Taxation Case For Australian Arises Transactions

Capital Gain Tax Or CGT

Describe about the Taxation Case for Australian Arises Transactions.

Capital Gains Tax law was started from 20^th September, 1985 in Australia. All types of capital assets purchased before this date are considered to be totally out of this law and hence on sale of such assets it will be not taxable at all. While any other capital assets purchased before this date, if sold will be taxable after 50% exemption but with special exemption to this 50% exemption. The main requirement as per the Capital Gain Tax law is the Principle Place of Residence or PPR for getting Capital Gain Tax or CGT Exemption (Ato, 2016).

Most of the capital gain or loss in Australia arises from the transactions from the sale of any house property. As per the Income Tax Assessment Act, 1997 or ITAA, 1997 the CGT is exempted for 50% in case of any eligible case where a capital asset is sold in Australia after 20^th September, 1985. The capital asset, when sold may generate both loss and profit which is the difference between the purchase and sales prices and are known as capital loss or capital gain (Ato, 2016).

Australian citizens are privileged for CGT exemptions throughout the world.  Any citizens due to job or for any work stay away from Australia for long time but their citizenship are valid then they will be allowed to enjoy all benefits and exemptions under CGT for any capital assets sold (Pwc, 2013).

The date of ownership is the date of purchase, date of gifting and date of transfers. Date of ownership have also exception theories linked to it, which are stated below in two examples—

A man has affected a will in favour of his two daughters with equal shares. The date on which the will was made in favour of the daughters is not the date of actual ownership but the date on which the father dies and not the date of will draft and signing at the court.

A contract agreement was made between two persons for the possession of a house. The date of ownership here will not be the date of the contract agreement prepared and signed but it will be on the date when the other party takes actual possession of the property physically. All citizens must keep all documents and all details of all transactions taken place related to any capital assets they own, got through transfers or through inheritance. This is compulsory for 5 years and if such documents or details are not found on any citizens on claims by the authority then they to be penalised (Workingin-australia, 2016). 

All types of Australian capital assets related records, documents, transactions details are to be kept compulsorily for continuous five years by all Australian citizens as per ITAA, 97 otherwise the authorities will impose penalty along with proper demand.  All these transactions and related records needed to be consulted for the purpose of calculating the cost base for the capital asset sold to find out the profit or loss on sales of those assets (Yourinvestmentpropertymag, 2016).

Here Fred bought and renovated a holiday home in the Blue Mountains and later on sold at $80,000. The capital gain tax calculated as following;

CGT of Fred
Sale Proceeds	$800,000
Less:
Purchase Price	$100,000
Stamp Duty	$2,000
Legal Fees	$1,000
	$103,000
Improvement Cost	$20,000
Index
March, 1987	$45
August, 2015	$108
January, 1990	$56
Sale Proceeds	$800,000
Less: Index cost of acquisition	$245,563
Less: Indec cost of Improvement	$38,434
Taxable Capital Gain	$516,003
Less: Loss on capital gain	$10,000
Total taxable capital gain	$506,003
Tax on Capital gain
Tax on 180000	$54,547
After 180001 to 516002.92	$146,701
Tax Payable	$201,248

The capital loss can be carried forward for future period so that any loss can be set off in future when any capital asset is sold and capital gain is made so that actual capital gain tax can be derived easily.

Most relevant documents needed to be preserved for any capital assets are as follows–

1. All receipts of Transfer or Purchase.
2. All details of Market valuation.
3. All details of Advertising cost, accountant, agent and legal person.
4. All details of rates and taxes of land and insurance costs.
5. All details of the fund borrowed for buying the said capital assets along with interest paid details on such borrowings (Ato, 2016).

The following details must be derived from all such records–

1. All details of the related incident or transaction of capital loss or capital gain calculation.
2. All details of the actual event date.
3. All details of the transactions done by or details of parties.
4. All details of the type of incident or transaction.

Example of record keeping—one father transferred all his properties to the son and daughter in a will. After his death both son and daughter wants to sale some of the properties. They now required the entire original documents and also all related transaction details for capital gain or loss calculation (Ato, 2016).

All employers are in practice of giving certain classes of benefits to all its employees other than Salary or wages. They are done with an idea to make the employees remain loyal and dedicated to the company. It also helps the employer to get jobs done very smoothly and easily as the employee always remain dedicated and honest and they always avoid any unethical practices. The employer gives this benefit to all employees those who were in the past, those who are current and those who will be in future. The employee will not have to pay any taxes on these benefits but the employer will bear the entire taxes on such benefits and these benefits are thus called FRINGE BENEFIT TAXES. The income tax assessment of the employee will not be affected by this but the employer will get relief in their income tax assessment for the company (Ato, 2016).

The details of the benefits that an employer normally gives to the employees as a part of FBT are as follows—

Any type of club fees, gym fees, swimming club fees, golf club fees are borne by the employer.

Relevant Documents for Capital Assets

Any of the company’s cars and its related expenses for fuel and maintenance charges is provided to any employee and his family for personal use by the employer.

Any agreement on salary sacrifice for FBT is made between the employee and the employer (Ato, 2016).

Any brand of mobile phone and its bill charges are provided by the employer.

Any brand of internet or broadband data card and its bill charges are provided by the employer.

Any type of education or school fees for the employees children are borne by the employer.

Any type of loan at cheap interest rate or at no interest provided by employer.

Any food or drinks are arranged at any hotel, restaurant, picnics, food joints or even at office or at any employees place but at the cost of the employer (Ato, 2016).

Emma availed loan at cheap interest rate and used it for personal purpose and another part she invested in stock. She also took a bathtub at lower price than the market price from the company. She took loan of $500,000 and bathtub worth of $ 2600 at $1300

FBT of Emma
The taxable value is the result from	$      28,250
($5,00,000 x 5.65%)
Add: Bathtub Price	$        1,300
Less: Interest paid on purchase of Shares	$        2,225
($50,000 x 4.45%)
Total Taxable fringe benefit	$      31,775
FBT Benchmark Interest Rate 5.65%

The special cases of FBT are as follows–

Mark Waugh was working under an award. His employer had to pay him his mobile bill charges under the award and not be his wish. But this will be treated as FBT.

Ricky Ponting was involved with the family business of cricket bat manufacturing. He joined the business after passing graduation and was gifted a very expensive bat by his family members involved in the business. This is not a case of FBT as he got this gift as family member only (Business, 2016).

The main categories of FBT are as follows—

The Employee used cars provided by employer are called Fringe Car Benefit.

The Employee used cars requires car parking fees provided by employer are called Car Parking Fringe Benefits.

The Employee used free or discounted properties provided by employer are called Property Fringe Benefit.

The Employee used Airline Tickets provided by employer is called Airline Transport Fringe Benefit.

The Employee used loan provided by employer is called Loan Fringe Benefit.

The Employee used any other benefits provided by employer is called as Residual Fringe Benefit.

The Employee used any facility and pays and gets reimbursements from the employer is called Expense Payment Fringe Benefit.

The Employee used any housing facility provided by employer is called Housing Fringe Benefit.

Case Study 2—Fringe Benefit Tax

The Employee used facility to stay away from your home paid by employer is called Living Away From Home Allowance Fringe Benefit.

The Employer used any entertainment and the FBT arisen will be provided by the employer is called Tax-exempt Body Entertainment Fringe Benefit.

The Employer used any entertainment by way of food, drinks; etc provided by employer is called Entertainment Fringe Benefit.

The Employer or employers used stay and food facility provided by employer is called Board Fringe Benefit.

The Employer used any loan and was unable to repay the loan provided by employer is called Debt Waiver Fringe Benefit (Ato, 2016).

The employer always pays the FBT and the employee enjoys all the benefits provided. In some cases tax assessment of the Employer takes FBT into account.

The FBT exempted activities are–

All religious institutions are fully exempted from FBT.

All benevolent public and international institutions are fully exempt from FBT.

The main ways and means are opted by most of the business to avoid FBT are as follows—

The FBT contribution fund created where all employees under Fringe Benefits will contribute a fund for future usage for the purpose of making FBT payments to the Tax authorities over FBT.

Some Major FBT expenses can be directly reimbursed to all employees against the bill they submit. These payments are to be done by employees directly with employer approval only.

Many Major FBT expenses can be directly included in the salary and the wages by avoiding FBT and the employee will be directly assessed for taxes.

The office party or entertainment party expenses can be reimbursed to all employees and can be paid through them directly by the way of taking individual bills or by making advance to one employee for making the entire expenses together (Business, 2016).

References:

Ato. (2016). Capital gains tax. Retrieved 09 13, 2016, from www.ato.gov.au: https://www.ato.gov.au/General/Capital-gains-tax/

Ato. (2016). Do you need to pay FBT? Retrieved 09 05, 2016, from www.ato.gov.au: https://www.ato.gov.au/General/Fringe-benefits-tax-(FBT)/How-to-calculate-your-FBT/

Ato. (2016). Fringe benefits tax – rates and thresholds. Retrieved 09 19, 2016, from www.ato.gov.au: https://www.ato.gov.au/Rates/FBT/

Ato. (2016). How to calculate your FBT. Retrieved 09 15, 2016, from www.ato.gov.au: https://www.ato.gov.au/General/Fringe-benefits-tax-(FBT)/How-to-calculate-your-FBT/

Ato. (2016). Reduction in taxable value where interest would have been deductible to employee. Retrieved 09 19, 2016, from www.ato.gov.au: 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

Ato. (2016). The discount method of calculating your capital gain. Retrieved 09 13, 2016, from www.ato.gov.au/General/Capital-gains-tax: https://www.ato.gov.au/General/Capital-gains-tax/In-detail/Calculating-a-capital-gain-or-loss/The-discount-method-of-calculating-your-capital-gain/

ATO. (2016). The indexation method of calculating your capital gain. Retrieved 09 13, 2016, from www.ato.gov.au/General/Capital-gains-tax: https://www.ato.gov.au/General/Capital-gains-tax/In-detail/Calculating-a-capital-gain-or-loss/The-indexation-method-of-calculating-your-capital-gain/

Business. (2016). Fringe Benefits Tax (FBT). Retrieved 09 13, 2016, from www.business.gov.au: https://www.business.gov.au/info/run/tax/fringe-benefits-tax

Pwc. (2013). Australia: Legislation to remove 50% capital gains tax discount for foreign and temporary residents is now law. Retrieved 09 19, 2016, from www.pwc.com: https://www.pwc.com/gx/en/hr-management-services/newsletters/global-watch/assets/pwc-australia-removes-capital-gains-tax-discount.pdf

Workingin-australia. (2016). Understanding Australian capital gains tax. Retrieved 09 18, 2016, from www.workingin-australia.com: https://www.workingin-australia.com/money-and-costs/tax/capital-gains#.V-KJ5fl97MU

Yourinvestmentpropertymag. (2016). Capital Gains Tax Estimator. Retrieved 09 19, 2016, from www.yourinvestmentpropertymag.com.au: https://www.yourinvestmentpropertymag.com.au/calculators/capital-gains-tax/