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HI6028 Taxation Theory Practice and Law Assignment
(a) Based on the information above, determine Dave Solomon’s net capital gain or net capital loss for the year ended 30 June of the current tax year.
Statement showing calculation of capital gain tax liability:
Note & Assumptions
Amount received from sale of home property
Add: Amount from sale of painting
Less: Indexed Cost of acquisition
Add: Amount from sale of luxury motor cruiser
Less: Indexed Cost of acquisition
Add: Amount received from sale of shares
Less: Cost of acquisition
Less: Set off of previous year capital loss
Capital Gain for the year
Notes and assumptions:
1-As per the Income Tax Assessment Act, tax payer or individual can claim exemption of one house property i.e. in which he /she is residing. Capital assets are those assets which are capital in nature but it does not include one house of residence in which family f tax payer is residing. Therefore it is excluded from the capital gain calculation (Harrowven, 2011).
2- Calculation of cost of acquisition of painting that is sold during the financial year:
Index Cost of acquisition = Cost of asset * Cost Inflation rate of year of Sale / Cost Inflation rate of year of Purchase
Index Cost of acquisition = 15000 * 123.40 / 71.30 = 25,960.73
3- Calculation of Indexed Cost of acquisition of luxury motor cruiser:
Cost of acquisition of luxury motor cruiser = 110,000 * 100 / 100 = 110,000
4-Calculation of cost of acquisition of shares sold during the year:
Cost of shares
Deduction of interest cost of the shares ($ 5000 / 5 years)
Cost of brokerage
Cost of stamp duty paid on shares
Total cost of shares
5-On sale of following assets and items there shall be no capital gain tax applicable on it:
- Car, motorcycle and other similar vehicles.
- Sale of main residence property or main residence home
- Assets acquired before September 20, 1985
- Paining and other similar assets acquired for $ 500 or less.
- Reimbursement from the injury
(b): If Dave has a net capital gain, what does he do with this amount?
Capital gain is the situation when there sale proceeds of the asset is higher than cost of such capital asset. When capital gain from the sale of capital assets is calculated then next step is to calculate net capital gain of the year. For this purpose, capital gain calculated shall be reduced with the amount of any capital loss pertaining to previous year and which is eligible for the exemption. On this amount i.e. net capital gain, capital gain tax rate is applicable and capital gain tax shall be calculated (Tax, 2015). In this situation, Dave has capital gain then this amount shall be added to its calculation of assessable income of the year. But there shall be separate tax treatment of the same i.e. capital gains are taxed with some special rates. In case of capital gain, Dave or other tax payer or individual has to file income tax return or it is compulsory for the tax payer to file income tax return.
(c): If Dave has a net capital loss, what does he do with this amount?
Capital loss is the situation under which sale proceeds from the sale of capital asset is slower than the cost of capital asset. Under this situation, tax payer or individual can claim set-off from his / her income. But capital loss can be set-off against capital gain only that has earned during the year. There are two types of capital gain i.e. long term capital gain and short term capital gain. As per the Income Tax Assessment Act, long term capital loss can only be set-off from the long term capital gain but short term capital loss can be set-off from either long term capital gain or short term capital gain of the year. Another important consideration that Dave has to under taken if he has capital loss is that he has to file income tax return in order to carry forward capital gain loss to next year. It can be concluded that at the time of capital gain loss, filing of income tax return is mandatory (Sharma, 2011).
A: Calculation of FBT
Fringe benefit tax is the tax which is applicable on the business organisation on the value of facilities provided to its employees. There are various facilities that is provided by employer to it employees during the provision of their services. Facilities to employees includes funds provided to employees as a loan, car facility provided to employees, interest free or interest at concession rates are applicable on the loans provided to employees and many other facilities or perquisites to its employees. For calculating fringe benefit tax liability of the business organisations value of facility provided shall be calculated (Office, 2013). There is various valuation rules applicable and designed by the taxation authority made for calculating value of facilities provides. After calculating value of facilities provided to employee by employer, fringe benefit tax liability shall be calculated. There are few steps for calculating fringe benefit tax liability that shall be applied and they are as follows:
- Step 1 – First step to calculate fringe benefit tax is to calculate or measure value of facilities that is provided to employees.
- Step 2– Once value of fringe benefits or facilities provided by employer is calculated then there are some deduction that are applicable on it. In this step facilities on which goods and service tax is not applicable shall be done.
- Step 3– Under this step, value of facilities or fringe benefits on which goods and service tax applicable shall be calculated or are available as input credit (Wolfram, 2014).
- Step 4– Next step is to calculate taxable value of the those facilities or fringe benefits on which input tax credit of goods and service tax cannot be claimed shall be calculated. Taxable value of facilities shall be calculated by multiplying value of facilities with 1.8692.
- Step 5– Now calculate taxable value of facilities or fringe benefits on which input tax credit can be claimed. Taxable value is calculated by multiplying value of facility by 2.04647.
- Step 6- Taxable value of facilities calculated on the facilities on which input tax credit can be calculated and on which input tax credit cannot be calculated shall be calculated.
- Step 7- Value calculated in step 6 is the ultimate taxable value of finger benefits or value of facility provided. Fringe benefit tax rate is 47% and shall be charged on such value.
There are various facilities or fringe benefits that Periwinkle Pty Ltd, a bathtub manufacturer, has provided to its employees during the year. Therefore for this purpose, there is need to calculate taxable value of these facilities so that reliable fringe benefit tax can be calculated. Following are calculation of the value of fringe benefits or facilities:
Value of car provided and repair work on car
Car provided by the employer to its employee is also included in or considered as fringe benefit or facility provided by the employer. For calculating value of car facility there are two methods for the same. Periwinkle Pty Ltd can use either method for the same and these methods are operating cost method and statutory formula method. When cost of car and kilometre travelled by the employee or in this case Emma, are provided then statutory formula method shall be used. In this method, there is statutory limit of measuring value of taxable fringe benefit (Wolfram, 2014). Under this, value is calculated on the basis of kilometres travelled by the Emma. When there is no bifurcation has been provided in terms of personal use and official use of car then total kilometres shall be considered as used for personal use. Following is the statutory limit for valuing the fringe benefit:
Total kilometres travelled
Statutory Percentage (from 1st April 2014)
15000 to 24999
25000 to 40000
Value of car = cost of car – input tax credit
Value of car = $ 33000 – ($ 33000 * 10 / 110) = $ 30,000
Since value of car falls under 35000 to 40000 kilometres therefore following is the value of fringe benefits:
30,000 x 20 / 100 = $ 6,000
Value of reimbursement of repair expense
During the year, Periwinkle Pty Ltd has reimbursed some repair and maintenance expenses to the Emma. According to the section 20 of fringe benefit tax, personal expense or personal liability of the employee if paid by employer. Then it shall be treated as fringe benefit. Following is the value of the same:
Input tax credit = 550 * 10 / 110 = 50
Value of loan provided
Periwinkle Pty Ltd is the employer in this case Emma is employee. During the financial year 2015-2016, Periwinkle Pty Ltd had provided or advanced loan of $ 500,000 to Emma for her personal use. Therefore it will fall in the ambit of fringe benefit and Periwinkle Pty Ltd is required to pay fringe benefit tax on this facility. After lending personable loan to Emma, she had invested $ 450,000 in buying or purchasing holiday home for personal use. This loan is provided @ 4.45 % per annum therefore it shall become income for the Periwinkle Pty Ltd (Lewis, 2012). Fringe benefit or facility in this case shall be interest amount that is charged by the Periwinkle Pty Ltd and they are as follows:
$ 450,000 * 4.45 / 100 = $ 20, 025
Valuation of goods taken by employee
If any goods or products have been provided by the employer to its employee during the year then it shall be treated as fringe benefit extended to employee during the year. Goods transferred to employees by the employer shall be treated as fringe benefit only when transferred price of goods to employee is less than the selling price of the product. Following is the value of fringe benefit:
Selling price = $ 2600 and Product (bathtub) supplied to Emma for $ 1300
Therefore different between selling price and amount received shall be value of fringe benefit. $ 1300 is the value of fringe benefit or facility provided.
Calculation of Fringe benefit tax liability
GST paid fringe benefits provided
Car Fringe Benefit
Repair expense paid
Taxable value of facilities
6500 * 2.0647
GST not paid fringe benefits provided
Interest on loan
Taxable value of facilities
21,325 * 1.8692
Total taxable value
Fringe benefit tax
53,281 * 47 %
Goods and service input tax credit
(3000 + 50)
Fringe benefit tax liability
B: Income producing asset
As per the provision of fringe benefit tax, interest on loan to buy private asset or personal investment is not deductible while interest on loan on income producing units or assets shall be deductible. In this case, if Emma does not lend $ 50000 to her husband and use this money to purchase income generating asset then interest on such amount shall be reduced from the value of fringe benefit. Following is the calculation:
Interest on loan = (450000 – 50000) * 4.45% = $ 17800
Taxable value = 17800 * 1.8692 = 33270
Total Taxable value of fringe benefits = $ 49,120
Fringe Benefit tax = 23086 – 3050 = 20036
- Harrowven, D. (2011). Capital Gain Tax. UK: SA Technical.
- Lewis, A. (2012, August 29). Taxation Matters. Retrieved May 26, 2016, from Lewistaxation.com.au: http://www.lewistaxation.com.au/tax/general-tax/resident-for-tax-purposes
- Office, A. T. (2013, March 22). What is fringe benefits tax? Retrieved May 26, 2016, from ato.gov.au: https://www.ato.gov.au/General/Fringe-benefits-tax-%28FBT%29/In-detail/Employers-guide/What-is-FBT-/
- Property, I. Y. (2011, May 18). Capital Gains Tax Estimator. Retrieved May 26, 2016, from Yourinvestmentpropertymag.com: http://www.yourinvestmentpropertymag.com.au/calculators/capital-gains-tax/
- Sharma, R. (2011, February 02). Long Term and Short Term Capital Gains. Retrieved May 26, 2016, from thewealthwisher.com: http://www.thewealthwisher.com/2011/01/30/long-term-and-short-term-capital-gains/
- Tax, 2. I. (2015). Income Tax. Factsheet , 1-19.
- Wolfram, P. (2014, June 13). 60 second guide: Fringe Benefits Tax. Retrieved May 26, 2016, from commbank.com.au: https://www.mywealth.commbank.com.au/strategies/60-second-guide--fringe-benefits-tax-news20140611
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