Particulars Ryan Maria Mike Law firm
Net Profit for the financial year ending 30th June
2020
400000 400000* 400000 1200000
Loan by Maria on 1 July 2019 to partnership 100000
Interest received on Loan (included in profit
calculation)
10000
Income from Gambling (Earning from gambling is
not taxed in Australia)
200
Allowable deductions for allowable professional
subscriptions
300
*In absence of partnership ratio provided, it is assumed that ratio is 1 : 1 : 1.
Conclusion
Above project contains six questions related to different taxations in the Australia
namely, Fringe Benefit tax, Capital Gains Tax, Goods and Service Tax, Corporate Tax, tax
avoidance, etc. Relevant study has been made in both theoretical and practical demonstrative
manner to develop an understanding of these concepts.
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References
Books and Journal
de la Feria, R., 2019. EU General Anti-(Tax) Avoidance Mechanisms: From GAAP to
GAAR. The Dynamics of Taxation (Oxford: Hart Publishing, 2020), forthcoming.
Brown, R.J., 2020, September. Voluntary tax disclosures and corporate tax avoidance: Evidence
from Australia. In Australian Tax Forum (Vol. 35, No. 3, p. 391). Tax Institute.
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