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HI6028 Taxation Theory Practice and Law Assignment Help
Case Study 1: - Capital Gain 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.
Available information: -
1.Fred is Australian resident.
2. Fred sold out his holiday home and get $800,000 against it.
3. That home was purchased at the rate of $100,000 by Fred in 1987.
4. He pays legal fees ($1,000) and stamp duty ($2,000) at the time of purchase of that home.
5. In 1990 he made payment of $20,000 for constructing garage over that piece of land. In this activity he took help of building contractor (Whait, 2012).
6. There is loss of $10,000 arose from the sale of shares which is carry forward by the Fred in order to set off with the amount of capital gain.
7. But there is one information is not given as Fred is attaining GST registration or not because both follows different procedures of calculating the capital gain taxable value. This results that all the calculations are made by assuming both situations and require separate calculations (Whait, 2012).
Title of Pre-CGT asset: -Capital gain taxation of Australia is stated that if the property was purchased well before the date of 20th September 1985 then that individual or small business become eligible for getting an title of Pre-CGT asset. This provision having one exception and that exception is if there is any kind of modification or amendment or expenses made over it which increase its value then individual or small business lost the title and if they sold it out then they need to pay taxes over their capital gain amount (Smith, 2013).
Capital gain 50% discount: -Capital gain taxation of Australia stated that if the property is hold for more than one year before selling then individual or small business is liable to get the 50% discount over earned capital gain and only 50% of capital gain is utilised for paying taxes. Along with this they also set off their capital losses with that amount except the losses of collectable items (Smith, 2013).
Capital gain taxable amount is calculated with the use of indexation method: -
Formula of capital gain:Net Selling price - Total Indexed purchase price
Net selling price = selling price - all expenses (at the time of sale)
All expenses (at the time of sale) = legal fees + commission to real estate agent
legal fees = $1,100
commission = $9,900
All expenses = $1,100 + $9,900 = $11,000
Selling price = $800,000
Net selling price = $800,000 - $11,000
Total indexed purchase price = (purchase price + legal fees + stamp duty) * (CPI of current year/CPI of purchase year)
= ($100,000 + $1,000 + $2,000) * (108.6/46)
There is a construction made over the land amounting $20,000. So, it also get indexed.
= $20,000 * (108.6/57.1) =$38,038.53
Total indexed purchase price = $243,169.57 + $38,038.53 = $281,208.10
Capital gain and total capital gain taxable amount is shown below such as: -
Less: Indexed purchase price
Less: Discount @ 50%
Less: capital loss (arose from sale of shares)
Net capital gain taxable amount
(Worthington & Higgs, 2013).
Would your answer be different if the loss arose from the sale of an antique vase?
The answer will be different as the loss was arose from the sale of an antique vase as it can't set off with the capital gain arose from the sale of land. Antique vase is one of the element that mentioned under collectable items. For the purchase of collectable items buyer has to pay huge amount. The payment of huge amount convert it into capital asset and the sale of capital asset either render capital gain or capital loss. The profit or loss arose from the sale of collectable items is not treated as normal profit or loss due to the inflow of amount as it also in huge ratio (Tang & Wan, 2015). If there is capital gain then it is included under profits but if there is capital loss then it get set off with only capital gain amount arose from the sale of collectable item. Restriction is put over the use of other capital gain amount as per the Section 102-5 of CGT.
The section 102-5 of CGT stated that if individual get loss with the sale of collectable item then he needs to set off that loss amount with capital gain of collectable items only. He is not eligible to utilise different capital gain amount to do so.
It is given that Fred is having loss of $10,000 and it is arose from the sale of antique vase. Antique vase is collectable item and Fred is not having capital gain arose from the sale of collectable item due to which he is not eligible for setting off the loss amount. This transaction put adverse impact over the balances of above two statement as Fred is not liable to deduct the loss amount from the total taxable capital gain amount (Tang & Wan, 2015). With this effect the revised balanced of net capital gain taxable amount is $253,895.95 (Tang & Wan, 2015).
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 benefits termed as additional benefits which employer provide to their employees. These benefits can be monetary or non-monetary benefits rendered to the employees. As per the information given employer provide car to their employee, reimbursement of the repair expenses, grant loan amounting $500,000 at low interest rate and bathtub at low cost. These are additional benefits rendered by the employer to their employee other than the basic salary amount, incentives or bonuses (Pearce & Hodgson, 2015). These benefits include GST share among them and while calculating taxable value GST amount must get deducted from it. It is because employer avail the GST credit and minimise the balance of the total taxable amount. Below are the steps mentioned required for calculating taxable value of fringe benefit such as:
Calculate employee's fringe benefit taxable value
Identify the GST benefits
Identify the Non-GST benefits
Multiply the GST benefits with 2.0647 to get the taxable value
Multiply the non-GST benefits with 1.8692 to get the taxable value
Add up the taxable values of GST benefits and Non-GST benefits in order to get the net taxable value of fringe benefits provided to the employee (Emma).
(Pearce & Hodgson, 2015)
Below are the sub-heads made and discussed for the purpose of making adequate discussion over the different fringe benefits rendered by the Periwinkle Ltd. to their employee Emma. Calculations are also made if required along with the discussion made over the sub-heads in order to get the taxable value of fringe benefit (Pearce & Hodgson, 2015).
I. Car and its repair
Company purchase the car by paying $33,000 and give it to their employee Emma as her most of work demand travelling. Employer also allow her to utilise that car for personal use also. She utilise the car for the remaining year and the total distance travelled by her with car is 10,000 km at the end of year. In between she also made repair expenses over the car and it cost $550. The amount of repairing is also repaid by the company to Emma (Kenny, et. al., 2015). Giving car is indulge into fringe benefit category and the repayment of repair expenses is considered among the additional benefits and also included in for calculating fringe benefit taxation. It become obligation for the employer to pay taxes over the obligation they made in the form of reimbursement. Employer become eligible for paying taxes over that repayment of repair expenses.
In the calculation of fringe benefit taxable value the distance travelled by the car is utilised. This helps in identifying the statutory rate as it further utilised for evaluating fringe benefit taxable value. The statutory rate get utilised in the method of statutory formula and in the below table specified km with rate is given such as: -
(Kenny, et. al., 2015)
Calculation of fringe benefit from car for Emma is as follow: -
The cost of car and the car repair expenses having adequate share of GST in them and for measuring the taxable value of fringe benefit tax there is effective need to deduct them from it. GST amount is 1/11th part of the total cost paid over these assets. Once GTS is calculated then that amount is deducted from the total cost of asset and expense made (Kenny, et. al., 2015). The net balance of asset and expense (excluding GST amount) is utilised further for evaluating the fringe benefit taxable value. Below are the calculations such as: -
Total Price of car = $33,000 (it include share of GST)
GST share = 1/11 of total car price
GST amount = $3,000 (1/11th of $33,000)
Net price of car excluding GST = $33,000 - $3,000 = $30,000
Fringe benefit taxable value = Net car price * statutory rate
Statutory rate as per above table is 20%
Fringe benefit taxable value = $30,000 * 20% = $6,000
Car's fringe benefit taxable value is $6,000 (Taylor, 2016)
Repair expenses also attain GST amount in it and share of GST is 1/11th. So,
GST amount = 1/11 of $550 = $50
Net expenses available for calculating fringe benefit taxable value is $500 ($550 - $50)
II. Loan rendered to Emma
The second benefit provided by the employer to Emma is in the form of approved loan of amount $500,000. She get the loan from the employer is not the facility but the facility is that she got it at the low rate of interest. The interest amount charged over the loan is 4.45% which is lower than the interest rate of bank. Employer need to include this facility under the fringe benefit and have to pay tax over it because it become his liability to pay taxes. She use that money in buying holiday home and pays amount of $450,000 against it (Taylor, 2016). She also transfer the remaining balance of $50,000 to her husband without charging any interest over it. She pays interest over the total amount of loan $500,000 at the rate of 4.45% and employer needs to pay out the interest over it because this option is falling user fringe benefit. The whole interest amount is utilised for evaluating the taxable value of fringe benefit and included among the fringe benefit tax.
III. Goods taken by Emma
During 2015 year, Emma purchase a bathtub from her company only and pays $1,300 as a purchase price. The actual price on which bathtub sold among the customers is $2,600. By looking at this difference it is clearly identified that she got a benefit of being employed in the company. This benefit is get included among fringe benefit and further get utilised for calculating fringe benefit tax (Taylor, 2016). Periwinkle Ltd. is the manufacturer of the Bathtub and with the effect of it they facilitate their employee Emma by charging less for one bathtub. For the calculation of fringe benefit tax $1,300 is utilised as there is a benefit of $1,300 in the form of discount to her. Employer needs to pay the obligation payment as it is extra benefit rendered by them to their employee.
Statement in order to calculate Fringe benefit tax liability for the period of 2014-2015: -
(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 get loan of amount $500,000 and out of it she make use of $450,000 to acquire holiday home. She left with a balance of $50,000 which she utilised for purchasing shares. Now employer is not eligible to pay the taxes over the whole interest amount as whole loan amount is not utilised for purchasing non-income generation asset. She make purchases of income generating asset and these get excluded from the fringe benefit tax liability of employer. With this situation the interest received over $450,000 is utilised further for calculating the fringe benefit tax liability (Zelenak, 2014). The rate is used is 4.45%. This situation lead towards making revised calculation where $50,000 is excluded from the calculation of fringe benefit tax liability. In the below statement revised calculation is made in order to get the revised fringe benefit tax liability.
Kenny, P., Blissenden, M., Villios, S., MacKenzie, G. & Xynas, L. 2015, Australian tax 2015, LexisNexis Butterworths, Chatswood;Chatswood, NSW;.
Pearce, P. & Hodgson, H. 2015, "Promoting smart travel through tax policy", Tax Specialist,vol. 19, no. 1, pp. 2-8.
Smith, K. 2013, "Tax Guide", Charter, vol. 84, no. 8, pp. 50.
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.
Taylor, E.J. 2016, "Urban Growth Boundaries and Betterment: Rent?Seeking by Landowners on Melbourne's Expanding Urban Fringe", Growth and Change, vol. 47, no. 2, pp. 259-275.
Whait, R.B. 2012, "Developing risk management strategies in tax administration: the evolution of the Australian Taxation Office's compliance model", eJournal of Tax Research,vol. 10, no. 2, pp. 436.
Worthington, A. & Higgs, H. 2013, "Macro drivers of Australian housing affordability, 1985-2010: An autoregressive distributed lag approach", Studies in Economics and Finance, vol. 30, no. 4, pp. 347-369.
Zelenak, L. 2014, "Up in the air over taxing frequent flyer benefits: the American, Canadian and Australian experiences", Capital Markets Law Journal, vol. 9, no. 4, pp. 420.