University Tax Assignment: CGT, FBT, and Tax Analysis

This assignment analyzes the tax implications for Amber, focusing on Capital Gains Tax (CGT) and Fringe Benefits Tax (FBT). The first part examines the sale of Amber's chocolate shop, including the taxation of goodwill and the application of CGT event C1 under ITAA 1997, along with the impact of restrictive covenants and CGT event D1. It references key court cases and tax rulings to support the analysis. The second part of the assignment addresses the fringe benefit tax consequences. The assignment considers the sale of an apartment and the application of the main residence exemption. It also examines the nexus between personal services and income, and the application of fringe benefit tax to employee benefits. The assignment provides a comprehensive overview of tax laws, case studies, and their practical application.

Running head: TAX
Tax
Name of the Student:
Name of the University:
Authors Note:

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Table of Contents
Answer to question 1:......................................................................................................................2
Answer to question 2:......................................................................................................................7
Reference.......................................................................................................................................14

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Answer to question 1:
Issue:
The issue currently on the consequences of the capital gains taxation under the section
“104 of ITAA 1997”
Laws:
According to “section 102-5 of the ITAA 1997”, taxpayer is required to include Capital
gains in to the assessable income. . It is very important to understand that whether there is any
CGT event that has occurred with the taxpayer that has initiated the situation of capital gain or
loss. Moreover, it is very necessary to understand the qualities of the asset of CGT (Burkhauser
et al., 2015). At the same time, the taxpayer can only make capital loss or gain that actually
originates from the context of CGT event under the “section 102-20”. Also under the section
“section 104-10 (1)” the CGT event A1 gradually takes place on the disposal of the CGT asset to
the taxpayers.
In accordance to the “section 104-25 (1) of the ITAA 1997 a CGT” the event C2 occurs
at the time is a possibility of bringing an end on the end and expiry of the assets. On the context
of goodwill, the views of the ATO states that CGT events C1 can take place when there is a
permanent cease of the business. Even the ruling of taxation that disposes of the goodwill of the
business or the interest related to business under the goodwill “ITAA 1936”. On the other hand,
a business needs to undergo ceasing on permanent basis as a voluntary act outcome (Lang et al.,
2018). In addition, a noteworthy denotation claims that the business have to be ceased
permanently for undergoing a temporary closure that would result in any kind of CGT Event C1.

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On bringing the context of the court of Law, “FC of T v Murry (1998)” has actually
define the definition of Goodwill.. To be precise enough the view expressed that goodwill is
actually the main quality is obtained from the various assets of the business. The very existence
of goodwill is much reliant on proofing upon the revenue production of the business that is
available from the assets, techniques of the business and the location. “Subsection 108-5(2)
holds that the CGT assets need to take into account the affect of goodwill (Parker, 2018). In the
eyes of the Court of Law “IRC v Muller & Co Margarine Ltd (1901)” holds that the goodwill
must be depended on the character and the business nature. Even a payer of tax requires
including all the income that is taxable on adding the net capital gain valuation that retrieves
from the goodwill selling of the business.
The measure of “taxation ruling of TR 1999/16” strictly explains all the covenants that
are restricted and also comprise of all the agreements within the vendor relating to the purchases
and the business sale for any separate agreement that does not requires the completion of the
exactly similar business. The rules “taxation ruling of TR 1999/16” explains the covenants that
exists among the vendor’s employee of the vendor that is relating to agreement for selling the
main business on the agreement that is based on which the agreement of the employees are based
on that attracts all the business clients (McGee et al., 2016).
No payment received on the restricted rights for relinquishing is regarded as proper
income. Those payments are included that is received for the agreement of not doing something.
According to the case of “Jarrold v Boustead (1964)” the money which the rugby player
received for withdrew himself as an amateur was not considered as an income. Similarly in case
of “Dickenson v FC of T (1958)” it was cited that the price which was paid to the tax payers of
the petrol station for selling only shell products from that particular station for the next ten years.

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Then from that very same station, they can sell shell products till a radius of 5 miles for the next
five years will not be considered as income (Wilkins, 2015).
In the given case the tax payer signs a contract to restrict the business sale which
represents as a CGT asset. “section 104-35 (1)” receipts of such agreements or covenants are
treated as “CGT event D1”. This CGT event D1 occurs only when a taxpayer creates a legal
right to a competent entity. According to “Higgs v Olivier (1951)” an actor was paid money for
the decision he took for not producing, directing or acting in another movie for the next 18
months was not considered as an income. Now the receipt of the above case fell under CGT
event D1 as it created an agreement of exclusive trade (Frey, B. S., & Feld, 2018).
Now a taxpayer’s residence should qualify as his main residence so that he or she may
get the main residence exemption. The taxpayers may have multiple dwellings but it must be
understood which form of residence is the main residence and therefore it becomes eligible for
exemption. It depends on the matter of fact that which dwelling form is the main residence of the
taxpayers (Dixon & Nassios, 2016). The commissioner of taxations views the time period the
taxpayer dwells in a residence or the place where the family of the taxpayer used to reside. Now
to achieve the entitlement of exemption, some degree of physical occupancy is needed.
According to “section 118-110 (1) of the IITA 1997” the taxpayer allowable to exempt
in relation income derived form the capital gains and losses which is originated from CGT event.
Exemption is allowed only if the CGT assets are originated from the main residence of the
taxpayer all through the ownership period. To a taxpayer partial exemption is also applicable. It
is applicable when the main residence of the taxpayer formed a portion of the time of ownership.
Applications:

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Sale of Shop:
In the context of the study the assesse Amber is the owner of s chocolate shop located in
Sydney. After the birth of her child, the assesse decide to sale the shop for $ 440000 which also
included the goodwill of $ 280000. In the present situation of Amber, the taxation rule of “TR
1999/16” is applicable. Now referring to the decision made in case of “FC of T v Murry
(1998)”, in Ambers business goodwill formed a legal concept. In the end of the Amber’s
business a CGT event C1 with respect to “section 104-25 (1) of the IITA 1997” occurred. The
sale proceeds of the CGT assets creates an CGT event C1. Then the end of the assets ended
when the taxpayers entered into the contract. The existence and goodwill of Amber’s business
proves that her business earned revenues from these assets (Bankman et al., 2017).
Since Amber closed her business permanently, it represents or signifies the outcome voluntary
act. That is why it gave rise to CGT event C1. Now according to the citing of “IRC v Muller &
Co Margarine Ltd (1901)” the assessable income will hold the proceeds for the CGT assets
sales proceeds, which are being earned from the sale of the business and the goodwill of the
shop. The capital gains which are made from the sale of the chocolate shop should be taxable
under “section 104-10 (1)”.
Restrictive Covenants:
It is being observed in the later part that Amber is required to sign an agreement which
would state that she cannot run the same business within a 20 Km circle for a periode of five
consecutive years.. Just by entering this contract, the assessereceived a lump sum of $50,000.
The receipt of this $50,000 would be considered as CGT event D1. In reference to “Jarrold v

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Bousted (1964)” the money which Amber received by entering this contract would not be
considered as an income rather it would be considered as CGT event D1 (Basu, 2016).
Referring to the case of “Dickenson v Fc of T (1958)” the money which was paid to amber in
the respect of the agreement which she signed and which stated that she would not start or do a
business. In case of Amber the restrictive covenant of the CGT assets which is created and
transferred to the purchaser in its own rights which is related to the goodwill which is acquired
by the purchaser. So under “section 104-35 (1)” the receipt of $50,000 by amber will be
recognized as CGT event D1 , therfor ethe income received by Amber will be Treated As CGT
event . as the contract of restriction is creating an right of exclusive trade Practise.
Sale of Apartment:
It is being observed in the later events that in the month of October 2013 Amber received
an apartment from her uncle. Her uncle acquired by the 2013 September and the Assesse begin
to live there from October 2013. In May a contract was signed by Amber regarding the sale of
the apartment. However, ion July 2013 all the settlements of the sale of the resident was done.
Since this residence was qualified as taxpayer’s main residence, Amber’s main residence
exemption was applicable in this case. Now whether this apartment forms the main residence for
amber is dependent on the question of the fact. Since Amber inherited this apartment from her
uncle and this was used as main residence by her from October 2013, so the question of the fact
was determined (Fuentes-Nieva & Galasso, 2014).
According to the views of the tax commissioner, the time in which Amber has lived in
place where the assessable taxpayer family member is livening more than five consecutive years.
According to “section 118-110 (1)” Amber is enjoying a proportional portion of the house till

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the time it is being acquired. .as off now the assesse is eligible for the partial main residence or
the mains residence that is received after the inherence of her uncle. . So in reference to “section
118-110 (1) of the ITAA 1997” the entitlement of partial exemption from the capital gains tax
can be obtained by the taxpayer since the assets were dwelling and the main residence of
taxpayer throughout the period of ownership.
Conclusion:
It is concluded from the above case study is that the amount of the capital gains which
was obtained by Amber from the sale of chocolate shop is held taxable under “section 101-10
(1)”. And according to “section 104-35 (1)” the receipt of $50,000 from the restrictive covenant
is considered and treated as “CGT event D1” which cannot be regarded as an income under
ordinary cases. A contractual right of exclusive trade agreement was created by this receipt.
Amber will be entitled to partial exemption from the capital gains tax after selling her apartment
as the assets dwelling and the it was the main residence of the taxpayer during the time of
ownership.
Answer to question 2:
Issues:
The present is based on determining the fringe benefit tax consequences of the taxp[ayer
originating from the transaction reported by the taxpayer.
Laws:
According to “section 6-1 of the ITAA 1997” income which is personally extorted or
which is derived from the personal exertion reflects the income which comprises of the salary

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income , wage income, contribution to the superannuation funds and others. or any other form of
proceeds which is obtained by the taxpayers for the services they render (Cvrlje, 2015). Or from
the receipts that is obtained in the course of employee net might or will get subject to the income
tax for the employee’s purpose or the fringe benefit tax for the employer. There should be a
nexus with the receipt that is originating from the taxpayer’s personal service otherwise a receipt
would not be considered or classified as an income (Edwards et al., 2016).
Now a nexus is published the personal service consists of like salary, wages,
commissions and many others that are in the paid to the labor in the course of work as an
ancillary payments .or. It is being stated by “section 6-5 of the ITAA 1997” that incomes which
are based on ordinary concepts are taxable under “ITAA 1997”. Maximum income that comes to
the taxpayers are held as ordinary that falls under “section 6-5 of the ITAA 1997”. Fro instance
the “Scott v Commissioner (1935)” the actual legal meaning of the income is stated. Income
should be ascertained based on ordinary concept and mankind’s use as per the commissioner
(Schenk et al., 2015). An item of income nature is derived for the tax payers when it comes
home. In case of “Dean v FC of T (1997)”, it was held by the court that the retention payment
which is made to the employees for agreeing to the fact that they will or must remain employed
for twelve months after the takeover. And it was considered an income from the employment.
Salary or wages which are being paid to the employees in a different form are known as fringe
benefit. According to the fringe benefit tax, it is a benefit which is being given in relation to the
employees (Chapman et al., 2016). This simply means that some benefits are given to someone
just because they are employed. “Subsection 136 (1) of the FBTAA 1986”the cars fringe
benefits are decleared. The car used by the employee are constituted as a benefit under

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“subsection 136 (1) of the FBTAA 1986”. According to the fringe benefit tax, it is a benefit
which is offered to an employee in respect of the employment.
Usually the car fringe benefit originated when the employer gives an employee a car for
private use. Individual employees use the car for their private purpose or when the car is
available for the private use. In the recipient’s hand fringe benefit is considered as exempted
income for the income tax purpose (Gonzales et al., 2015).
Residual fringe benefit means the private services or facilities that an employee gets just
because of the respect of the employment. Residual fringe benefit may include services like
travel or professional or manual work or any other use of property. Residual fringe benefit may
be regarded as a particular benefit which an employee gets over a period of time. The
arrangements of the salary payments are the packages that consists the remonstration payments
to an individual for making an agreement with the employer.(Dowling, 2014).
Now the benefits originated from loan fringe benefits are when the employers gives loan
to the employee at a lower interest rate during the fringe benefit tax year. Lower rate of interest
simply means less than statutory rate of interest (McCluskey, W. J., & Franzsen, 2017). The
taxable amount of the loan fringe benefit means the differences which would have is accrued in
the assessment year if the proceeds are accrued in the current year or the statutory interest is
applied in the understanding and considered interest rate.
In reference to “Moore v Griffiths (1972)” winning from a prize are not considered as
an income. But it might be allocate to the income if substantial interest is existing with the
income generation of the tax payer.. Now in reference to “Kelly v FCT” from a channel a
taxpayer received an award for being the fairest and best play. Now this would be considered as

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income as this was incidental to the work and employment that was related to his skill (Avi-
Yonah, 2015). Likewise, in case of “FC of T v Stone” the policewoman was the taxpayer and
the javelin thrower earned his income through endorsement and prizes. The money was held as
income since the Taxpayer was assessed for carrying on the professional athlete’s business.
Non-cash benefits may have an appropriate nexus with the personal services but it will
not be considered as ordinary income if it is not convertible to cash. In reference to “Payne v
FCT (1996)” the court clearly states that the redemption of the frequent work related travel
points will be considered as income (Avi-Yonah & Queralt, 2015). On the other hand non-cash,
benefits which are considered taxable may fall under the subject of fringe benefit or may fall
under “section 15-2 of the ITAA 1997”.
When an employee covers an expense for their employers and the employer repays the
employee for the expenses he incurred for the employer, it gives rise to expense payment fringe
benefit. The taxable amount in this case is the amount which is being repaid. Now if an
employee occurred an expenditure for the employment related duties then that amount would be
deducted for the income tax purpose. Usually when the employee incurs an expenditure for the
employer then it gives rise to fringe benefit.
Application:
Salary Income:
The present case study is on determining the fringe benefit tax consequences of an agent
called Jamie who used to work for a real estate company known as Houses R Us. Jamie was
provided with a salary of $50,000 as per the agreement of the employment contract had. Now
salary receipts represents an income that comes from the personal exertion as per “section 6-1 of

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the ITAA 1997”. Jamie receives a receipt of $50,000 from the personal services which he
provides during his employment is an income which is subjected to income tax (Borrego et al.,
2015).
The salary would be considered as an ordinary income in an ordinary situation as per
“section 6-5 of the ITAA 1997”.IN reference to “Scott v Commissioner (1935)” salary receipts
will be considered as income in ordinary cases or concepts of the “ITAA 1997”. According to
the case of “Dean v FC of T (1997)” the salary will be considered as remuneration which comes
from the employment (Rogoff, 2017).
Car Fringe Benefits:
Later it was seen that Jamie received a car from his employer for both the private and
work usage or purposes. By the virtue of the employment the car which Jamie uses is considered
a benefit which falls under “subsection 136 (1) of the FBTAA 1986”. It is a benefit which is
offered to the employees in respect of their employment. Jamie used this car for private usage or
purposes for both within and outside the working hours of the weekends (Mankiw, 2014).
Residual Fringe Benefit:
In the next year it has been observed that Jamie had a salary package which included
a laptop an mobile that are valuing $ 2300 and $1200 Every year.. The employer gave Jamie
entertainment allowances and repaid him or reimbursed him $550 as well. In the present case of
Jamie the expenses incurred by the employee for his employer that is the House Rents and the
employer repays the employee back then this results in the rise of fringe benefit. Therefore, as
per “FBTAA 1986”, Jamie would be liable for fringe benefit taxation (Berns, 2017).

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Later Jamie received a prize since he had achieved the highest number of sales in the last
six months that was worth of $4,800. As a reward he got a home entertainment system which
was worth the same, that is $4,800. Now according to “Kelly v FCT” case the home
entertainment system worth $4,800 would be considered as a non-cash benefit which later could
be converted into cash. Yet again this would be considered as an income since it was incidental
to the work and environment. AS a reward for his employment services, Jamie got this $4,800.
This would be considered as an income since there is sufficient connection that exist with the
revenue generating system of Jamie.
Loan Fringe benefit:
It has been understood from the facts of the case that House R Us gives or rather
provides their staff with a sum of $100,000 so that they can buy their own house and which is
given at the rate of 4% interest rate per year. And Jamie was interested in this offer and was
ready to take the loan. So for Jamie a fringe benefit on loan will arise where the interest rate
charged by his employer is much lesser than the statutory or benchmark rate of interest (Zucman,
2014). Now if Jamie would consider to take this loan then it will give rise to a loan fringe benefit
because it is a loan which is being provided by his employer by charging a low rate of interst is
chargeable in the assessment year.. Now if Jamie opts to take this loan then the amount of the
loan fringe benefit would represent the difference between the interest which have been accrued
to Jamie during the period of the fringe benefit year only if the interest charge is charged like the
statutory rate of interest.
Conclusion:

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It is been concluded that the salary which Jamie has received under ordinary cases or
means would be considered taxable as per “section 6-5 of the ITAA 1997”. “Subsection 136
(1) of the FBTAA 1986” constitutes the fringe benefit of the car which Jamie used. Since there
are sufficient connection of Jamie with his revenue generating activities, the reward of $4,800
that he got for his employment service would be considered as his income. And lastly Jamie
would be held taxable for the expense payment fringe benefit which his employer repaid him.

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