Australian Taxation Law For Intangible Investment

Calculation of Net Capital Gain or Loss of an Individual

Describe about the Australian Taxation Law for Intangible Investment.

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

It is important to calculate net capital gain or loss of an individual for bringing solutions whereby Fred is an Australian Resident. In other words, Fred is not responsible in conducting any other kind of trading business (Ato.gov.au. (2016).  In the present year, Fred had sold his holiday home and it was his direct assets rather any other types of trading stock. Addition to that, Fred had never generated revenues earlier from its present assets.

Discounted as well as Indexation method are used for making the calculation of net income or gain in the current financial year.

Name of Taxpayer : Fred Save Time On Research and Writing Hire a Pro to Write You a 100% Plagiarism-Free Paper. Get My Paper
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 or Loss

(Source: Created by Author)

Major key Assumptions

It has been noticed that Fred has acquired related asset after 20^th of September in the year 1985 (gov.au. 2016). This means the figure will be considered as CGT assets. It should be further eligible for taxable capital gain or loss for computation purpose

Acquisition of asset was done before 21^st of September 1999. This means the cost base as well as other expenses incurs for given period for asset purchasing. It can be easily evaluated using the indexation method for calculation purpose.

Additionally, Fred has made garage on that particular property. This can be even be taken for as substantial improvement. Therefore, garage construction cost includes from the deductible expenses (gov.au. 2016). It was conducted before 21^st of September 2999 as well as calculated using indexation method.

In accordance with Australian Taxation rules, acquisition of assets before 21^st of September 1999 means individuals applying for any types of method for calculation (Pearce and Pinto 2015). This can be either discounted method or indexation method especially for capital gain or loss calculation purpose

In case of discounted method, taxpayer are liable to get exemption of capital gains of any of the given assets as it is owned by certain taxpayers for given period of 12 months. Holiday home was acquired by Fred for a period of 19 years. Fred can even claim exemption of 50% using discounted method (Chan 2014).

As far as shares are concerned, it can be easily treated as assets such as real estate property. Net capital loss on sale of shares figures are taken from the previous year (Conesa and Domínguez 2013). This can be even adjusted using current year net capital gain especially from property sale at the same time.

Major Key Assumptions

The above analysis can be concluded that net capital gain has been calculated for Fred using discounted method amounting to $323500. In case of using indexation method it amounted to $603662. As far as discounted method is concerned, Fred needed to pay less tax especially on capital gains and should consider discounted method. It requires making the computation on net capital gain amounting to $323500 (Eccleston 2013).

It is viewed that Antique vase was under collectable status. In accordance with Australian Taxation rules, calculation was made for net capital loss especially from sale of collectables that requires to be adjusted with capital gains (Jones 2016). In that case, net capital loss undertaken from previous years arises from antique vase sales that cannot be adjusted in accordance with net capital gains. It involves sale of house property. In other words, Net capital gain of Fred arrives at $333500.

Part A

In this particular case study, it is assumed that Periwinkle Pty Limited is an employer company. This is an Australian Company entitled to gain tax benefits as provided by small business entities. This particular company aims at providing few benefits to Emma considers as an Employer. It is assumed to be an Australian Resident. Addition to that, this company entitles in gaining fringe benefits for various additional benefits (Woellner et al. 2012). It is required to check on the FBT consequences in relation with such benefits need discussion with proper justification.

In the particular case study, Emma was found using car for private as well as office purposes. Benefits from car need to be included in the car fringe benefits. At the time of foreign visit, Emma parked the car at airport rather parking on the office premises (Evans, Minas and Lim 2015). This car was kept in the garage and requires annual maintenance. This does not require unscheduled repairing. Therefore, car remained unused for number of days involved in the calculation of FBT.

It requires using statutory method whereby car benefit of the company provided by Emma. The calculation shown as under:

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
Annualised Kilometers	(A x B/C)	10892.857
Statutory Rate as per Annualised 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 Benefits

(Source: Created by Author)

In case of any kind of loan interest, it is needed by an employee with employee for considering required fringe tax benefits. Rate of interest on loan arrived to be 4.45% that is considered lower in comparison with the benchmark of loan interest such as 5.95% (Faccio and Xu 2015). FBT calculation based upon the actual rate of interest. FBT of company for loan interest are rendered by an employee as well as calculated as under:

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

Summarized Analysis

Table: Calculation of Interest on Loan for FBT

(Source: Created by Author)

In this case, employee can easily claim for any FBT for gaining special discount. It is provided to employee based upon own product. FBT calculation is conducted at 75% that is on normal selling price (Harding 2013). Calculation is shown as under:

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

Table: Calculation of Special Discount for FBT

(Source: Created by Author)

In this case, car expenses are inclusive with GST and equalizes by multiplication of FBT values in relation with gross up rates. As far as fringe tax benefits are concerned, it considers general companies as 49% (Hodgson and Pearce 2015). For the purpose of FBT calculation, liability of Periwinkle Pty Limited calculation is discussed below:

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)

Alternative Consequences

In case Emma would have purchased shares herself as well as earned dividend from these shares then she need to pay tax on such income (Jacob and Jacob 2013). Total FBT value as well as FBT liability of the employer considered to be lesser based upon the income amount by an employee from loan amount at the same time (Stilwell 2016).

Reference List

Ato.gov.au. (2016). How to calculate your FBT | Australian Taxation Office. [online] Available at:https://www.ato.gov.au/General/fringe-benefits-tax-(fbt)/how-to-calculate-your-fbt/ [Accessed 30 Aug. 2016].

Ato.gov.au. (2016). Loan and debt waiver fringe benefits | Australian Taxation Office. [online] Available at: https://www.ato.gov.au/General/Fringe-benefits-tax-(fbt)/In-detail/Employers-guide/Loan-and-debt-waiver-fringe-benefits/?page=8#8_8_Reduction_in_taxable_value_where_interest_would_have_been_deductible_to_employee [Accessed 30 Aug. 2016].

Ato.gov.au. (2016). Property fringe benefits | Australian Taxation Office. [online] Available at: https://www.ato.gov.au/General/Fringe-benefits-tax-(fbt)/In-detail/Employers-guide/Property-fringe-benefits/?page=4#Goods_manufactured_or_produced_by_the_provider [Accessed 30 Aug. 2016].

Chan, C., 2014. Earnouts and CGT: Fine-tuning the. Tax Specialist, 18(1), p.27

Conesa, J.C. and Domínguez, B., 2013. Intangible investment and Ramsey capital taxation. Journal of Monetary Economics, 60(8), pp.983-995

Eccleston, R., 2013. The Tax Reform Agenda in Australia. Australian Journal of Public Administration, 72(2), pp.103-113

Evans, C., Minas, J. and Lim, Y., 2015, September. Taxing personal capital gains in Australia: an alternative way forward. In Australian Tax Forum (Vol. 30)

Faccio, M. and Xu, J., 2015. Taxes and capital structure. Journal of Financial and Quantitative Analysis, 50(03), pp.277-300

Harding, M., 2013. Taxation of dividend, interest, and capital gain income

Hodgson, H. and Pearce, P., 2015. TravelSmart or travel tax breaks: is the fringe benefits tax a barrier to active commuting in Australia? 1. eJournal of Tax Research, 13(3), p.819

Jacob, M. and Jacob, M., 2013. Taxation, dividends, and share repurchases: Taking evidence global. Journal of Financial and Quantitative Analysis,48(04), pp.1241-1269

Jones, D., 2016. Capital gains tax: The rise of market value?. Taxation in Australia, 51(2), p.67

Pearce, P. and Pinto, D., 2015. An evaluation of the case for a congestion tax in Australia

Stilwell, F., 2016. Taxing times in Australian capitalism. Australian Socialist,22(1), p.2

Woellner, R., Barkoczy, S., Murphy, S., Evans, C. and Pinto, D., 2012.Australian taxation law. CCH Australia