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HI6028 Taxation Theory, Practice And Law

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  • Course Code: HI6028
  • University: The University Of Sydney
  • Country: Australia
Discuss about the HI6028 Taxation Theory, Practice and Law.



This report consists of two sections it will provide insights about the taxation law theory and practice. The first section of the report discusses, the treatment relating to long term capital gains it includes ownership of land, treatment of antiques, personal assets and so on. It also discusses the insurance clause for theft of antique bed, antique painting, Violin and treatment of the various shares that were hold for a long period of time and sold in current period. The overall net capital gain or loss is also calculated for the year 2018-19. In addition to this, the second part of the report discusses the Fringe benefit tax and input tax credits for the various benefits provided by the employer to an employee towards personal and official activities. The report also spotlights the various kinds of the benefits in addition to the salary and their treatment under the Australian taxation office (ATO). It will also consist of the various calculation of the fringe benefit tax.

Capital assets are the assets that are acquired for the purpose of generating revenue in short or long period of time. Investments are made in the various securities and portfolios for the purpose of generating returns as a source of extra income or putting the savings into some productive fields to generate returns. This includes investments in the real estate property, stocks, precious metals, bonds or shares. Australian government collects capital gains in case of the realized gains and it is covered under income tax system. The investments in capital assets in past and selling it at present date lead to a capital gain or loss. Capital gain is the difference between the price at which the investments were made or the asset was purchased and currently sold at a higher price. The increased returns on the investments are termed as capital gains and this is the reason it is taxable under the law. On the other side, when the price of the investment declines and the person holding the investment sells it and books loss then it is capital loss which is adjustable and carried forward to be adjusted in subsequent years (ATO, 2018). In addition to this, such kind of gain or loss is taxable as per the taxations laws which are called capital gain tax.  

The capital gain tax applies to real estate, units and similar investments, foreign currency, contractual rights and collectables and personal use assets. Collectable includes the items for personal use such as paintings, drawings, jewellery, antiques and postage stamps. In addition to this, the personal use assets include boats, furniture’s, electrical goods and other household items (ATO, 2018). The government imposes taxes on the incomes of the individuals, businesses and others for the development and infrastructure with in the country. The various facilities that are provided to a common man are developed form the taxes paid by the common man.


When a land is purchased and hold for a period of more than one year and then sold at higher price than that of he purchased price, it results to an occurrence of capital gain. This is taxable under the income tax law. It is identified that the block of land was sold at the price of $320000. This land was acquired in year 2001 indicating the long term capital income due to its cost of $100000. There is also an incurred expense of $20000 in local council for sewerage, land tax and water facility (Gitman, et al., 2015). The cost of the asset involves the purchase cost, any installation, repairs or fees paid to the government authority (ATO, 2018). So, the calculation for the gain or loss on the sale of the capital asset is as below:

Capital gain = selling price – (cost of the asset+ additional expenses incurred such as land and sewerage tax)

 = $320000 – ($100000+ $20000) = $200000

So the net capital gain will be $200000 which will be taxable in the current year but since the client receives just $20000 in the present taxation period so this $20000 will be taxable and rest $180000 will be taxable in the next year.  

  1. Treatment of insurance claims for Antique bed

It is identified that the antique four-poster Louis XIV bed was purchased for $3500. The estimated value of the bed was $25000 but the claim passed for the antique bed was $11000 (ATO, 2018). There is alteration cost of $1500 incurred by the client so the calculation for the capital gain will be as below:

Capital gain = Insurance claim – (cost of the bed + expenses incurred in alteration)

 = $11000 – ($3500 - $1500) = $6000

  1. Treatment of Painting

As per the available information the painting was costing $2000 and its value has increased to $125000.

Capital gain = sales price – cost of purchase = (125000 - $2000) = $123000

  1. Treatment of shares
  2. Common bank Ltd.

Number of shares = 1000 at the cost of $15 per share

Total cost = 1000*$15 = $15000

Selling price = $47 per share

Total gain = 1000*$47 = $47000

Net gain= Total gain – (Totals cost + brokerage & stamp duty on purchase)

       = $47000 – ($550 + $750)

So, overall net capital gain = $47000 – (15000 +750 + 550) = $30700

  1. PHB Iron Ore Ltd.

Total gain = number of shares*sales price

     = 2500*25 = $62500

Net gain   = Total gain – (Cost + Other expenses incurred)

     = $62500 – ($2500*12 + $1000 (brokerage) +$1500 (Stamp duty))

     = $62500 – ($30000 + $1000 +$1500)

     = $30000

  • Calculation of gains/loss for Young Kids Learning Ltd.

Total number of shares = 1200

Purchase price = $5

Sales price = $0.50

Total cost = 1200*$5 + $500 (stamp cost) + $100 (brokerage) = $6600

Total selling amount = $0.50*1200 = $600

Net gain/loss = $600 - $6600 = $6000

So, the long term capital loss will be $6000

  1. Share build limited: gain/loss calculation

Total shares = 10000

Purchase cost = $1

Total cost = 10000*$1 + $1100 + $900 (stamp duty on purchase and brokerage on sale)

= $12000

Selling price = $2.50

Overall gain or loss = [($2.50*10000) - $12000]

Gain (short term) = ($25000 - $12000) = $13000

  1. Treatment of Violin

Cost of violin = $5500

Selling price = $12000

Gain or loss = sales price – cost price

       = $12000 -$5500 = $6500

So, the overall long term capital gain = $6500.

Table showing overall gain or loss for the current year ended 30 June

Sr. No.

Capital gains/loss

Amount in $


Long term carried forward capital loss



Long term capital gain on sale of land (Current year )



Long term capital gain on antique bed (insurance claim)



Long term capital gain on painting



Long and short term capital gain on shares:

i) Common bank Ltd = 30700

ii) PHB Iron Ore Ltd = 30000

iii) Young Kids Learning Ltd = (6000)

iv) Share build limited = 13000




Capital gain in violin



Overall capital gain


As per the above calculations it is identified that the overall capital gain for the client after adjustment of the capital loss carried forward from past year will be $214700.

Tax calculations for Rapid-heat

Overview: Rapid Heat Company provides several benefits to the employees. One of its employees Jasmine was provided with car facility to travel for work and other use. Fringe benefit is an added benefit provided to the employees in addition to the salary it may include car facility, parking fees, loan facility, housing benefit and many more. The company is providing such facilities for the purpose of retaining and attracting employees to work in an efficient manner (Australian Government, 2018).   

In case employer provides with a car facility for private use of an employees or their associates for the private purpose. It also includes car garaged or parked at near employee’s home or any other private location. It also includes private use of the car with or without permission.

In addition to this, there are several other facilities that are provided under this head this is the reason the government has to introduce tax on this. The taxes paid by employers on the various kinds of the fringe benefits provided to the employees are taxed under the FBT consequences and the tax rate that is applicable on such kind of the transactions are 0.47%. This tax is applicable on all the businesses and enterprises whether they are company, sole proprietor and kind of partnership, trustee or a government authority. The liability of such tax is applicable in the employer and the taxes are needed to be paid by the employer at the end of each assessment year.


Statutory formula method for the value of tax on Car benefit:

The value of the car = $33000

The expenses incurred during the year reimbursed = $550

Taxable value can be identified as = {(The base value of car X statutory percentage X the number of days for which the car was available or used in FBT year)/ number of days in the FBT year} – employee contribution

Statutory percentage = 26% (ATO, 2018)

Taxable value = {$33550 * 26%* (365-15)/365} – 0

      = 8364

The fringe benefit tax = Taxable value*FBT rate*Type1 Gross-up rate (FBT, 2018)

      = 8364 * 0.47 * 2.0802 = 8177.43

Calculation of the FBT on Loan facility provided to Jasmine:

There are various facilities that are provided by the employer to the employees, one such facility is the loan that is provided to the employee for mitigating their personal interests. In this case Jasmine is considering the loan for the purpose of purchase holiday home. This loan facility is considered as a fringe benefit for the employers as the loan is provided to the employees by their employers on no interest or a lower interest rate. The rate that is offered to the employees is the rate which is below the benchmarked rate in the market (Gitman, et al., 2015). Most of the banks offer the rates that are provided by Australian reserve bank but the rate that is offered by the employer is lower than the statutory rates so this is being taxed by the taxation office. For the calculation of the fringe benefit it is needed to identify the statutory rate. This is the rate at which government and other premium institutions provide loans to a common man. So, the value of fringe benefit is identified as the difference between the rate offered by the banks and the rate at which loan is lend to the employees. This benefit is the fringe benefit which is taxable under the law.      

Total loan provided $500000

Interest rate 4.25%

In this case if the statutory interest rate is identified than it will be 5.65% (FBT, 2018). So, the amount of interest will be as under:

Taxable value of interest as Fringe benefit = ($500000*5.65%*7/12) = 16479.17

Interest at the rate of 4.25% = ($450000*4.25%*7/12) = 11156.25

Taxable amount on interest = (16479.14- 11156.25) = 5322.89

Fringe benefit tax = 5322.89*0.47 * 2.0802 = 5204.157

Treatment of the Electric heater

Since, the heater was having the selling price of $2600 and company is selling it at lower rate this indicates that the company is sacrificing margins so this is termed as fringe benefit. 

Original price of the heater = $2600

Concession price of heater = $1300

Cost price of heater = $700

The fringe benefit provided to Jasmine = $2600- $1300 = $1300

So, that taxable amount will be = $1300*2.0802*0.47 = $1271.002

Total fringe benefit tax will be as under:

Tax on car + Tax on loan facility + Tax on heater

= $8177.43 + $5204.157 + $1271.002 = $14652.589.

In case the shares are purchased by Jasmine then the calculation will be as below:


In this case, the amount provided as loan will be used partly for the personal use for the purchase of holiday home amounting to $450000 where as rest $50000 will be used in the investment securities. This indicates that the amount will be used for the purpose of productive returns so the employer has to pay the tax on the whole amount. So, all the tax calculations will remain the same except the treatment of the loan which is now used for the purpose of purchase of private and income producing assets.

Fringe benefit tax on car facility = $8177.43

Fringe benefit tax on purchase of heater = $1271.002

Fringe benefit tax on loan will be as under

The statutory interest rate = 5.65%

So, the amount of interest will be as under:

Taxable value of interest as Fringe benefit = ($500000*5.65%*7/12) = 16479.17

Interest at the rate of 4.25% = ($500000*4.25%*7/12) = 12395.83

Taxable amount on interest = (16479.14- 12395.83) = 4083.33

Fringe benefit tax = 4083.33*0.47 * 2.0802 = 3992.247

Total Fringe benefit tax will be = $3992.247 +$1271.002 +$8177.43 = $13440.672  

From the above calculation, it can be identified that the fringe benefit tax is applicable on the amount of the benefit that is provided to the employees. The employer has to pay the tax up to the amount of loan that is provided at lower interest rate in place of the whole amount of the loan.


It can be concluded that the there are various kinds of the gains and income arise to the individuals. One such income is the income under the head capital gains which is earned by investing in the various opportunistic investments. The majority of such investments are property, land, shares and antique items. While calculating the taxable income of client it is identified that the total earnings in the current period are  $223200 but the client has incurred a capital loss in previous years that is carried forward and adjusted in current year so the net income that is to be taxable under this head will be $214700. This includes sale of land, antiques such as bed and violin and paintings. In addition to this there is also income from the sale of the shares that comprised to a total of this income.  On the other side, the next section concludes that employer fringe benefit is added benefit to the employees which is taxable under Australian taxation office.  It is identified that rapid heat will have to pay tax on the various benefits provided to Jasmine. The amount of tax for the benefit on car was $8177.43. In addition to this, the amount of tax on the benefit for the Rapid heater to Jasmine will be $1271.002. The total amount of the fringe benefit tax on the sum provided as loan of $500000 was identified as $3992.247.



ATO (2018) Fringe benefits tax - a guide for employers. [Online]. Available at: (Accessed: 24 September 2018).

ATO, (2018) Capital gains 2015. [Online]. Available at: (Accessed: 24 September 2018).

ATO, (2018) CGT assets and exemptions. [Online]. Available at: (Accessed: 24 September 2018).

Australian Government (2018) Fringe Benefits Tax (FBT). Available at: (Accessed: 24 September 2018).

FBT, (2018) Fringe benefits tax – rates and thresholds. [Online]. Available at: (Accessed: 24 September 2018).

Gitman, L.J., Juchau, R. and Flanagan, J. (2015) Principles of managerial finance. Australia: Pearson Higher Education.

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