HI6028 Taxation Theory and Practice Law Assignment Help

HI6028 Taxation Theory and Practice Law Assignment Help

HI6028 Taxation Theory and Practice Law Assignment Help

Case Study 1: - Capital Gain Tax

Capital gain tax is such tax amount that get calculated over the amount received with the sale of capital asset. Capital gain the difference amount between the amount received with the sale of assets and amount paid for the acquisition of the asset (Brown, et. al., 2010). The capital proceeds are such amount that get received by the seller with the sale of capital asset. The cost base make inclusion of various elements associated with the purchase of the capital asset like expenses incurred at the time of purchase, expenses having direct relation with the disposal or acquisition of assets, expenses incurred in order to increase the asset value, paid legal fees in order to sale property and commission paid to real estate agent to sold out property (Brown, et. al., 2010). For GST registered traders, the GST amount get deducted from the cost because they are eligible to claim GDT credit for that amount and on the other hand Non-GST registered traders are not eligible to claim the credit and therefore with this effect the amount of GST will be included in cost base. On capital gain individuals and small business become eligible to claim 50% discount if taxpayer hold the capital asset for more than one year. On the other hand they carry forward the capital loss and get deducted from their capital gain of next year. Whereas the capital loss occurred due to sale of collectibles didn't get deducted from the capital gain from the sale of collectibles (Brown, et. al., 2010). If taxpayer acquire capital assets before 20th September 1985 then they are fall under pre-CGT assets and with this effect these assets get exempted from capital gain tax payment. But if there is some addition made over it then they lose their pre-CGT status of owing asset before 20th September 1985 and become liable for paying capital gain tax payment over the disposal or sale of such assets (Brown, et. al., 2010).

HI6028 Taxation Theory and Practice Law Assignment Help, HI6028As per the given scenario Fred is Australian Resident. He sold his holiday home amounting $800,000 and incurred legal fees of $1,100 as well as commission to agent of real estate of amounting $9,900 and both include GST. In the year 1987 the holiday home was bought by Fred by paying $100,000 and the additional expenses paid by him for making purchase include legal fees of amount $1,000 and stamp duty of $2,000. Fred get engaged with builder in the year 1990 in order to construct an garage over the property and for this purpose he spend $20,000. There is a loss of $10,000 with the sale of shares also get carried forward. As it is not mentioned whether the Fred is registered for GST or not, and in this situation in order to calculate the net capital gain by assuming both situations such as Fred is registered under GST and Fred is not registered under GST (Jones, 2016).

Calculating Net capital gain for Fred if registered under GST such as: -

Particulars

Amount in $

Receives from capital sale

 

800,000

Less: Cost base

 

 

(-) Purchase price

100,000

-

(-)Stamp Duty

2,000

-

(-) Legal fees paid of property acquisition

1,000

-

(-) Expenses for constructing garage

20,000

-

(-) Paid legal fees on sale

1,000

-

(-) Commission paid to real estate agent

9,000

133,000

Capital gain

-

667,000

Less: Discount (50%)

-

333,500

Net capital gain

-

333,500

Less: C/F capital loss

-

10,000

Net taxable capital gain

-

323,500

(Tanti, 2011)

B. Calculating Net capital gain for Fred if not registered under GST such as: -

Particulars

Amount in $

Receives from capital sale

 

800,000

Less: Cost base

 

 

(-) Purchase price

100,000

-

(-)Stamp Duty

2,000

-

(-) Legal fees paid of property acquisition

1,000

-

(-) Expenses for constructing garage

20,000

-

(-) Paid legal fees on sale

1,100

-

(-) Commission paid to real estate agent

9,900

134,000

Capital gain

-

666,000

Less: Discount (50%)

-

333,000

Net capital gain

-

333,000

Less: C/F capital loss

-

10,000

Net taxable capital gain

-

323,000

(Wallace, et. al., 2013)

Note 1: -Fred pay stamp duty and legal fees for the purchase of property and with this effect both get included in cost base and form part of elements of their cost base.

Note 2: - The expenses made for the purpose of constructing garage results into increase in the value of property due to which it get included in cost base.

Note 3: - Since Fred is registered under GST then the amount of GST is not included as an element of cost base. Whereas it get assumed that Fred is not registered for GST, now the adjustment made for GST is not required and with this effect paid GST amount get included under the cost elements and in this situation Fred will not able to avail the benefits of GST input credit (Evans, et. al., 2015).

Note 4: -The property was owned by Fred in the year 1987 and the exemption is available for such property that get owned before 20th September 1985 due to which it is concluded that it is not considered as an Pre-CGT asset.

Note 5: - As Fred is individual taxpayer and the asset is hold by him for a longer period which is more than one year before its sales, so with this effect Fred become eligible for getting 50% discount from the capital gain for the current year (Evans, et. al., 2015).

Note 6: - The loss attain with the sale of shares become deductible from the current year's capital gain in order to attain the net capital gain.

If loss is attained with the sale of antique vase: -

An antique vase is fall under collectible for the purpose in order to define it as a capital asset. A capital loss occurred with the sale of collectible then it get deducted only from the capital gain attained with the sale of collectible only (Mather, 2013). Since, Fred is not able to earn capital profits with the sale of collectibles in current year, due to which capital loss with the sale of antique vase get carried forwards and it cannot get adjusted with the current year's capital gain amount. Thus, in this situation the amount of net taxable gain will be completely different from above shown amount because the amount of capital loss can't get deducted from it. In the situation the amount of net capital gain become different such as $333,500 (in case of GST registered) or $333,000 (in case of non-GST registered) (Mather, 2013).

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 is such tax that get charged over the perquisites and facilities provided by employer to their employees and employer need to pay tax. Payment of obligation under fringe benefits get included in it. Different treatment are made over different perquisites and facilities as in some of them GST is payable that get credited from their fringe benefit tax (Tang & Wan, 2015). Below are some steps that get followed in order to calculate the fringe benefit tax such as: -

Steps

Description

Step 1

Calculation of taxable value of fringe benefits rendered to employees

Step 2

Calculate taxable value of such fringe benefits that are not eligible for getting GST credit (calculation of non-GST benefits)

Step 3

Calculate taxable value of such fringe benefits that are eligible for getting GST credit

Step 4

Calculate taxable value of non-GST fringe benefits by multiplying 1.8692

Step 5

Calculate taxable value of GST fringe benefits by multiplying 2.0647

Step 6

Add both the values attained in step 4 and step 5

Step 7

Total is considered as total taxable value of Fringe benefits on which FBT is applicable. FBT rate is 47%

(Hall, et. al., 2013)

On the basis of the case scenario employer (Periwinkle Pty. Ltd.) provide various benefits to their employee Emma in the year 2014-15. Different perquisites and facilities provided to Emma get discussed below along with the calculation of tax treatment such as: -

I. Car and its repair

There are two methods of calculating fringe benefit tax such as statutory formula and operating cost method. We make use of statutory formula. In the year 2014-15 she make use of car for both purposes whether it is personal or office and 10,000 km is the total travelling km. In the below table statutory rates are given that get utilised for calculating taxable value of fringe benefits such as: -

Total kilo-meters travelled within financial year

Statutory rate (from 1st April)

> 15,000 km

20%

15,000 - 24,999 km

20%

25,000 - 40,000 km

20%

< 40,000 km

20%

(Hall, et. al., 2013)

Calculation of fringe benefit from car for Emma is as follow: -

$30,000 * 20% = $6,000

Actual car price is $33,000 but there is exclusion of GST amount so new amount of car for calculating GST is = $33,000 * 1/11 = $3,000

= $33,000 - $3,000 = $30,000

There is a amount of $3,000 as GST that get excluded from the total amount in order to set-off the FBT total payment (Hall, et. al., 2013).

During the year she spend some money in order to repair the car and her employer (Periwinkle Pty. Ltd.) reimburse the amount to her. Section 20 stated that when employee made personal expenses get included under employer's extended benefits. In the case of reimbursement of repairing amount section 20 is implied and $550 is included in taxable value of fringe benefits. In this amount also there is inclusion of GST and it is an non-GST payable transaction so that GST is removed from it. GST amount is $550 * 1/11 = $50. And the sum of $50 is utilised in order to set off the FBT payment (Mortimore, 2011).

II. Loan rendered to Emma

Emma get loan for personal use from her employer (Periwinkle Pty. Ltd.) in the year 2014-15. She make use of that loan amount for the purpose of purchasing holiday home and it costs $450,000. She get the loan of $500,000 and there is a remaining amount of $50,000 which she transfer to her husband so that he perform share trading activities. As per the provisions of the fringe benefits interest over total loan amount get included in order to get the taxable value of Periwinkle Pty. Ltd. to get the taxable value of fringe benefit tax. But out of total loan amount Emma make use of $50,000 for purchasing shares and due to this effect this amount is not considered for making deduction (Mortimore, 2011). Over it no GST is implied. Interest amount over remaining loan is as calculated below such as: -

$450,000 * 4.45% = $20,025

III. Goods taken by Emma

Emma get bathtub within their financial year and it can be treated as company's good attained by Emma from her employer and due to this her employer (Periwinkle Pty. Ltd.) need to deduct the selling price of their outside customers in order to get the benefit of the Fringe benefit tax within the year (Mortimore, 2011). Aspects related to transactions are as follows such as: -

Customer's selling price = $2,600

Bathtub price for Emma = $1,300

Her employee enjoy the benefit of $1,300 and get taxable for company (Mortimore, 2011).

Statement in order to calculate Fringe benefit tax liability for the period of 2014-2015: -

Particulars

Benefit of GST paid

Benefits of Non GST

2.0647

1.8692

Amount

Fringe benefit of car

6,000

-

$12,388

-

$12,388

Reimburse amount of repair

500

0

$1,032

-

$1,032

Interest over loan

-

$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

 

 

 

 

$25,188.4

(Mortimore, 2011)

(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?

If the remaining loan amount get utilised by the Emma for buying company's share then that part of loan amount didn't get included under fringe benefit tax for her employer (Periwinkle Pty ltd.). With this effect amount of $50,000 didn't considered under the scope of fringe benefits and this amount is get utilised for such purpose from where she get adequate return and it get deducted from the fringe benefit payment (Sisak, 2011). Revised fringe benefit tax liability for her employer (Periwinkle Pty. Ltd. is calculated in below statement such as: - 

Particulars

Calculation

Amount

Interest on loan amount

($400,000 * 4.45%)

$17,800

Taxable value of interest over loan

($17,800 * 1.8691)

$33,270

Taxable value of fringe benefits

 

$49,120

Fringe Benefit Tax

 

$23,086

Less: GST credit

 

$3,050

Net Fringe benefit payable

($23,086 - $3,050)

$20,036

(Sisak, 2011)

References

Brown, P., Ferguson, A. & Sherry, S. 2010, "Investor behaviour in response to Australia's capital gains tax", Accounting & Finance, vol. 50, no. 4, pp. 783-808.

Evans, C., Minas, J. & Lim, Y. 2015, "Taxing personal capital gains in Australia: An alternative way forward", Australian Tax Forum, vol. 30, no. 4, pp. 735-761.

Jones, D. 2016, "Capital gains tax: The rise of market value?", Taxation in Australia, vol. 51, no. 2, pp. 67-69.

Mather, P. 2013, "What's up in fringe benefits tax?", Charter, vol. 84, no. 2, pp. 54.

Matt Campbell Bianca Hall, Hall, S. & Hagon, T. 2013, Vehicle sales remain steady despite plans to change fringe benefits tax: ELECTION 2013 - AUSTRALIA DECIDES - Automotive, Fairfax Digital, Melbourne, Vic.

Mortimore, A. 2011, "What now for environmental sustainability? Government fails to link the Australian car FBT concession to vehicle emissions", Australian Tax Forum, vol. 26, no. 3, pp. 541-583.

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

Tang, R. & Wan, J. 2015, "Fringe benefits tax and fly-in fly-out arrangements: John Holland Group Pty Ltd v Commissioner of Taxation", Australian Resources and Energy Law Journal,vol. 34, no. 1, pp. 17-19.

Tanti, P. 2011, "Capital gains tax: The obscure provisions", Taxation in Australia, vol. 45, no. 11, pp. 668-675.

Wallace, M., Hart, G. & Evans, C. 2013, "An evaluation of the contribution of Justice Hill to the provisions for the taxing of capital gains in Australia", Australian Tax Forum, vol. 28, no. 1, pp. 123-136.