HI6028 Taxation Theory and Law Assignment Help

HI6028 Taxation Theory and Law Assignment Help

HI6028 Taxation Theory and Law Assignment Help

Case study 1: - Capital Gains Tax

Calculate Fred’s net capital gain for the current year. Assume he also has a net capital loss from last year of $10,000 arising from the sale of shares.

Capital gain tax is such tax calculation that get made over the revenue earned with the sale of capital asset. Capital gain is that amount which is realised with the sale of capital asset and that amount is more than purchasing amount. Or it is the difference amount between the proceedings of capital asset sale and cost base of assets purchase (Minas & Lim, 2013). Seller get the capital proceeds amount by making sales of the capital asset. Cost base make inclusion of various elements made at the time of purchasing asset such as purchases expenses, all direct expenses related with the purchase or sale of asset, expenses made in order to increase the value of asset, payment of legal fees in order to purchase or sale of asset and amount paid in the form of commission to the agent of real estate to make sales of property. For GST registered traders amount of GST get deducted from the cost base because they become eligible for claiming input GST credit for that amount whereas non-GST registered traders are not allowed to claim the credit of that amount, due to this that amount get included under cost base. Individual taxpayers and small businesses become eligible for 50% discount claim over the amount of capital gain if the property is hold by them for more than one year. They also carried forward the loss and get it deducted from the amount of capital gain in next year. But there is no deduction is allowed from capital gain amount for the loss occurred with the sale of collectible assets. It is described that individual taxpayer must acquire the property or capital asset before 20th September 1985 so that he become eligible for getting title of pre-CGT asset as these assets become exempt with from the payments of capital gain tax. But, if there is some addition made over the property by the individual after the date of 20th September 1985 then he/she lose their title of pre-CGT asset and become liable to pay capital gain tax with the sale of that asset or property (Walrut, 2013).

HI6028 Taxation Theory and Law Assignment HelpOn the basis of the provided case study Fred is an Australian resident make sales of his holiday home against  the amount of $800,000. Over this transaction he make payment of $1,100 for legal fees, and $9,900 to real estate agent as his commission. Both transactions get included for GST. In 1987 Fred purchase that holiday home by rendering $100,000 and also make payment of $1,000 for legal fees and $2,000 for stamp duty. In the year 1990 Fred make a garage over his property with the help of contract builder and make payment of $20,000. He make carry forward of $10,000 as he attain loss over the sales of shared. Since it is not mentioned that Fred is GST registered or not. With this effect calculation of net capital gain get performed with the assumption of both conditions such as one with GST registered and second one as GST non-registered (Walrut, 2013).

Below both statements shows capital gain for Fred such as: -

Set 1: Where Fred is registered for GST: -

Particulars

Amount (in $'000)

Proceeds with Capital Sale

 

800

Less: Cost Base

 

 

Purchase price

100

 

Stamp duty

2

 

Legal fees for purchase of property

1

 

Garage construction expenses

2

 

 Legal fees on sale

1

 

Real estate agent commission

9

133

Capital gain

 

667

Less: 50% Discount

 

333.5

Net Capital Gain

 

333.5

Less: Capital loss carried forward

 

10

Net taxable capital gain

 

323.5

(Keany, 2016)

Set 2: Where Fred is not registered for GST: -

Particulars

Amount (in $ '000)

Capital Sale proceeds

 

800

Less: Cost Base

 

 

Purchase price

100

 

 Stamp duty

2

 

 Legal fees for purchase of property

1

 

 Garage construction expenses

2

 

Legal fees on sale

1

 

Real estate agent commission

9

134

Capital gain

 

666

Less: 50% Discount

 

333

Net Capital Gain

 

333

Less: Capital loss carried forward

 

10

Net taxable capital gain

 

323

(Keany, 2016)

Notes:  -

Note

Decryption

1.

During the purchase of property Fred make payments of stamp duty and legal fees. Both these elements are considered as the part of cost base and get included in adequate manner.

2.

Fred construct garage over his property and this expense also get included in its cost base.

3.

As Fred is registered for GST due to which amount of GST is didn't included under cost base elements and not make any inclusion in it. Whereas Fred is GST registered and in this case GST amount is considered as elements of cost base and due to this case Fred didn't enjoy the benefits of GST input credit.

4.

In 1987 Fred purchases the property and for getting the title of pre-CGT asset it is required to make purchases before 20th September 1985. Due to this reason he is not eligible for getting pre-CGT asset.

5.

As, Fred is individual taxpayer and the property remains with him for many years and then he sold it out. By this action he become eligible for getting 50% discount in their capital gain.

6.

The capital loss occurred with the sale of shares get carry forward and get deducted from the capital gain amount of current year and helps in getting net capital gain.

(Burkhauser, et. al., 2015)

Would your answer be different if the loss arose from the sale of an antique vase?

Antique vase is fall under collectibles in order to define the capital asset and capital loss with the sale of such collectible item is get deducted from such amount of capital gain which is attained with the sale of collectible item only. As Fred is not getting and capital gain after making collectible sales and due to this he is not able to adjust the amount of capital loss carried forward by him in current year. So, with this effect net taxable gain amount must be different because there is no deduction would made of the capital loss. Due to this effect there is new net capital gain attained such as $333,500 or $333,000 for both the cases (Mahar, 2016).

Case study 2: - Fringe Benefit Tax

(a) Advise Periwinkle of its FBT consequences arising out of the above information, including calculation of any FBT liability, for the year ending 31 March 2016. You may assume that Periwinkle would be entitled to input tax credits in relation to any GST-inclusive acquisitions.

Fringe benefit tax: - FBT is such tax which get paid by the employer over such amount which is rendered to their employees and it get termed as perquisites and facilities. Obligation payment is included under this part of tax. There are different treatment made for the different perquisites and facilities as some of the perquisites and facilities having GST payable and with the effect of it GST of employer get credited from the Fringe Benefit tax (Cortis & Eastman, 2015). Below is the statement showing the steps for the purpose of calculating fringe benefit tax such as: -

Steps

Description

1st Step

Calculate fringe benefits taxable value given to their respective employees

2nd Step

Calculate non-GST benefits or calculate fringe benefits taxable value where GST credit is not eligible.

3rd Step

Calculate fringe benefits taxable value where GST credit is eligible.

4th Step

Calculate non-GST fringe benefits taxable value by making multiplication with 1.8692

5th Step

Calculate GST fringe benefits taxable value by making multiplication with 2.0647

6th Step

Add up both values attained in step 4 & step 5

7th Step

Gathered net amount is total taxable value of Fringe benefits over which FbT is applicable. FBT rate is 47%.

(Cortis & Eastman, 2015)

As per the given case study Periwinkle Pty. Ltd. is bathtub manufacturer and they render different benefits to their employee "Emma" in the year 2014-2015. There are different perquisites and facilities are provided to the Emma and below are some discussion as well as calculations are made for the purpose of getting taxable value such as: -

Perquisites 1: Expenses of car and its repair

To calculate fringe benefit tax there are two methods get followed one is statutory formula and other one is operating cost method. For this calculation statutory formula method get preferred. In year 2014-15 Emma utilised the provided car for office as well as personal use and in the whole year run it completed 10,000 KM (Voßmerbäumer, 2013). Below table shows the statutory rate for the kilometre run in order to get the fringe benefit taxable value such as: -

Total Kilo-meters runs (in an financial year)

Statutory rate (applicable from 1at April)

Km Lesser than 15,000

20%

15,000 to 24,999 Km

20%

25,000 to 39,999 Km

20%

Km More than 40,000

20%

(Voßmerbäumer, 2013)

Fringe benefit calculation for Emma in order to make utilisation of car is as follows: -

Taxable value for fringe benefit  = [(20/100) * $30,000 = $6,000]

The value of car is taken as $30,000 because it didn't fall under non-GST benefit and GST amount for car is $3,000 ($33,000 * 1/11).

With this effect GST amount get removed from car's total value and that amount further utilised for setting off FBT payment.

In the year Emma made expenses in order to repair the car and she got reimbursement for that from Periwinkle Pty. The section 20 stated that personal expenses made by the employees should get considered among the extended benefits to their employer. And in the above case it get applied and the amount of repair ($550) added among the fringe benefits taxable value. The amount of expenses also make inclusion of GST and the amount is $50 ($500 * 1/11). $50 get removed from total payable amount and further it get utilised for setting off their total payment of FBT (Voßmerbäumer, 2013).

Perquisites 2: Render her loan.

Employer Periwinkle Ltd. provide personal loan to Emma in year 2014-15 and she make utilisation of loan amount for purchasing holiday home amounting $450,000. Total sum of loan was $500,000 and there is a balance remaining $50,000 which she make use in transferring it to her husband so that he purchase shares for her. The interest over loan get considered for calculating fringe benefit taxable value of Periwinkle Ltd. as per fringe benefit provisions. But she didn't make use of whole amount and purchase some shares amounting $50,000 so to which this amount can't utilise for deduction as there is no GST implied over it.

New interest amount is $20,025 ($450,000 * 4.45/100) as only $450,000 is considered (Sisak, 2011).

Perquisites 3: Goods taken by Emma

In the year 2014-15 she took bath tub and it considered as company's goods provided by the employer. This make impact that it's selling price get deducted from outside customers. This transaction get considered for the fringe benefit tax as it is an facility provided by the employer to their employees. Transactions get included as: -

$2,600 is the selling price for their customers whereas $1,300 is the selling price for their employee Emma. With this effect fringe benefit is rendered over $1,300 and it also become taxable for company (Sisak, 2011).

In the below statement the calculation of fringe benefit tax liability for 2014-15 is shown such as: -

Particulars

GST benefits

Non-GST benefit

2.0647

1.8692

Amount

Fringe benefit over car

$6,000

-

$12,388

-

$12,388

Amount  of Repair reimbursement

$500

0

$1,032

-

$1,032

Amount of Loan Interest

-

$20,025

-

$37,430

$37,430

Total Taxable value

 

 

 

 

$53,280

Less: Fringe benefit tax @ 47%

 

 

 

 

$25,041.60

Less: GST Credit

 

 

 

 

$3,050

Net FBT liability

 

 

 

 

$25,188.40

(Lamb, 2015)

(b) How would your answer to (a) differ if Emma used the $50,000 to purchase the shares herself, instead of lending it to her husband?

Emma make use of remaining $50,000 for share purchase for herself and with this effect this share of amount is not utilised for taxation purpose under FBT for Periwinkle Pty. Ltd. The whole $50,000 mount is not considered for the scope of fringe benefit tax because this amount is utilised for purchasing such assets that make some kind of returns and due to this extra benefit it get deducted from the fringe benefit payment (Garnaut, 2011). Revised fringe benefit tax liability is calculated for Periwinkle Pty. Ltd. and shown in below table such as: -

Particulars

Calculations

Net Amount

Loan interest amount

$400,000 * (4.45/100)

$17,800

Taxable value over loan interest amount

[$17,800 * 1.8691]

$33,270

Fringe benefits Taxable value

 

$49,120

Fringe benefit tax

 

$23,086

Less: GST credit Amount

 

$3,050

Net Fringe benefit payable amount

[$23,086 - $3,050]

$20,036

(Garnaut, 2011)

References

Burkhauser, R.V., Hahn, M.H. & Wilkins, R. 2015, "Measuring top incomes using tax record data: a cautionary tale from Australia", The Journal of Economic Inequality, vol. 13, no. 2, pp. 181-205.

Cortis, N. & Eastman, C. 2015, "Salary sacrificing in Australia: are patterns of uptake and benefit different in the not?for?profit sector?", Asia Pacific Journal of Human Resources, vol. 53, no. 3, pp. 311-330.

Garnaut, R. 2011, The Garnaut review 2011: Australia in the global response to climate change, Cambridge University Press, Cambridge;Port Melbourne, Vic;.

Keany, F. 2016, Think tank urges changes to capital gains tax: could deliver $12 billion in budget savings: The Australia Institute has called for changes to capital gains tax, claiming exemptions are costing the Federal Budget $48 billion. It's recommended removing exemptions for the family home if it's valued more than $2 million, Australian Broadcasting Corporation, Sydney.

Lamb, L. 2015, "Aboriginal Fringe Finance Use and Financial Capabilities: Survey Evidence from a Canadian City", Economic Papers: A journal of applied economics and policy, vol. 34, no. 4, pp. 273-289.

Mahar, F. 2016, "The distortive effects of the capital gains tax regime", Tax Specialist, vol. 20, no. 1, pp. 16-20.

Minas, J. & Lim, Y. 2013, "Taxing capital gains - views from Australia, Canada and the United States", eJournal of Tax Research, vol. 11, no. 2, pp. 191.

Sisak, D. 2011, "An update on tax reforms to the NFP sector", Taxation in Australia, vol. 46, no. 5, pp. 190-193.

Voßmerbäumer, J. 2013, "Incentive effects and the income tax treatment of employer-provided workplace benefits", Review of Managerial Science, vol. 7, no. 1, pp. 61-84.