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Calculation of Net Capital Gain/Loss for an Individual

Describe about the Taxation for Generating Earlier Assets.

“Calculation of Net Capital Gain/ Loss of an Individual”

In this particular case study, capital gain or loss of an individual is calculated by applying the formula. Fred is an Australian resident as assumed in the case study. Fred was not operating in any of the trading business at the same time (Piketty, Saez and Zucman 2013). He had holiday home that is considered as assets as well as he sold it in this current year. It is not to be considered as trading stock by any chance. In other words, Fred was not generating revenues from its earlier assets also.

The below table shows the calculation of net capital or loss for Fred for the current financial year

It is calculated using discounted method as well as Indexation method

Name of Taxpayer : Fred

Type : Individual

Calculation of Net Capital Gain/Loss

for the period ending on 30th June,2016

 

Discounted Method

 

Indexation Method

Particulars

Amount

Amount

 

Amount

Amount

 

$

$

 

$

$

a) Sale of Holiday Home

Sales Consideration

 

800000

800000

Less : Cost Base of the Property

100000

148043

Legal Fees on Sales (Exclusive of GST)

1000

1000

Commission of Real Estate Agent

9000

9000

Stamp Duty on Purchase

2000

2961

Legal Fees on Purchase

1000

1480

Construction Cost of Garage

20000

133000

23853

186338

Capital Gain on Sale

 

667000

613662.3

Less : 50% Exemption on Capital Gain

333500

Taxable Capital Gain (A)

 

333500

 

613662

Less : Capital Loss of Previous Year

10000

 

10000

Net Taxable Capital Gain

 

323500

 

603662

Table: Calculation of Net Capital Gain/Loss

Source: Created by Author

In the year, 1985 dated 20 September, Fred acquired the assets. Hence, it can be considered as CGT assets for taxable purpose for making the computation of net taxable capital gain or loss

At the time of asset acquisition before the date 21st of September 1999, it has been noticed that cost base as well as other expenses incurs for the specified time (Piketty and Saez 2012). This is for the asset purchase that is mainly evaluated under the indexation method

Fred, on other hand, had made garage on that property for substantial improvement. However, substantial cost of the garage is to be deducted from the expenses. This was performed on 21st of September 1999 and calculated using indexation method

In accordance with Australian taxation rules, it is for acquisition of assets dated on 21st of September for the year 1999. In that case, individuals can easily apply for any of the method may it be discounted method or indexation method. Using this method, it will be easier to calculate capital gain or loss for an individual (Saez and Piketty 2012).

It has been noticed that expenses are incurred from sale of properties as well as it should be deducted from any of the considerate sales figures. It will be determined in case of calculating net capital gain or loss of an individual

As far as discounted method is concerned, taxpayer gets around 50% exemption especially on capital gain for assets. Addition to that, the taxpayer owns these assets for a period of twelve months (Jones and Rhoades-Catanach 2013).

The above calculation on net capital gain or loss has been explained for Fred for the given current year using discounted method. Using the method, calculation has been done and figures amounted to $ 323500. On the other hand, using indexation method, figure arrived at $ 603662 (Farhi et al. 2012). By using discounted method, Fred had to pay less tax especially on the gain for capital. It has to be considered using discounted method for computation of net capital or loss from the case study. Net Capital gain arrives at $323500.

Discussion

In order to view at the consequences of net capital gain, Antique vase can be considered as collectable in nature. In accordance to Australian Taxation rules, adjustments have been made on net capital loss from the collectable sale. Hence, net capital loss taken from the previous year’s mainly arises from antique vase sale (Chen et al. 2016). It cannot be adjusted in any case for adjusted net capital gains from house property sale. Net capital gain of Fred arrives at $333500.

Part A

From the above case study, it has been noticed that Periwinkle Pty Limited is the employer company as well as considered as general Australian company. It cannot be entitled under the tax benefits in comparison with small business entities. It is for the case of the company providing few benefits for its current employee name Emma (Auerbach and Hassett 2015). Emma is assumed to be Australian resident. Periwinkle Pty Limited is entitled in giving fringe tax benefits for various additional benefits in the most appropriate way. FBT consequences for such type of benefits are explained below with proper justification.

Calculation Of Car Fringe Benefit:-

Particulars

 

Details

Total Kms. Travelled during the FBT year

A

10000

No. of Days in the FBT year

B

366

No. of Days of Travel

C

336

Annualized Kilometers

(A x B/C)

10892.857

Statutory Rate as per Annualized Km.

E

20.00%

Cost Base

F

$33,000

No. of Days available for Private Use

C

336

No. of days in FBT Year

B

366

Taxable Value

(FxExC)/B

$6,059.02

Table: Calculation of Car Fringe Benefit

(Source: Created by Author)

The above table calculates the car fringe benefits. In the given case study, Emma uses car for the purpose of official as well as private activities. Hence, benefit with car should be included in the car fringe benefits. At the time of foreign visit, Emma parked the car at airport rather on employer premises. This particular car was kept in the garage so that annual maintenance will be done and not come under unscheduled repairing at the same time (Adam, Kammas and Lagou 2013). This reveals that car unused during the repaired days will be included in the calculation of FBT. It requires to use statutory method for calculation of car fringe benefit for the company of the car.

“FBT for Interest on Loan”

Calculation of Interest on Loan for FBT:-

Particulars

Details

Loan to Employee

A

$500,000

Benchmark Interest Rate

B

5.95%

Actual Interest Rate

C

4.45%

Taxable Value Interest on Loan

D = (AXC)

$22,250

Table: Calculation of Interest on Loan for FBT

(Source: Created by Author)

The above table shows the calculation for Interest on Loan for FBT. The employer should provide interest on loan to the employee (Auerbach and Hassett 2015). This is considered as fringe tax benefit. It has been calculated that interest rate of loan will be at 4.45%. This rate of interest is considered lower in comparison with benchmark interest on loan at 5.95%. Therefore, FBT calculation based upon actual interest rate.

Calculation of Special Discount for FBT:-

Particulars

Amount

Market Price of the Bathtub

A

2600

Special Price for the Employee

B

1300

Taxable Value of the Bathtub

C=A x 75%

1950

Taxable Value of Benefit

C - B

650

Summary of Findings

Table: Calculation of Special Discount for FBT

Source: Created by Author

The above table shows the calculation of special discount for FBT. This means that employer can easily claim for FBT in case of getting special discount. It will be provided to its employees for the specified product. FBT calculation will be based upon 75% on normal selling price (Auerbach and Hassett 2015).

Name of Taxpayer : Periwinkle Pty. Ltd.

Type : Company

Calculation of Fringe Benefit Tax

for the period ending on 31st March,2016

 

GST Inclusive

GST Free

Particulars

Amount

Amount

 

$

$

Car Benefit

6059.02

Interest on Loan

22250

Sale at Special Rate

650

Total of GST Inclusive/Free Benefits

6059.02

22900

 

A

B

Gross-up Rate

2.1463

1.9608

C

D

Gross-up Value

13004.47

44902.32

 

E = A x C

F=B X D

Total Taxable Fringe Benefit

57906.79

 

G = E + F

 Fringe Benefit Tax Rate

49%

J

Fringe Benefit Tax Liability

28374.33

 

K = G x J

Table: Calculation of Fringe Benefit Tax

(Source: Created by Author)

From the above table, calculation is done on the fringe benefit tax for the year ending 31st March for the year 2016. It has been assumed that car expenses comes under GST as well as all FBTs equalizes with values of FBT in accordance with Gross up rates (Auerbach and Hassett 2015). As far as fringe tax benefits are concerned, it is calculated for general companies at 49%. For the company Periwinkle Limited, calculated has been done for calculation of FBT liability in accordance with given rules.

“Alternate Consequences”

In this particular part, alternative consequences are explained to give unique insights to the given case study. In case Emma made the purchase for shares for herself as well as earn dividend from the shares, then she would be entitled in paying tax (Piketty, Saez and Zucman 2013). Payment will be done on that kind of income. If such cases are there, then total FBT value as well as FBT liability of the employer will be considered lesser based on income amounted and earned by an employee from total loan amount.

Reference List

Adam, A., Kammas, P. and Lagou, A., 2013. The effect of globalization on capital taxation: What have we learned after 20years of empirical studies?. Journal of Macroeconomics, 35, pp.199-209.

Auerbach, A.J. and Hassett, K., 2015. Capital taxation in the 21st century (No. w20871). National Bureau of Economic Research.

Chen, P.H., Chu, A.C., Chu, H. and Lai, C.C., 2016. Short-run and Long-run Effects of Capital Taxation on Innovation and Economic Growth.

Farhi, E., Sleet, C., Werning, I. and Yeltekin, S., 2012. Non-linear capital taxation without commitment. The Review of Economic Studies, 79(4), pp.1469-1493.

Jones, S. and Rhoades-Catanach, S., 2013. Principles of Taxation for Business and Investment Planning, 2014 edition. McGraw-Hill Higher Education.

Piketty, T. and Saez, E., 2012. A theory of optimal capital taxation (No. w17989). National Bureau of Economic Research.

Piketty, T., Saez, E. and Zucman, G., 2013. Rethinking capital and wealth taxation. Abgerufen von https://piketty. pse. ens. fr/files/PikettySaez2014RKT. pdf.

Saez, E. and Piketty, T., 2012. A Theory of Optimal Capital Taxation. NBER Working Paper, (17989).

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