Taxation For Top Tax Rates – Capital Earnings And Fringe Benefits Tax

Case 1

Discuss about the Taxation for Top Tax Rates.

1. Earning of capital by Fred after selling holiday home

Fred purchased the property in the year of 1987 with proper following the rules, regulation, policies and procedures that are primarily imposed by ATO (Ato.gov.au. 2016). All these rules and regulations are required to be strictly followed with proper calculation of the achievements of overall capital amount. Fred purchased the property as an individual and not as some famous organisation and it helped Fred to enjoy some discounted methods and indexation for adequate calculation of gaining of the actual capital. However, there is significant information available regarding the property Fred purchased and it helps this particular individual to calculate the amount of actual capital with relevant using of appropriate methods. The entire process and method of indexation has been used in sum by using the CII in between Feb 1987 quarter and SEP 1999 quarter. However, there are several methods and process of indexation and more or less every method calculates the related expenses and the basic purchasing price by Fred while this individual decides to purchase property. The calculation of CII from Jan 1990 to Sep 1999 quarter derives the ultimate indexation on the entire development process, which is conducted on Jan 1990 by Fred. The rules, regulation, process and policies differ from one quarter to another (Braverman et al. 2015). However, according to the rules of ATO, the actual method and technique of indexation has been forced mainly after the Sep quarter of 1999.

Fred also enjoys discounted methods while purchasing the property and it helps this particular individual to obtain a perfect and decreased taxable income in effective and potential manner. This discounted method also helps Fred to enhance his fundamental retained income. Fred encountered some capital loss in the previous year; therefore, this discounted offer actually helps Fred to regain its some of capital amount with proper indexation method. The amount of the capital loss has been perfectly deducted from the actual income of overall taxable amount, which is generated after the completion of the discounted method (Woellner et al. 2016). As per the guidelines and policies of ATO, discounted methods are appropriate for individual investors in order to reduce the entire taxable amount of these investors. According to Barkoczy (2016), the process of indexation involves a gradual technique in order to adjust the basic payments of income by price index for maintaining the ultimate purchasing power of an individual after the inflation.

Changes in the net taxable amount in the case of losing capital from antique

It can be observed that a large number of capitals have been gained by Fred only with proper following of the indexation or discounted method. Fred has effectively understood that investing in the purchasing of property is actually investing in the stocks. Lignier and Evans (2012) have mentioned that an investor have to determine and understand the basic value of the purchasing property before investing money on it and the investor should generate approximate amount of profit before purchasing. The effective use of the discounted method actally helps Fred to reduce his overall and primary taxable income and gain more returns from the suitable profit from the sale of Holiday home (refer to Appendix I). The taxable amount consists of 323,500 as per the discounted income. However, there are few scopes of the increments of the indexation method and because of this possibility; the actual taxable amount reaches to 597,346.4. After analysing, it has been proves that the discounted method is appropriate and profitable in the case of Fred. Frecknall-Hughes and McKerchar (2013) have suggested that all these discounted methods are prepared and arranged only because to help the investors and not the organisations for their business operation.

The second situation in this case clearly reflects an overall picture of capital loss by Fred and this loss has been generated from the great loss of antique. The capital loss, which has been generated from antique that can be deducted only from the capital gain generating from antique according to the guidelines and policies of Australian Taxation Office (ATO) (Ato.gov.au. 2016). Therefore, Fred’s entire taxable amount will transform into the present situation and with strict following of the discounted method it will be minimum 333,500.

a. Explanation of important information of Periwinkle, which is connected with the current consequences of FBT

Fringe benefits tax (FBT) involves that tax employers should pay certain benefits to the employees such as, the associates’ and the family. Kobetsky et al. (2012) have mentioned that this benefit may involve the wages or salary packages. It is clear that it helps to depict overall fringe benefit, which is primarily provided by Periwinkle to Emma, who is an employee of this organisation. The profit is immense according to the policies, rules and regulation of Australian Taxation Office (ATO) (Ato.gov.au. 2016). On the other hand, at least for 336 days the car was used and therefore, the fringe benefit can be calculated on the amount and basis of AU$6,059.02, this is Periwinkle’s taxable amount (refer to Appendix II). Even the government of Australia transform the process of tax on income with potential help of taxation system of fringe benefit and it has been clearly distributed among the associated employees of an organisation (Apps and Rees 2013).

Case 2

Fringe benefit tax on loan:

It has been reflected that Periwinkle might pay fringe benefit tax in order to lend a proper help to the employees. The interest has been calculated because of market share and in Periwinkle case; it is calculated as 5.95% in order to depict the fringe benefit, which is generated from the basic process of loan (refer to Appendix III). The amount of the loan consists of $22,250 from the taxable amount based on fringe benefit. According to Eichfelder and Vaillancourt (2014), fringe benefit tax is completely different from the income tax and can be calculated on the value of taxable amount of the provided fringe benefits. It also helps to reduce any kind of unethical measures perceived by an organisation for achieving more profits from the market and particular industry (Pinto et al. 2013).

The table reveals the fact that fringe benefits offer discounts to the existing employees of Periwinkle (refer to Appendix IV). On the other hand, the actual taxable amount can be calculated with the deduction process of 75% market share. However, this price has to be paid by the staffs of Periwinkle. The balance amount consists of $650, which is taxable under the fringe benefit.

Fringe benefit tax, which Periwinkle requires to pay inclusive Goods and services tax (GST)

From the table it can be said that the employees of Periwinkles should pay the fringe benefit tax (refer to Appendix V). Furthermore, the basic segregation of the GST includes fringe benefits in free, which is effectively applicable. Freebairn (2012) has mentioned that, there clear and transparent rules and regulation about where to apply GST and where not. Periwinkle follows GST in strict manner in order to carve and understand in detailed manner about the exact and actual taxable amount of an organisation (Hodgson and Pearce 2015). In addition, the minimum taxable amount is all total $28,374.33 and the exact taxable amount Periwinkle should pay before the ending of a fixed period of Australian Taxation Office (ATO) and that is March 31^st 2016.

Periwinkle would be listed for the deduction process in fringe benefit tax if Emma has purchased maximum number of shares of this company. However, this will actually decrease the existing liabilities of the available fringe benefit (Lim and Perrin 2014). Even those incomes, which have been generated from the market shares, cannot be treated as taxable amount. The employees of Periwinkle have clearly understood all these benefits. They are not required to pay any kind of taxes for the above-mentioned benefits. On the other hand, the basic income from the market share will be taxable amount for the case of Emma and it will not affect the entire fringe benefit tax of Periwinkles. According to Eccleston (2013), there are huge changes in the policies and guidelines of the fringe benefit tax and it differs from income tax. However, there are certain arguments that market share generated income come under the capital gain tax or income tax (Freudenberg et al. 2012). 

References

Apps, P. and Rees, R., 2013. Raise top tax rates, not the GST. Austl. Tax F.,28, p.679.

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 18 Sep. 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 18 Sep. 2016].

Barkoczy, S., 2016. Core tax legislation and study guide. OUP Catalogue.

Braverman, D., Marsden, S.J. and Sadiq, K., 2015. Assessing taxpayer response to legislative changes: A case study of ‘in-house’fringe benefits rules. Journal of Australian Taxation, 17(1), pp.1-52.

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

Eichfelder, S. and Vaillancourt, F., 2014. Tax compliance costs: A review of cost burdens and cost structures. Available at SSRN 2535664.

Frecknall-Hughes, J. and McKerchar, M., 2013. Historical perspectives on the emergence of the tax profession: Australia and the UK. Austl. Tax F., 28, p.275.

Freebairn, J., 2012. Personal Income Taxation. Economic Papers: A journal of applied economics and policy, 31(1), pp.18-23.

Freudenberg, B., Tran-Nam, B., Karlinsky, S. and Gupta, R., 2012. Comparative Analysis of Tax Advisers’ Perception of Small Business Tax Law Complexity: United States, Australia and New Zealand, A. Austl. Tax F.,27, p.677.

Hodgson, H. and Pearce, P., 2015. TravelSmart or travel tax free breaks: Is the fringe benefits tax a barrier to active commuting in Australia?.

Kobetsky, M., O’Connell, A., Brown, C., Fisher, R. and Peacock, C., 2012.Income Tax: Text, Materials and Essential Cases. The Federation Press.

Lignier, P. and Evans, C., 2012, August. The rise and rise of tax compliance costs for the small business sector in Australia. In Australian Tax Forum(Vol. 27, No. 3, pp. 615-672).

Lim, N. and Perrin, B., 2014. Standard Business Reporting in Australia: Past, Present, and Future. Australasian Journal of Information Systems,18(3).

Pinto, D., Gilchrist, D. and Morgan, A., 2013. A few reflections on the current state of play for not-for-profit taxation arrangements. Taxation in Australia,48(2), p.79.

Woellner, R., Barkoczy, S., Murphy, S., Evans, C. and Pinto, D., 2016.Australian Taxation Law 2016. Oxford University Press.