Describe about the Taxation for Legal Agreement for Selling.
Issue
Fred is an Australian resident and he is the owner of a holiday home. The holiday home is located in Blue Mountains. In the month of August of pervious year, he signed a legal agreement for selling his property. In the month of February of the current financial year, all the legal works was completed and he received an amount of $800,000 as the selling amount. From that, he paid $1,100 as the fees for the necessary legal works and this amount comes under GST (CARSLAW, 2012). He also has to give an amount of $9,000 to the real estate agent as his commission for the deal. This amount is also included under GST. In the month of March of the year 1987, he purchased his property for the amount $100,000. In that time, he also spent $2,000 as the stamp duty fees and also paid an amount of $1,000 as the legal fees. He also spent $20,000 for building a garage in his property in the time of January of the year 1990.
Total Capital Gain for Fred for the recent year has to calculate by assuming the net loss in the capital from the previous year is $10,000 by the process of sales of his shares.
In the case of occurring of losses by the process of selling of an antique vase, the loss or gain in the capital amount has to be calculated.
Applicable Laws
The capital loss or gain has to be calculated during the process of selling any assets (Thomson, 2013). The calculation is totally based on actual value and the selling amount. According to the Taxation Law of Australia, in the case when selling amount is higher than actual prices, capital gain occurs and individual has to pay certain amount to the government based on the capital gain amount. This tax is classified as Capital Gain Tax. In the case of capital losses, capital loss has to be calculated and also it has to be deducted from the amount of total value of capital gain amount.
The business assets are excluded from the category of capital gain taxation. These types of tax exemptions are applicable to the personal assets like furniture, car, home etc. In accordance with the Australian taxation systems, if the property is of an Australian then CGT has to be paid, but in the case of foreign Australian citizen then CGT also have to be paid only in the condition if foreign resident purchase the property in that country.
Application of Laws
In the given scenario being an Australian Fred have to pay the tax as it comes under the CGT taxation limits. He sold the property at the price of $800,000 that he purchased in 1987 with the amount $100,000. In the case of single home, the resident did not have to pay tax as per the Australian legalization if only their family live in that house and on rental facility available in that house premises. In the present scenario, Fred have different home in the country, so he has to pay CGT.
Issue a.
|
Expenditures |
Amount |
|
Total selling value |
$800,000 |
|
Total amount of agent commission and legal fees |
$ (9,900 + 1,100) = $11,000 |
|
Thus, the total Disposal Amount |
$789,000 |
|
Cost value of purchase |
$100,000 |
|
Stamp duty fees |
$2,000 |
|
Legal Fees amount |
$ 1,000 |
|
Construction cost of house |
$20,000 |
|
Total spending by Fred |
$(100,000 + 20,000 + 2,000 + 1,000) = $123,000 |
|
Capital Gain of Fred |
$ (789,000 – 123,000) = $666,000 |
|
The discounted amount at the rate of 50%, the value |
$666,000 * 50% = $333,000 |
|
The capital loss of Fred from previous year |
$10,000 |
|
In this case, the taxable amount under CGT |
$323,000 |
Issue b
According to the CGT legalization of Australia in the case of Fred suffer from capital loss from the previous year on an antique vase, but he purchased that vase prior to 26th June of 1992 so it not counted under antique asset (Smith, n.d.). So, in this case the loss of capital will not subtract (Taxation, 1995). In this case, Fred purchases that vase after that period so the capital loss from the selling of antique vase is not being subtracted from the total amount of capital loss (Tax convention with Australia, 1982).
Conclusion
After the analysis of the legalizations of the Australian laws, Fred has to pay CGT at the end of the present year (Gates, 2013). He has to pay $323,000 as the CGT amount for the purpose of selling of his property in Blue Mountains. In the situation of capital loss of amount $10,000 for the process of selling the antique vase is to be subtracted from the total value of capital gain amount for the current year (Protocol amending convention with Australia regarding double taxation and prevention of fiscal evasion, 2002). All the calculation of the CGT is done here according to the legalization of Australian taxation guidelines.
Issue
Periwinkle Pty Ltd is one of the leading bathtub companies of Australia. The organization supplies their products to the customers directly (Meares, 2014). Emma works in this organization. She has to travel a lot for the official purposes. For this reason, the company provides a car to her, although the use of the car is not limited for the official purpose only. The company purchased a car of an amount $33,000 on 1st May of the year 2015. Emma has the facility of using the car onwards.
For the time frame of 1st May of 2015 to 31st March of 2016, she travelled by the car of a distance of more or less 10,000 KM. In this time period, she spent $550 for the minor repairing works of her car, but the company repays that amount of money to her. During the phase of her interstate visit, she did not use the car for the time period of 10 days and during the repairing phase she also did not use the car for the 5 days time frame.
The company offers a loan of $500,000 at the interest of 4.45% to Emma on 1st September of 2015. She spent $450,000 for purchasing a holiday home (Kenny, n.d.). And rest amount she lent her to her husband and that is obviously interest free. Her husband utilizes that money for purchasing shares of the organization Telstra in his own name. As per the Australian laws, the loan amount for purchasing the private assets comes under the category of deductible income whereas in the case of purchasing of income-producing assets it is deductable (Issues for consideration in taxation reform, 2015).
In the current year, she brought a bathtub from her company at $1,300. Although, the price of the bathtub is $2,600; but in her purchase she got employee discount from the organization. The production cost of the product is $700.
The section 7 of the Fringe Benefit Tax Act includes all the necessary aspects of this taxation (Clarke, 2007). It states that if the transportation facility offered by the companies is used by the employees for both official as well as personal use, then the FBT amount have to deposit by employees (Freebairn, 2016). The section nine also includes the required formulations for evaluating the FBT tax on the amount spent for purchase of the car (Double taxation, 2003). It also states that in the case of offering a loan to the employees by the organization, the organization also has to evaluate the FBT benefits on the loan amount, and deductible interest also has to be calculated (Freebairn, 2010).
Evaluation of the laws
For Issue i
The FBT tax has to be evaluated in these contexts:
|
Particulars |
Amount |
|
The cost of the car is $33,000 and it also included under GST. So, the amount excluding GST
|
$30,000 |
|
The car repairing cost $550 and it is also included of GST. So, the net amount |
$500 |
|
No of days for which the car used by Emma |
31st march of 2016 to 1st May of 2015 = 335 days |
|
In addition, the car also was not used for total 15 days the purpose of car repairing and interstate tours |
(335-15) = 320 days |
|
Total 10,000 kilo meter was travelled in |
320 days |
|
For the car, the Fringe Value |
$ (30,000*0.2*320/365 ) = $5260.27 |
|
The organization also repay the cost of car repairing, do the total FBT value |
($5260.27 + $550) = $5810.27 |
Part 2:
The company offers the loan of amount $500,000 to Emma at the rate of interest of 4.45%. From that she uses $450,000 for purchasing a house. So, the amount of interest on the loan amount = $ (500,000 * 4.45%)
= $22,250
As per the market, the interest on the loan is at the rate of 10%. So, the total interest = $ (500,000 * 10%)
= $50,000
The organization has to pay FBT amount = $(50,000 – 22,250) = $27,750
Emma give the rest amount to her husband for purchasing shares in his name, so FBT amount is = $27,750
Part 3:
Emma purchased a bathtub at the discounted rate of $1,300 that has market price $2,600.
So, the organization has to pay the amount as FBT = $ (2600 – $1300) = $1300
The organization has to pay FBT at the rates of 47%.
|
Particulars |
Amount |
|
Total amount disbursed by Periwinkle |
$ (5,810.27 + 27,750 + 1,300) = $34,860 |
|
The Fringe tax has to paid |
$ (34,860 * 47%) = $16,385 |
Issue b
In this case, if she brought in her name then it will come under deductible tax amount.
|
Particulars |
Amount |
|
The FBT value for that loan amount |
$(450,000 * (10-4.45)%) = $24,975 |
|
So, FBT amount at the rate of 47% |
$(5810.27 + 24,975 + 1,300) = $15,080 |
Conclusion
After the analysis of the laws, the FBT value in the first case has to be paid is $16,385; but in the second case the FBT value is $15,080. The alteration in the value is due to the ways of utilization of loan amount.
References
CARSLAW, H. (2012). THE UNIFORM INCOME TAX IN AUSTRALIA. Economic Record, 18(2), pp.158-167.
Clarke, G. (2007). Uniform Taxation. The Australian Quarterly, 19(3), p.83.
Double taxation. (2003). [Washington, D.C.]: U.S. Dept. of State.
Freebairn, J. (2010). Taxation and Obesity?. Australian Economic Review, 43(1), pp.54-62.
Freebairn, J. (2016). Taxation of Housing. Australian Economic Review, 49(3), pp.307-316.
Gates, R. (2013). Australian taxation and U.S. investment. Australian Outlook, 7(4), pp.236-237.
Issues for consideration in taxation reform. (2015). Canberra: Australian Government Pub. Service.
Kenny, D. (n.d.). Australian Taxation and Ethics: Colonisation to Costello-Risation. SSRN Electronic Journal.
Meares, C. (2014). TAXATION RELIEF. Australian Dental Journal, 9(5), pp.433-433.
Protocol amending convention with Australia regarding double taxation and prevention of fiscal evasion. (2002). Washington: U.S. G.P.O.
Smith, J. (n.d.). Australian State Income Taxation: A Historical Perspective. SSRN Electronic Journal.
Tax convention with Australia. (1982). Washington: U.S. G.P.O.
Taxation. (1995). Canberra: Australian Govt. Pub. Service.
Thomson, N. (2013). Taxation: Dependants and Equity. The Australian Quarterly, 45(2), p.97.
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