Essay On Taxation Theory And Practice: Net Capital Gain Purchases.

Fred’s capital gain calculation

Discuss about the Taxation, Theory, Practice & Law for Net Capital Gain Pirchases.

Analysis of Fred’s overall net capital gain covering the various related transactions, noted after his involvement in the purchase of his holiday house, in the main concern of this report. The concept of overall net gain and net loss is understand   by learning the importance of required laws of calculation from this study. Fred, the example of study in this report, demands the understanding of law as the home functions, development, and renovation comes under the Australian’s law of government strategies which even includes other taxation laws as per the Income Tax Assessment Act of 1977. Computation is done by this.  On concern of net capital gain and loss of Fred .the explanation to set the capital loss/gain is also related by evaluating and analyzing the various facts and figures personally from the report. Here it is important to note that, there are transactions that do not follow the computational method of capital research.  The term ‘computation’ is imperative to understand as the concepts of net capital gain/loss and superannuation adopts the computation functionality (Graetz & Schenk, 2009). Every layout is basically based on the computation tool. Computation definition hence is described by various tax and law scholars with each definition carrying specific application for different purposes and situation. The process of accumulating or gathering funds from the people to give them at the time retirement is called superannuation (Wright, 1970).

Computation Of Capital Gain For FRED For The Year Ended On 30 June
	Particulars		Amount (in$)	Total Amount (in $)
Add:	#Proceeds of selling holiday home in the current year		800,000.00
Less:	Cost Base of holiday home in 1987
			100,000.00
				700,000.00
Less:	Total legal fees		2100.00	697900.00
Add:	Cost base of garage		20,000	717900.00
Less:	Cost of garage after indexation 20000*123.4/71.3		34,614.30	683,285.70
Less:	Agent commission		9900.00)	673,385.70
Less:	Stamp duty payable on acquisition		(2000.00)	671,385.70
Less:	Previous Year Capital Loss Deduction		(10,000.00)
Total capital gain				661,385.70
Less:	50% discount for using property for more than 12 months	(330692.85)
	Net capital gain			330692.85

Few values or transactions are there which do not depend on the capital gain or loss, as discussed earlier in this report. Hence, different examples are there for getting a clear details about these values. For instance, reimbursement requested in case of any injury or illness, required assets prior to 20^th Sep 1985, people having $10,000 or more personal asset. Things which cannot be counted in capital gain or loss are cars, vehicles or motorcycles, and is considered unworthy if owned for $10,000 or less (Bittker & Rahdert, 1976). Things like painting collection of $500 or less do not come under computation, and family homes detached from the real house are few other examples.

What will be the answer if there is a sale of an antique vase?

In case a loss is incurred due to the selling of an antique vase by Fred, in my view, I would say that he suffered a huge loss. This can be said because the loss suffered due to the subtraction of it is received from the selling of the shares, that Fred intended to use it personally, thus his net capital is higher than $10,000 (Nethercott, Richardson & Devos, 2016).

Exceptions and exemptions

Tax is a result of fringe benefit that helps in setting the introduction as well as the importance of the analysis of fringe benefit. Fringe benefits covers the additional benefit that increases the pay of the staffs. Subsidized meal, company car, health insurance and more are the distinct examples. According to employers, it is a free partner and contractor that is there between two employees in which, in few situations, they are set free from the taxes. For e.g., the fair market cost is included for all those receive fringe benefit tax, in that year. It is beneficial for the employees’ family and the acquaintances too (Woellner, 2014). This amount gets added to the salary package. Fringe benefit, unlike the income tax, is assessed every year from 1^st April to 31^st March and is regulated by the Australian Fringe Benefit Tax Act, 1988, in Australia. It is classified into different sections:

• Expense payment fringe benefits
• Debt waiver fringe benefits
• Housing fringe benefits
• Loan fringe benefits
• Car parking fringe benefits
• Board fringe benefits
• Living away from home allowance fringe benefits
• Residual fringe benefits
• Property fringe benefits including the goods, property or shares

Living away from home (LAFTA), is the allowance which is provided in case of staying away from the real residing house. In this case, the employee receives few benefits from the employer for staying away from their house for some personal duties (Walton, 1995). However, at times strategies also see few disadvantages.

Property fringe benefits

Under this benefit the employer gives a property to the employee at a much discounted rate, this is the same case in Emma’s situation.  A bathtub costs $1,300 to Emma which is normally available at $2,600 in the market. Hence, the company gives a discount of 50% to Emma.

Board Fringe Benefits

The day’s meal as well as accommodation is given in the form of board fringe benefit to the employees (Blum & Kalven, 1978).

Housing fringe benefits

Herein, the employee is given the right on accommodation and rent or license. A residential right is given to the employee because the entire unit is granted by the strategy (Blum & Kalven, 1978).

Debt waiver fringe benefits

This benefit enables an employer to let the employee off from paying the debt.

Car parking fringe benefit

This benefit can be utilized in various situations. For e.g., in case a car is parked in the employer’s area or in case the parking is beyond the time frame i.e. before and after 7am and 7pm, if the car is parked in the place of work of the employee, a commercial area is available in a radius of 1km work area, or in case the employee manages the car (Surrey, 1972).

Fringe benefits and fringe benefit tax

Car fringe benefit

The employee gets the car which was rented for a personal usage or as their own asset as the car fringe benefit.

Expense fringe benefit

Here, the employees is given some amount for paying to a third party. In case, this payment is not made, the employee is answerable or he/she will have to recompense. Emma gets the advantage from the fringe benefit from the compensation for the vehicle and hence qualifies the expenses from it (Paul, 1954).

Loan fringe benefits

In this, the employees are given loan on a lower interest rate than what is normally offered by all the banks. Emma received the amount of $5,00,000 at an interest rate of 4.5% that is less that than the interest charged by the banks. As FBT is taken, this is 47% (Dubert & Merrill, 2001).

As per the FBTA, s 7 provisions the car is considered as a fringe benefit and Emma gets it for using it personally.  

Based on the cost, strategies and other additional information, the constitutional methods are used here:

Taxable value = (0.2 * $33,000 x 330/365) = $5,967

Base value = car’s cost

The car was given as a fringe benefit for 330 days (it is considered for annual repairs and also cannot be used personally. Accessibility of the car until Emma gives it to her employee, parked at airport (Lind, 2005).

No recipient is received by Emma for the reimbursement of the expenses.

Emma’s motor vehicle expenses repayment

This is not taken into consideration under FTBA, s 53; however, is adapted for the expense payment fringe.

$500,000 Loan

A loan provision is a “loan fringe benefit”: FBTAA, Div 4

Taxable value = $500,000 x (5.95% - 4.45%) x (212/365) = $4,356

NB: Because the loan is not spent as an assessable income for earning, there is no reduction for tax under deductible rule (Gilders et. al., 2015).

Bathtub’s purchasing cost $1,300

Periwinkle sells bathtubs under their ordinary business plan: FBTA, Division 11 since they are a house fringe property.

The bathtub’s taxable value is decreased by $1,300 for recipient’s payment of $650.

Periwinkle produces and distributes bathtubs to the customers as an ordinary course business, thus the taxable amount is 75% of $2,600 = $1,950. This is considered to be the lowest cost at which it is sold to the customers (Kerwin & Furlong, 1994).

As the bathtub is a ‘house fringe benefit’, the amount which is taxable is lowered below s62 FTBA taking into consideration that Emma does not have any other in-house advantage that year. When the taxable amount is deducted from each fringe benefit, it becomes necessary to deduce Type 1/Type 2 declaration of the fringe benefit.

FBT consequences for the company

Car = Type 1 fringe benefit (because the amount is comprehensive with GST and supposition is done about Periwinkle being unrestricted to input tax credits)

Loan = Type 2 fringe benefit (it is a financial supply; therefore no GST is applicable)

Assume that taxable value of bathtub is reduced to 0.

Fringe benefits taxable amount = ($5,967x 2.0802) + ($4,356x 1.8868) = $12,413+ $8,219 = $20,632.

Liability of Fringe benefits tax = 47% x $20,632 = $9,697

Thus, Periwinkle should pay $9,697 FBT in relation to the above items.

For this the answer may differ. In case all the shares are bought by Emma by the loan of $50,000, then this amount will be used for producing income as the dividend is taken from such organisations that gains profit and the deduction amount is taken from the similar rate of interest. In such cases, the loan fringe benefit lowers by 10% ($50,000/$ 50,000) as per the deductible rule proposed under s 19 of the FBT Act (Hodgson, Mortimer & Butler, 2016).

Conclusion and Suggestions

The above report clearly shows that Emma attains benefit from Periwinkle Company, to pay below fringe benefit. It talks about the case of Emma as well as Fred wherein it is quite clear that it is necessary to know the laws of any institution as the situation might differ from time to time. Thus, the above report allows the students to understand the concepts very clearly by referring to the different examples given. This allows the students and people associated with the concerns of this field to properly read and analysis the case study, enabling them to figure out the personal problem and issues. The explanation and the different examples mentioned help the students to gain an in-depth knowledge about the subject matter.

References

Bittker, B.I. and Rahdert, G.K., 1976. The exemption of nonprofit organizations from federal income taxation. The Yale Law Journal, 85(3), pp.299-358.

Blum, W.J. and Kalven, H., 1978. The uneasy case for progressive taxation. University of Chicago Press.

Dubert, C. and Merrill, P. 2001, Taxation of US Corporations Doing Business Abroad: US Rules and Competitiveness Issues (Morristown, NJ: Financial Executives Research Foundation and PricewaterhouseCoopers, 2001).

Gilders, F, Taylor, J, Walpole, M, Burton, M. & Ciro, T 2015. Understanding taxation law 2015, 8^th edn, LexisNexis/Butterworths.

Graetz, M.J. and Schenk, D.H., 2009. Federal Income Taxation: Principles and Policies. Foundation Press.

Hodgson, H, Mortimer, C & Butler, J 2016, Tax Questions and Answers 2016, 5^th ed., Thomson Reuters, Sydney,

Kerwin, C.M. and Furlong, S.R., 1994. Rulemaking: How government agencies write law and make policy (Vol. 999). CQ Press.

Lind, S.A. ed., 2005. Fundamentals of Business Enterprise Taxation: Cases and Materials. Foundation Press.

Nethercott, L, Richardson, G & Devos, K 2016, Australian Taxation Study Manual 2016, 4^th ed., Oxford University Press, Sydney

Paul, R.E., 1954. Taxation in the United States.

Surrey, S.S. ed., 1972. Federal income taxation: cases and materials (Vol. 1). Foundation Press.

Walton, P., 1995. Accounting rules, taxation and medium-sized business in the United Kingdom, France and Germany, a study for the Foundation for Manufacturing and Industry. British Library Document Supply Centre

Woellner, R 2014, Australian taxation law 2014, 8^th eds., CCH Australia, North Ryde

Wright, C.A., 1970. Handbook of the Law of Federal Courts. West Pub. Co..