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Method for computing CGT payable amount

Question:

Discuss About The Computation Of Capital Gain Loss Regarding?

In the given case, a method of capital gain tax, indexation and scheme will not be considered due to the asset’s holding period, less than a year. Therefore, one other method is presented here to be applied; under this method, selecting of full capital will be done in order to calculate CGT payable amount for the assets were acquired, in less than 1 year (Auerbach and Hassett, 2015). After then measure the cost base for asset’s each part, that is (share’s costs + brokerage). Then, compute the measurable capital gains that are received consideration (sales profit-brokerage) (Yagan, 2015). Next, compensate any loss occurred from the capital. Further, make the addition of capital gains to left assessable income to identify the total tax liability.

In accordance with the provided case scenario, it can be said that assets are held for less than 12 months; thus method of indexation or discount will not be applicable for computation. By considering this aspect computation of net capital gain or loss will be as follows:

Particulars

Calculations

Amount

Capital gain

Antique  vase

$3 000.00-$2 000.00

$1 000.00

Shares

$2 0000.00-$5 000.00

$15 000.00

$16 000.00 (A)

Capital loss

Painting

$1 000.00-$9 000.00

-$8 000.00

Antique chair

$1 000.00-$3 000.00

-$2 000.00

Sound system

$11 000.00-$12 000.00

-$1 000.00

-$11 000.00 (B)

Net capital gain

A-B

$5 000.00

Brian is a bank executive, and he received a loan of $1m at a special interest rate, i.e. 1% as part of his remuneration package. Brian had utilised 40% loan for production of income and satisfied all the obligation regarding interest payments. However, this benefit is taxable under provisions of fringe benefits tax (FBT). This part of the study deals with the taxability of benefit provided to Brian through providing a loan at a special interest rate.

Fringe benefits tax is applicable in the tax system of Australia, approved the Australian Taxation Office. This tax is charged, mostly on benefits of non-cash that an employer offers in relation to employment (Faccio, and Xu 2015). This tax is imposed only on the employer not on the employee, and will be imposed in spite of; the benefit is offered to the employee directly or to the employee’s associate (Evans, 2015). The standard rate of interest is used to compute the tax value of the following; fringe benefit offered in terms of the loan, a fringe benefit of a car, in which employee decides to value benefit by the method of operating cost. For 2017 rate of statutory interest with reference to TD 2016/5 for FBT year1 April 2016 to 31 March 2017 is 5.65% (Woellner and et.al, 2016).

Taxability of benefit provided through providing a loan at a special interest rate

By considering the above-described regulation of FBT, it can be said that Brian is liable to pay tax at different amount of interest. Computation of the taxable value of the fringe benefit for Brian for the 2016/17 FBT year is as follows:

Particulars

Amount

Interest to be paid by applying special interest rate

$1 000 000*1%

$10 000.00

Interest to be paid by applying statutory rate

$1 000 000*5.65%

$56 500.00

Taxable value

$56 500.00-$56 500.00

$46 500.00


In both, the cases taxable value will be same as the overall value of the benefit is considered, and there are no specific provisions regarding monthly or annual payment for a fringe benefit.

In this case, situation rental property is purchased by Jack and Jill (his wife) as joint tenants. For this, they formed agreement according to which profit will be distributed in the ratio of 1:9 to Jack and Jill respectively and if there is loss than Jack will be entitled to 100% of the loss. Thus, the issue is regarding tax implication of revenue and capital loss.

TR 93/32 taxation of rental property - division of net income or loss between co-owners

From the common perception, it is reliable to distinguish the rental property owner into Beaumont J in McDonald's case at ATR p.96 joint owners in investments rather than instead of partners in operational activities of the business (Barrett and Veal, 2016).

Thus, rental property co owners usually are not partners in terms of general law, and with the consequence that they are not regarded to the applicable general law of partnership inclusive of profit and loss distribution of property or assets (TR 93/32 taxation of rental property - division of net income or loss between co-owners, 1993).

Personally, there is no survival of any partnership according to the general law, if the partners are respondent and their spouse. Their relation can be referred as co-ownership, even if they can be considered under the Act of subsection 6(1). Certain circumstances are of no consequence for our point. It sounds interesting; their academic partnership will take it out with results and will be considered as a partnership for certain reasons. It will not allow the respondent to make a deduction of the total loss in partnership (Pearce and Pinto, 2015). Although, respondent can only make a deduction in own interest the loss of partnership. Respondent’s own interest is that interest, on which a partner is entirely entitled. In contrast to his mutual interest in the total, FCT v Whiting (1943)[1].

Thus, It is vital to identify that both respondent and Mrs McDonald were only notional partners for the Act’s purpose or were true partners as per the general law.

Tax implications of revenue and capital loss in the case of rental property

Applicability of provisions and Conclusion

By considering the above case provisions, jack is not entitled to the entire loss and he will compensate loss only portion of profit, i.e. 10%, and same will be applicable in a situation where this property is sold irrespective of the fact that there is capital gain or loss.

In the case of IRC v. Duke of Westminster, he carried out a deed with his helpers who were its gardener or servants. In that agreement, Duke made a guaranteed to pay out some amount of money to his fellows for their provided services (QC, 2016). Further, the agreement was done in written and was submitted to his fellows, declaring that Duke will make payments with extra payment, if there would be any, for the payment made in exchange for their service provided. Duke attempted to claim these types of payments for a tax deduction for the agreement of tax evasion.

In the above-described case, the main problem lies with the deed that shall it be treated or observed as the employment agreement. Initially, Duke was not paying his fellows on a weekly basis nor on a monthly basis as the contract would mean to (Westminster doctrine, 2016). Thus it can be said that there was the least concern over the contract, which the most significant term the formulation n of legally obligatory contract.

Under the deed of covenant, it payment can only be tax deductible if there is a yearly payment made to the helpers (Bankman and et.al, 2017). Duke would only entitle to make a claim for tax relief for the yearly payment or the payment made in exchange for services rendered in that particular period.

Conclusion

Relevancy of this case in the present scenario

In this cited case, there was a suggestion that tax evasion will only be entitled if it practises that established statute law, in this case, the general rule of the deed of covalent format can decrease the tax liability of if it is accepted and the claim can only be made on a yearly basis. 

In March 2011, a document was issued by the revenue as ‘Tackling Tax Avoidance’, which showed how they would effort to solve the problems of tax evasion in upcoming future (Sharma, 2015).

The document declared that they aim to make development in the rules of Tax Avoidance Disclosure, as per these some schemes of tax must be informed the taxation authorities, soon after the implementation (Bloom, 2015). The major aim is to help users for making out differences among terms related to ‘artificial avoidance schemes’ and ‘ordinary sensible tax planning’.

The Duke of Westminster case and its relevancy in the present scenario

Taxation Ruling 95/6: Disposal of standing timber, not in the ordinary course of business

Trees for disposal has been owned by a taxpayer, that has planted but not essentially by the taxpayer and intended for the sale might affect the actual value of trees contained in the assessable income of taxpayer as per the subsection 36(1), when the disposal would take place (Frecknall-Hughes and Kirchler, 2015).

The tax will be payable irrespective of aspect that business is carried out of the forest operations, as long as the business is carried out by the taxpayer and the disposal is not done in the regular course of business (Burkhauser, Hahn and Wilkins, 2015). The major requirement is that the trees represent the business assets as a whole.

If or if not the specific contract leads to trees disposal, as per distinct, from the sale of Land's interest, will mostly depend on the analyzing of the contract (Taxation Ruling: TR 95/6PW - Notice of Partial Withdrawal, 2010). The Subsection 36(1) will not be applicable, in case the trees are land leased and there is no entire ownership of the lessee on the leased land for this aspect case of Rose v. FC[2] can be considered (Bond and Wright, 2017).

Disposal of rights to standing timber

A taxpayer has been carrying a business of forest operations can put standing timber into a sale by providing the right to some individual to cut out the timber, if or if not there is right to cut the timber is practised (Taxation Ruling: TR 95/6PW - Notice of Partial Withdrawal, 2010). The income has been generated from the sale can be assessable, as per the subsection 25(1) (McNeil, 2015).

Applicability of provisions and Conclusion

In accordance with the regulatory provisions covered under Taxation Ruling 95/6, sales of timber is taxable in both the cases however provisions will differ.  If Brian is engaged in Disposal of standing timber not in the ordinary course of business than taxability will be as per subsection 36(1) and if direct rights of procurement of timber are sold than taxability will be as per provisions of subsection 25(1)

References

Auerbach, A.J. and Hassett, K., 2015. Capital taxation in the twenty-first century. The Economic Review, 105(5), pp.38-42.

Yagan, D., 2015. Capital tax reform and the real economy: The effects of the 2003 dividend tax cut. The American Economic Review, 105(12), pp.3531-3563.

Faccio, M. and Xu, J., 2015. Taxes and capital structure. Journal of Financial and Quantitative Analysis, 50(3), pp.277-300.

Woellner, R., Barkoczy, S., Murphy, S., Evans, C. and Pinto, D., 2016. Australian Taxation Law 2016. OUP Catalogue.

Barrett, J.M. and Veal, J.A., 2016. Tax Rationality, Politics, and Media Spin: A Case Study of the Failed ‘Car Park Tax’Proposal.

Pearce, P. and Pinto, D., 2015. An evaluation of the case for a congestion tax in Australia. The Tax Specialist, 18(4), pp.146-153.

Bankman, J., Shaviro, D.N., Stark, K.J. and Kleinbard, E.D., 2017. Federal Income Taxation. Wolters Kluwer Law & Business.

Bloom, D., 2015. Tax avoidance-a view from the dark side. Melb. UL Rev., 39, p.950.

QC, J.M., 2016. Ethics and tax compliance: the morality of tax avoidance. The good old days. Trusts & Trustees, 22(1), p.166.

Frecknall-Hughes, J. and Kirchler, E., 2015. Towards a general theory of tax practice. Social & Legal Studies, 24(2), pp.289-312.

Evans, S., 2015. It's' Clean Hands' Again: The Dirtiness of Not Paying Tax Considered in the Supreme Court.

Sharma, S.K., 2015. 020_Law of Sales Tax.

McNeil, K., 2015. Indigenous Territorial Rights in the Common Law.

Bond, D. and Wright, A., 2017. A Snapshot of the Australian Taxpayer.

Burkhauser, R.V., Hahn, M.H. and Wilkins, R., 2015. Measuring top incomes using tax record data: A cautionary tale from Australia. The Journal of Economic Inequality, 13(2), pp.181-205.

TR 93/32 taxation of rental property - division of net income or loss between co-owners. 1993. [Online]. Available through <https://www.ato.gov.au/law/view/document?docid=TXR/TR9332/NAT/ATO/00001>. [Accessed on 13th September 2017].

Westminster doctrine. 2016. [Online]. Available through <https://oxfordindex.oup.com/view/10.1093/oi/authority.20110803121911242>. [Accessed on 13th September 2017].

Taxation Ruling: TR 95/6PW - Notice of Partial Withdrawal. 2010. [Online]. Available through <https://law.ato.gov.au/atolaw/view.htm?docid=TXR/TR956PW/NAT/ATO/00001>. [Accessed on 13th September 2017].

[2] T (1951) 84 CLR 118; 9 ATD 334.

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