Discuss about the Australia Taxation Law for Times–Changing Taxes.
Capital gain is achieved from the difference between acquisition cost of capital gain tax asset and capital proceeds. Capital gain is calculated by using three methods. First method is Discount method. This method is applied twelve months prior to the capital gain tax event. Second method is Indexation method. This method is applied when assets are obtained before 21st September. Prior to the capital gain tax event, this method will be on hold for more than twelve months. The final and third method is residual method (Woellner et al 2012). When the assets are kept in hold for less than twelve months then this method will be applied. Therefore, the capital gain computation can be calculated by using these three methods (Ato.gov.au, 2016).
Exempted items from gain on sale of capital asset:
There are certain properties which are obtained before 20th September 1985, are fiven below:
Carry forward and set off the losses:
Short-term capital loss: Short-term capital loss can be gained from long-term capital gain or some source. Then it is carry forwarded to subsequent indefinite Assessment Years. It is obtained against both long-term gain and short-term gain (Taylor and McNamara 2014).
Long-term capital loss: Long-term capital loss can be set up against long-term capital gain. There are no other set ups. It can be carry forwarded to subsequent indefinite Assessment years and only it can be set up against Long Term capital loss.
According to the provided data, Mr. Dave bought a two-storey building for $ 70,000 and he lived there for last thirty years. on 27th June of the current tax year, he sold that building for $ 8, 50,000 . That house was actually sold through auction and as an advanced token, the buyer paid $85,000 (Sharkey and Murray 2015). However, eventually, the buyer did not have enough money to continue with the purchase. So, the money was deprived. The received $ 85,000 is charged as “Income from other sources”.
Capital gain computation:
Sale proceed $8, 65,000
Under CST I.E Family home exemption, it is exempted
LONG TERM CAPITAL GAIN NIL
On 20thSeptember, 1985, A pro hart painting was bought for $ 15,000 and then sold for$1, 25,000.
The obtained Capital Gain:
Sale proceed $ 1, 25,000
Less: Indexed acquisition cost
15,000*123.4/71.3 $25,961
LONG TERM CAPITAL GAIN $150,961
In late 2004, A luxury motor cruiser was bought for $ 1, 10,000 and then sold to local boat broker for $ 60,000 on 1st June of the current year.
Capital Gain:
Sales proceed $ 60,000
Less: Indexed acquisition cost $ 1,10,000
LONG TERM CAPITAL LOSS $ 50,000
On 10 January of the current year, he purchased a share parcel for $ 75,000 and then on 5 June of the current year, he sold that in a newly formed mining company for $ 80,000. He took a loan of $ 70,000 to purchase this share and then on the loan of $5,000, he paid interest. He also paid $250 in stamp duty and $750 as brokerage for sale during purchasing the share. According to income tax law, loan interest is not a part of acquisition cost. Therefore, the interest on loan was not included (Nyst and McAdam 2014).
Capital Gain is described below:
Sale proceed $ 80,000
Less: Brokerage $ 750
Less: acquisition cost $75,000
Less: stamp duty $250
SHORT TERM CAPITAL LOSS $ 4,000
Capital Gain for the year is described below:
Long term capital gain for residential property sale $ NIL
Long-term capital gain for painting sale $ 1, 50,961
Long Term capital loss for Boat sale $ 50,000
Short-term capital Gain for selling share $ 4,000
LONG TERM CAPITAL GAIN $ 1,04,961
Mr. Dave’s tax return for the previous year and the present year-end presents $10,000 as a net capital loss from the share sales. Therefore, it can be adjusted with long term capital gain of the present year.
In the present year, the Net Long term Capital Gain is $1,04,961-$10,000 = $94,961
Net Capital gain is calculated as summation of all gain obtained from sale of capital assets and all loss incurred on sale of capital asset. The loss on sale of capital assets includes the loss from the previous year also. It can be stated that capital gain tax and separate tax are different. Capital gain assets make a part of assessed income. Gradually, tax should be paid on gain, which is occurred through sale of capital asset in the present income year, when the sale took place. In this way, Mr. Dove had earned gain on asset sale (Lee 2014). Because of that, this fund can be contributed to his personal superannuation fund. Mr. Dave should maintain certain relevant records during certain major and important transactions. These records include, paid bills in order to legal fees or ligation fees, purchase receipt, interest on loan etc. It also includes Records regarding maintainace and repairs of assets and records on paid broker on shares (delisted.com, 2016).
Net Capital Loss is calculated as the summation of all loss achieved from capital asset sale. It also includes loss from the previous year. Capital loss cannot be set off from other source of income but should be carrying forwarded for upcoming years. Assets have the right not to be chosen as capital losses against any type of capital gain. However according to their choices such loss can be deducted against any capital gain (Keogh 2015). In this case, if Dave does not have sufficient Capital Gain, then he can take a loan or can sell his property, so that he can share to his personal superannuation fund. Later he can purchase a rented city apartment. In August of next year, when he will reach 60, he can withdraw tax free amount from that personal superannuation fund (Dabner and Burton 2015).
Part A:
A bathtub manufacturer company named Periwinkle Pty ltd sells bathtub to the public directly. This company provided a car to Emma, one of its employees on 1st May, 2005. Emma has to do lot of travelling for office work. However that car is not only restricted for work purpose but also can be used for any reason. On 1st May, 2015, the company bought that car for $ 33,000 (Tucker 2013).In the period of 1st may 2015 to 31st March 2016, Emma completed 10,000 kilometers travelling by that car. Emma paid $ 550, as the expenses for the repairing of the car. This amount aws reimbursed by the company. During this repairing, the car was not in use for five days. Even later for 10 days, the car was not in use, as it was parked at the airport. On 1st September, 2015, Emma had taken a loan of $ 5, 00,000 from the company at an interest rate of 4.45%. From that loan amount, Emma bought a holiday home, which costs $ 4, 50,000. He gave Rest of the balance to his husband for share purchasing in Telstra.
Emma bought a bathtub from Periwinkle in the same year, for $ 13, 00 by thinking that the manufacturing cost of the bathtub in periwinkle was $700. However, third was sold at $2600 To public (Sadiq et al 2016).
Fringe benefit tax:
Fringe benefit is a tax, which has been given by the employer. This tax is paid on the benefits which one employer provides to an employee (Fisher 2015). This tax is applied on nontax benefits that are provided by the company to the employees. Certain exemptions from fringe benefit tax are provided below:
Fringe benefit tax is applied to Residual, Property, Car parking, transport, Airline, Housing Payment of Expense, and Car Loan. According to Fringe benefit tax, car will be used as any vehicle or station wagon that is used to carry goods on net weight of it or less than one tons. It is also defined as any vehicle which has the capacity to carry less than nine passengers. When the provided car is not meeting the definition of car according to fringe benefit tax, but employees are using it for private purpose, then such benefits provided by the employer to the employees will come under benefit. So the tax will be calculated from that. If the car is used for less than three months then it will be assumed that the employee is holding the car. From this incident, the tax will not be computed (Martin and Manwaring 2015). The car provided to Emma, moments the definition of the car according to Fringe benefit. Therefore, In this case, the tax will be applicable in respect to the car. A car can be treated for private use when the car will not be at the premises of the employer. Here the car was provided for private use but it was observed that it was parked at employee’s premises. If the car will be in garage for repairing, then also the same definition will be applicable (Kendall 2014).
In two methods, this tax can be calculated:
As per the question:
Base value of the car $33,000
Number of days car provided as fringe benefit tax = 335-5 = 3
Note:
The 5 days when the car was sent for repairing will not be counted in total days, which were given to Emma for personal use. The days, when the car was parked at the airport will be calculated in total days. The day when the key of the car was given to Emma, will not be included in total days. During fringe benefit period, the car ran less than 15000km. As per the result, the rate will be 20%.
Taxable Value
$33000*20%*330/365 $5,967
Less expense incurred by employee $550
FRINGE BENEIFT TAX$5,417
Loan treatment by employer to employee at low interest rate:
In respect of loan Fringe benefit, tax will be calculated as the loan, which an employer provides to its employee at a low interest rate (Kenny et al 2015). In other way, it also can be told that when an employer provides a loan at lower benchmark rate or interest free loan then the calculated tax fringe benefit is given below:
The benchmark rate of Interest is 5.95% while the interest rate of provided company loan is 4.45%
So, the fringe benefit tax is 5,00,000* 1.50% = $7,500
Now if Emma utilize the entire amount of loan by herself i.e. for buying property worth $ 4,50,000 and buying shares worth $ 50,000. Fringe benefit tax would be calculated as follows:
$5,00,000*5.95%
c) Now imagine that the employee had paid interest equal to the amount of taxable value $ 29,750*10/100 $2,975
d) Now think at the real situation if employee is being charged interest on loan
$5, 00,000*4.45%*10% $2,225
e) Subtract c-e
$ 2,975- $2,225 $750
Taxable value a-e 7500-750 $6,750
Debt Waiver Fringe Benefit:
In this case, Emma bought bathtub for $1,300 which was sold in the market to general public for $ 2,600. So, the difference i.e. $ 2600-$1300=$ 1300 is fringe benefit liability.
References:
Dabner, J.H. and Burton, M., 2015. Changing Times–Changing Taxes–Changing Ethical Perspectives: Defining the Limits of the Ethical Obligations of Australian Tax Practitioners. Available at SSRN 2701046.
Fisher, R., 2015. Judicial dissent in taxation cases: The incidence of dissent and factors contributing to dissent. eJournal of Tax Research, 13(2), p.470.
Kendall, W., 2014. A Statutory Comparative Analysis of Dividend Taxation Laws in Vietnam and Australia: Restructuring Regulatory Regimes to Attract Capital Investment. IAMURE International Journal of Business and Management, 9, p.37.
Kenny, P., Blissenden, M. and Villios, S., 2015. Residency and Australians working overseas: can be an expensive lesson in tax Law. Australian Tax Law Bulletin, 2(9-10), p.188.
Keogh, E., 2015. The Practical implications of marriage inequality.Legaldate, 27(3), p.2.
Lederman, L., 2015. Report for the European Association of Tax Law Professors 2015 Congress:“Tax Penalties as Instruments of Cooperative Tax Compliance Regimes”. In Annual Congress Milan.
Lee, Y.T., 2014. Australian taxation issues for Chinese investors investing in Australian real property.
Martin, F. and Manwaring, K., 2015. Online Feedback to Students Studying Taxation and Business Law–How Does it Rate?. Journal of the Australasian Tax Teachers Association, 10(1).
Nyst, C. and McAdam, R., 2014. Family law: Tax Office takes aim at separation property settlements: Draft ruling impacts private company transfers.
Saad, N., 2014. Tax knowledge, tax complexity and tax compliance: Taxpayers’ view. Procedia-Social and Behavioral Sciences, 109, pp.1069-1075.
Sadiq, K., Coleman, C., Hanegbi, R., Jogarajan, S., Krever, R., Obst, W., Teoh, J. and Ting, A., 2016. Principles of Taxation Law.
Sharkey, N. and Murray, I., 2015. Reinventing administrative leadership in Australian taxation: beware the fine balance of social psychological and rule of law principles. Available at SSRN 2770222.
Sharkey, N., 2015. Coming to Australia: Cross border and Australian income tax complexities with a focus on dual residence and DTAs and those from China, Singapore and Hong Kong-Part 1. Brief, 42(10), p.10.
Taylor, D. and McNamara, N., 2014. The Australian consumer law after the first three years-is it a success?. Curtin Law and Taxation Review, 1(1), pp.96-132.
Tucker, K., 2013. Library Guides: Commercial law: Home.
Woellner, R., Barkoczy, S., Murphy, S., Evans, C. and Pinto, D., 2012.Australian taxation law. CCH Australia.
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