Securing Higher Grades Costing Your Pocket? Book Your Assignment at The Lowest Price Now!

Case Study: Capital Gains Tax And Fringe Benefits Tax

tag 0 Download10 Pages 2,261 Words tag Add in library Click this icon and make it bookmark in your library to refer it later. GOT IT

Questions:

Case study 1: Capital Gains Tax 
 
Case study 2: Fringe Benefits Tax
 
 

Answers:

Introduction

Capital gains tax is referred to a tax wherein there is a sale or transfer of an asset of capital nature. On the sale of the asset there can be a capital gain or capital loss. Where the sale value of the asset is more than the cost of purchase, cost of associated purchases and the cost of improvement the same is referred to as capital gains. On the other hand where the value of the sale of the asset is lower than the cost of purchases and other above mentioned costs the same is referred to as capital loss.

Part A

According to the provisions of the tax act of Australia, an individual can claim an exemption of the main residence. For an individual to claim the tax exemption in regards to the same the individual must have stayed on it and there must be a dwelling on the same. From the provision above it can be asserted that the exemption cannot be claimed on a vacant piece of land (Kenny, n.d.). A dwelling takes the form of a main residence of the below mentioned conditions are satisfied:     

  • The individual and the family lives in it
  • The personal belongings of the individual are in the same
  • The mail of an individual is delivered to the same address
  • The address is on the electoral roll (Lloyd, 2015).
  • The address of the residence is connected with the essential services such as gas, electricity are linked with the same address.

In addition to the main residence factor there are other factors as well. Other factors are also considered for the same wherein weights are assigned to such factors based on the individual circumstances. The length of time an individual stays in the same and the intention of occupying the same is also of certain relevance (Protocol amending convention with Australia regarding double taxation and prevention of fiscal evasion, 2002).

In this case the individual had contracted for the sale of the house which was his main residence but the same could not be concluded. The deposit the seller that made in regards to the purchase was forfeited by the seller. Later the house was sold to a different seller for the agreed sum. According to the ruling TR 1999/19 where a seller receives and forfeits the deposit in connection with the sale of the house the same is eligible to be taxed under the heading capital gains. The same ruling also is applicable in the case of forfeiture of the purchase payment instalment (Australian income tax legislation 2013, 2013).  Hence in the current scenario considering the exemption of the main residence the CGT on the same would be exempt however, considering the ruling TR 1999/19 the deposit forfeited by the seller would be taxable as capital gain. 

 

The assets in regards to Capital Gains Tax can be classified into three broad categories such as personal use assets, collectables and other assets. The articles like jewellery, paintings, stamps, rare coins etc are classified as collectables. The assets that are of personal nature such as clothes, boat, household item, furniture etc are classified as personal use assets. “Also included can be a debt arising from an activity other than one made to produce assessable income, such as a loan made to help out a family member or friend”. According to the tax laws in Australia certain assets are exempted from the levy of Capital Gains Tax. The most common amongst the same are the house of an individual used as his main residence and his personal motor car (Australian income tax legislation 2013, 2013). Whether if the person had a lodger or rented the home are also considered in allowing the exemption. The other assets which are exempted from the capital   gains tax have been described below:

  • The assets which have been acquired by the individual before 10th of September 1985
  • Collectables such as paintings, coins, and stamps
  • Prizes from gambling
  • Awards which have been given for brave conduct or valour
  • The share of an individual in pooled development funds
  • The compensation received by an individual on the account
  • Inheritances of certain types

Generally a collectible is disregarded for the purpose of capital gains if the same was purchased for less than $500 or the same was acquired before the 16th of December 1995 (Goerke, 2014). Hence since the same is more than $500, it would be classified as a capital gains asset. Hence the capital gains of $110000 would be taxable.

Generally a gain made on the transfer of a capital asset is taxable under the head capital gains however in certain circumstances the capital gains are disregarded for the purpose of taxation:

  • Where the asset transferred was acquired before the 20th of September 1985
  • Motorcycles, cars and other like/similar vehicles (DZHUMASHEV and GAHRAMANOV, 2010).
  • Compensation that has been received on account of personal injury
  • Where the main residence is sold
  • Where the item sold is a collectible such as jewellery or antique and the same was acquired for less than $500.
  • Personal asset which has been used by the individual personally for instance motor cars, boats etc.

Dave in this case sold the asset for $60000, the in ordinary course of business would have been categorized as a capital loss but since the same is exempt from tax on account of being a personal effect the capital loss would be ignored. However as per (subsection 118-10(3) of the ITAA 1997 act the purchase value of the asset should be less than or equal to $10000 to be classified for the same (Pope, 2005). Since the purchase value is more than $10000 the same is a capital asset and the consequent gains or loss would be accounted for.

The capital gains liability of Dave has been computed below:

Particulars

Amount

Amount

Deposit Forfeited

85000

Sale of painting

125000

0

 

-15000

110000

Loss of sale of boat

60000

 
 

-110000

-50000

Sales of Shares

80000

 

Cost of Purchase

-75000

 

Cost of Borrowings (Third elements of cost base)

-5000

 

Stamp Duty

-500

-500

Exchange of shares or units (Subdivision 124-E)

-10000

   

134500

Dave has a capital gains liability of $134500 for the current year but since he has attained the age of 55 and has paid the amount to super funds he is entitled to a lifetime exemption of $500000. Hence the capital gains of $134500 would be exempt. He does not have capital gains loss.

Part B

Starting the 1st of April 2014, regardless of the distance covered by the car (Division 10A of the FBTAA) a flat rate of 20% would be applied to determine the value of the fringe benefit.  As a consequence the FBT in this scenario would be $6600 ($33000*20%). However since the asset was not used for the entire period of 365 days the same would be reduced proportionately for the period the car was not held and the period the car was not available for private use (Stokes and Wright, 2013). In this case the car was not held for the month of April and the same was not available for private use for 10 days in the year. Hence the FBT calculation would be as follows:

Particulars

Amount

Value of Car

33000

Rate of FBT

20%

Total number of days in year

365

Days Car not held

30

Days car not available for private use

15

Total days car used for private purpose

320

FBT

5786.301


An employer can provide loan to an employee which is known as the loan fringe benefit. The same can be provided at no rate of interest or at a rate of interest which is lower than the benchmark rate. For the year ended 31dt March 2015, the benchmark rate for interest for FBT is 5.95%. In the current scenario a loan of $500000 was advanced to Emma by Periwinkle on the 1st of September 2015. The employer charged an interest rate of 4.45% from the employee (FRINGE BENEFITS TAX ASSESSMENT ACT 1986 - SECT 136). However since the same is lower than the benchmark rate the difference would be chargeable as FBT (Herault and Azpitarte, 2014). In the current case the value of the FBT would be as below:

Particulars

Amount

Amount of Loan

 5,00,000.00

Interest at 5.95% for seven months

     17,354.17

Less: Interest at 4.45% for seven months

     12,979.17

Value of FBT

       4,375.00

According to QC 17815 which was last modified on the 2nd of June 2014, the value of the property fringe benefits is dependent upon the rule applicable in that case (How can I benefit from the 2004 tax laws?, 2005). Regardless of the valuation rule used the contribution received or receivable from the employee is reduced from the taxable value of the fringe benefit (ATO, 2016). The rules applicable in this context have been summarised below:

  • Whether the benefit provided is an external property fringe benefit or an in-house property fringe benefit.
  • In the scenario of the same being an in-house property fringe benefit if the property was manufactured or was purchased for resale (THORNTON, 1992).
  • If the same is similar or identical to the property sold by the employer in the ordinary course of business
  • The same is sold to customers who sell it to public or the same is directly sold to the public

If the above mentioned conditions are satisfied than the value of the fringe benefit would be the amount that the employee can reasonably be expected to pay less any amount which has been recovered or is expected to be recovered. In the current scenario the value of the FBT would be $2600-$700= $1900 since the employee under question is not a whole seller or a distributor hence, the value of the FBT would be the retail price of the property (Ingles, 2001).

For the year ended 31st March 2016 the FBT rate is 49% which is inclusive of the medical ivy. Hence the employer would have to pay the same on the value of the FBT calculated in each individual case.

Particulars

Amount

FBT Loan

       4,375.00

FBT CAR

5786.30137

FBT Goods

1900

Total FBT

     12,061.30

Tax on FBT @ 49%

       5,910.04

The tax treatment would change if the shares are purchased by Emma instead of her husband as she would be able to get the exemption on that part of the loan which is used for the purpose of generating income. Investment in shares qualifies for the same. According the previous rules the investment could have been made by the employee or an associate but the new rules allow for the investment to be made by the employee only (Herault and Azpitarte, n.d.). In that case the Loan FBT would be as:

Particulars

Amount

Amount of Loan

 4,50,000.00

Interest at 5.95% for seven months

     15,618.75

Less: Interest at 4.45% for seven months

     11,681.25

Value of FBT

       3,937.50

And the total tax liability in case of FBT would be as:

Particulars

Amount

FBT Loan

       3,937.50

FBT CAR

5786.30137

FBT Goods

1900

Total FBT

     11,623.80

Tax on FBT @ 49%

       5,695.66

Conclusion

The employer needs to register for FBT once it has been determined that the employer is paying fringe benefits and the tax on the same needs to be paid. In regards to the same the FBT return need to be submitted for the financial assessment year i.e. from the 1st of April to the 31st of March. In case there is no liability in regards to FBT the employer on the other hand needs to complete the Fringe Benefits Tax-notice on non-lodgement (Herault and Azpitarte, n.d.). 

 

References

ATO, (2016). Loan and debt waiver fringe benefits | Australian Taxation Office. 

Australian income tax legislation 2013. (2013). North Ryde, N.S.W.: CCH Australia.

DZHUMASHEV, R. and GAHRAMANOV, E. (2010). A Growth Model with Income Tax Evasion: Some Implications for Australia*. Economic Record, 86(275), pp.620-636.

Goerke, L. (2014). Income tax buyouts and income tax evasion. International Tax and Public Finance, 22(1), pp.120-143.

Herault, N. and Azpitarte, F. (2014). Recent Trends in Income Redistribution in Australia: Can Changes in the Tax-Benefit System Account for the Decline in Redistribution?. Economic Record, 91(292), pp.38-53.

Herault, N. and Azpitarte, F. (n.d.). Recent Trends in Income Redistribution in Australia: Can Changes in the Tax-Transfer System Account for the Decline in Redistribution?. SSRN Electronic Journal.

How can I benefit from the 2004 tax laws?. (2005). Nursing, 35, p.3.

Ingles, D. (2001). Earned Income Tax Credits: Do They Have Any Role to Play in Australia?. The Australian Economic Review, 34(1), pp.14-32.

Kenny, P. (n.d.). Capital Gains Tax Exemptions in Australia and New Zealand: Rationale and Reality.SSRN Electronic Journal.

Lloyd, P. (2015). Excise Tax Harmonisation in Australia at Federation. Aust Econ Hist Rev, p.n/a-n/a.

MACNAUGHTON, A. (1992). Fringe benefits and employee expenses: Tax planning and neutral tax policy. Contemporary Accounting Research, 9(1), pp.113-137.

Passant, J. (n.d.). John Passant (ATTA) Australasian Tax Teachers Conference 20 Minute Talk - Income Tax in Australia: From Appearance to Reality. SSRN Electronic Journal.

Pope, J. (2005). REFORM OF THE PERSONAL INCOME TAX SYSTEM IN AUSTRALIA.Economic Papers: A journal of applied economics and policy, 24(4), pp.316-331.

Protocol amending convention with Australia regarding double taxation and prevention of fiscal evasion. (2002). Washington: U.S. G.P.O.

Stokes, A. and Wright, S. (2013). Does Australia Have A Good Income Tax System?. International Business & Economics Research Journal (IBER), 12(5), p.533.

THORNTON, D. (1992). Discussion of “Fringe benefits and employee expenses: Tax planning and neutral tax policy”. Contemporary Accounting Research, 9(1), pp.138-141.

OR

Cite This Work

To export a reference to this article please select a referencing stye below:

My Assignment Help. (2017). Case Study: Capital Gains Tax And Fringe Benefits Tax. Retrieved from https://myassignmenthelp.com/free-samples/case-study-capital-gains-tax-and-fringe-benefits-tax.

"Case Study: Capital Gains Tax And Fringe Benefits Tax." My Assignment Help, 2017, https://myassignmenthelp.com/free-samples/case-study-capital-gains-tax-and-fringe-benefits-tax.

My Assignment Help (2017) Case Study: Capital Gains Tax And Fringe Benefits Tax [Online]. Available from: https://myassignmenthelp.com/free-samples/case-study-capital-gains-tax-and-fringe-benefits-tax
[Accessed 15 December 2019].

My Assignment Help. 'Case Study: Capital Gains Tax And Fringe Benefits Tax' (My Assignment Help, 2017) <https://myassignmenthelp.com/free-samples/case-study-capital-gains-tax-and-fringe-benefits-tax> accessed 15 December 2019.

My Assignment Help. Case Study: Capital Gains Tax And Fringe Benefits Tax [Internet]. My Assignment Help. 2017 [cited 15 December 2019]. Available from: https://myassignmenthelp.com/free-samples/case-study-capital-gains-tax-and-fringe-benefits-tax.


MyAssignmenthelp.com is one of the noted service providers that deliver essay help. We provide tailored essay assistance to make sure that student gets online essay help exactly in the way they want it to be written. We at MyAssigemnthelp.com have built teams of consultants, who readily attend every query related to help me writing my essay. We provide essay writing help in forms of tips and steps in order o assist students with tough essay assignments.

Latest Accounting Samples

HA2032 Corporate And Financial Accounting 8

Download : 0 | Pages : 9

Answer: Introduction Every organization should try and disclose the required terms and conditions to various type of user so that the decision-making process can be carried out by them. In today's world, it has been observed that the principle of disclosure is not being able to fulfil the needs of the financial reporting of users. The environment is divided between two groups of people among which half are satisfied with the information they ...

Read More arrow

HA2032 Corporate And Financial Accounting 7

Download : 0 | Pages : 13

Answer: Introduction The main purpose of this paper is do carry out a research and discuss if the financial accounting and reporting should be regulated or a manager should be allowed to disclose financial accounting information voluntarily (Vernimmen, Quiry, Dallocchio, Le Fur and Salvi 2014, pp. 22). The paper also gives an explanation on how the Australian Accounting Standards Board (AASB) participates in the setting process of global...

Read More arrow

AFA1105 Accounting For Management 3

Download : 0 | Pages : 5

Answer: Company Overview Lantern Hotel Group held a portfolio of hotels and pubs located in Australia and New Zealand. During the recent times, there have been issues on profitability and liquidity front for the company’s assets. As a result, the company has been rejigging the asset portfolio whereby it is selling non-profitable assets. Owing to cash crunch, it exited the New Zealand market in 2013. The sale proceeds were used for Austral...

Read More arrow

HI5017 Managerial Accounting 3

Download : 0 | Pages : 15

Answer: Introduction Measuring the performance of a business is critical in establishing its business progress. In this essence, it is important to note that activity based costing is a key management accounting method that can be deployed to measure the performance of a business entity in real-time (Kennedy and Affleck-Graves, 2001, 33). This is achieved by evaluating the business in terms of the cost associated with each resources and activ...

Read More arrow

ACC3101 Accounting Information Systems

Download : 0 | Pages : 7

Answers: Introduction: A report has been prepared on the xero software and a brief overview of the same has been given. The advantages and disadvantages of using the same as an accounting software has been using the screenshots and how the same is being used in the given business scenario. The second case study is on Mining Support Services (MSC), which is one of the specialist in software designing for the mining industry. Since it has many ...

Read More arrow
Next
watch

Save Time & improve Grades

Just share your requirements and get customized solutions on time.

question
We will use e-mail only for:

arrow Communication regarding your orders

arrow To send you invoices, and other billing info

arrow To provide you with information of offers and other benefits

1,164,507

Orders

4.9/5

Overall Rating

5,051

Experts

Our Amazing Features

delivery

On Time Delivery

Our writers make sure that all orders are submitted, prior to the deadline.

work

Plagiarism Free Work

Using reliable plagiarism detection software, Turnitin.com.We only provide customized 100 percent original papers.

time

24 X 7 Live Help

Feel free to contact our assignment writing services any time via phone, email or live chat.

subject

Services For All Subjects

Our writers can provide you professional writing assistance on any subject at any level.

price

Best Price Guarantee

Our best price guarantee ensures that the features we offer cannot be matched by any of the competitors.

Our Experts

Assignment writing guide
student rating student rating student rating student rating student rating 5/5

755 Order Completed

95% Response Time

Douglas Cowley

Masters in Finance with Specialization in Audit

Wellington, New Zealand

Hire Me
Assignment writing guide
student rating student rating student rating student rating student rating 4/5

3076 Order Completed

99% Response Time

Emily Wei

Doctor of Philosophy (Ph.D) in Civil Engineering

Singapore, Singapore

Hire Me
Assignment writing guide
student rating student rating student rating student rating student rating 5/5

440 Order Completed

99% Response Time

Jack Arens

MBA in HRM

London, United Kingdom

Hire Me
Assignment writing guide
student rating student rating student rating student rating student rating 5/5

285 Order Completed

99% Response Time

Eugene Baranowski

MBA in Supply Chain

London, United Kingdom

Hire Me

FREE Tools

plagiarism

Plagiarism Checker

Get all your documents checked for plagiarism or duplicacy with us.

essay

Essay Typer

Get different kinds of essays typed in minutes with clicks.

edit

GPA Calculator

Calculate your semester grades and cumulative GPa with our GPA Calculator.

referencing

Chemical Equation Balancer

Balance any chemical equation in minutes just by entering the formula.

calculator

Word Counter & Page Calculator

Calculate the number of words and number of pages of all your academic documents.

Refer Just 5 Friends to Earn More than $2000

Check your estimated earning as per your ability

1

1

1

Your Approx Earning

Live Review

Our Mission Client Satisfaction

My assignment was completed on time and i got complete marks. IT WAS EXACTLY THE WAY I WANTED IT.

flag

User Id: 299002 - 15 Dec 2019

Australia

student rating student rating student rating student rating student rating

This was amazingly put together, I could not have asked for a better company to do my assignment. Delivered earlier than expected. Absolutely amazing.

flag

User Id: 260056 - 15 Dec 2019

Australia

student rating student rating student rating student rating student rating

thank you again, it is a good work, everything is perfect. I am very happy. It is not the first time and I know that I can count on you.

flag

User Id: 265909 - 14 Dec 2019

Australia

student rating student rating student rating student rating student rating

Love using this company they are very useful always on time . I absolutely would recommend them

flag

User Id: 334177 - 14 Dec 2019

Australia

student rating student rating student rating student rating student rating
Have any Query?