Calculating Capital Gains For Accounting Tax

Methods for Calculating Capital Gains

Discuss about the Accounting tax for Calculating Capital Gains. 

The capital gain can be said as an increase in the amount of capital asset or investment that provides a higher value than the purchased price. The profit is not calculated until the asset is sold. The capital gain can be calculated by using one of the three methods as mentioned. Discount method is the first method which can be applied after 1 year before the commencement of the capital gain tax event. Method of indexation is the other process. The indexation method can be applied for calculating capital gain if a capital gain tax happened to an asset which was acquired before 11.45 am as per the legal time in the ACT, on 21st September. The asset should be owned for 12 months or more. The process of residual is the last and final method for calculating capital gain. The method can be used for any asset if it is kept for less than 12months. By following these three methods only, the estimation of capital gain tax can be done.

There are some items which are excluded while calculating the profit and loss of capital gain assets. The things are:

The properties which are brought before 20th September, 1985 are to be excluded from profit acquired by selling of capital assets and the assets are- automobiles, amount spent on repairing harms, family land selling and any articles which he has bought for 500 dollars or less than that

Set off and carrying onwards of harms which are acquired from capital gain

Long term capital loss- the loss can be found against long term capital gains. For this objective, any other set off cannot be used. It can be taken forward for many years. Only against the long term capital loss it can be applied.

Short term capital loss- this method can be used on the long term capital loss or in the same short term capital loss. It can be often used for many assessment years in future. It can be applicable for both the short term gain and long term gain.

(A)The question provides information about a man, Mr. Dave Solomon. This man has been living there for more than 30 years in a two floor building. For 70, 000 dollars he bought the building. The building was sold by him at about 8, 50, 000 dollars in the same year on 27th June. The house was actually sold at an auction. The buyer at first gave an advance amount of 85, 000 dollars for buying the house. Later on, when he purchased the house, he came to realize that he has lost all his savings and then he denied to purchase the building. Hence, the amount taken is considered as secured money for that building. So, it can be observed that the amount which he got is referred to as income generated from different sources.

Excluded Items While Calculating Capital Gains

Calculation of capital gain

determination of capital gain

amount of selling the house                     8, 65, 000 dollars

this amount has been excluded as seen from the definition of the CST I.E Family home exemptions

(B) A picture of pro- Hart was bought at an amount of 15,000 dollars on 20th September, 1985. The same piece of portrait was given for sale for about 1, 25, 000 dollars.

So, the capital gain can be calculated as:

Price of selling             1, 25, 000 dollars

Deduced value: recorded cost of purchase

15,000*123.4/71.3           25,961 dollars

(C) An expensive motor car was bought with an amount of 1, 10, 000 dollars in the late 2004. In the same current year, the car was purchased by a local boat broker at an amount of 60, 000 dollars on 1st June.

Hence, for this case the capital gain can be calculated as:

Selling price 60, 000 dollars

Deduced amount: recorded cost of purchase 1, 10, 000 dollars

(D) A parcel of shares was sold by him to a newly formed mining organization foe the cost of about 80, 000 dollars, on 5th June of the same financial year. He bought those shares at an amount of 75, 000 dollars on 10th January on the same year. He has to give interest on the loan of amount 5, 000 dollars. He gave 750 dollars as the brokerage amount for purchasing these shares and he paid 250 dollars as stamp duty fees for purchasing the shares. As illustrated in the income tax law, giving interest on the amount of loan is not taken under as part of the acquisition. So, the interest on the amount of loan has not been involved.

So, capital gain for this case is: 

Sale operation amounts          80, 000 dollars

Deducted: Brokerage amount  750 dollars

Deducted: Prices of acquisition 250 dollars

Deducted: Stamp duty fees     250 dollars

So, capital gain calculated for the following year is:

By selling the residential land, the long term capital gain found to be as    NIL dollars

The long term capital gain calculated by selling of the portrait is            1, 50, 000 dollars

The long term capital gain estimated by selling it to Boat is                   50, 000 dollars

Examples of Calculating Capital Gains

Short term capital gain calculated by selling all shares is                       4, 000 dollars

At the last of the year, which is 30th June of the earlier year, the tax return value for Mr. Dave gives that 10, 000 dollars were his total capital loss after selling all the shares. So, it can be added to the year’s long term capital gain.

So, for the following year average long term capital gain can be calculated as

1, 04, 961 dollars – 10, 000 dollars= 94, 961 dollars 

Part- B

The net capital gain is a total gain of a year, excluding total capital loss and any capital gain tax discount. Capital gain tax is covered under an assessable income of an assess and the profit which he got be selling of the capital assets he should pay the tax in that year only. So, it was observed that Mr. Dave gained profits. He had to maintain documents of all the transactions and expenses he had made. All the costs like interest on loans, litigation fees and brokerage fees are to be maintained.

Part- C

The total capital loss, including loss of previous year minus total capital gains. No time limit is there for taking it onward the net capital loss. In this case, if Dave does not have any positive capital gain then he will have to sell his assets or take loan for paying his personal superannuation funds. He will have to bought a residence in city on rent and have to eliminate tax- free money from his own superannuation fund, when he will attain 60 years of age in next year August. 

First part

A bathtub producing company, named as Periwinke Pty. Ltd. is also involved in selling the bathtubs. His company gave Emma a car on 1st May, 2005 as because her work is more laborious and she had to travel everywhere. The car can be used for personal purposes also. For months, 1st May 2015 to 31st March, 2016 she utilized her car for covering distance of 10, 000 kilometers. She gave 550 dollars for repairing. The car was placed at the airport for about ten days. The car remained untouched for about 5 days.

Company provided 5, 00, 000 dollars loan to Emma on 1st September with an interest rate of 4.45%. with that money she purchased a holiday home worth 4, 50, 000 dollars and rest of the amount she gave to her husband for his use. So, it can be said that, Emma bought the bathtub at 13, 000 dollars which was sold to general public at 2600 dollars.

Net Capital Gain

Fringe benefit tax–

This tax is paid by employers on the benefits they provide to their employees which includes benefits to their family members nad salary packages. It is entirely different from the income tax. Some things are excluded in this tax rule which are-

Loans

Monet spent on work

Car profit provided by company

Housing allowance
Fringe benefit tax are associated to loans, costs, transportation costs and others. The car if provided to an employee for about less than three months, the fringe benefit tax cannot be determined. Emma is also bound to pay the taxes. The car is assumed to be in use if not found in the employee’s house.

Fringe benefit tax can be estimated by using two ways-

Cost basis method

Statutory formula application

As per the question,

Common value of the car                   33, 000 dollars

Number of days the car gave the tax= 335- 5= 3 dollars

Taxable value

$33000*20%*330/365                         5,967 dollars

Less amount acquired by Emma            550 dollars

FRINGE BENEFIT TAX                            5,417 dollars 

The fringe benefit taxes will only be applicable if the organization will be providing the employee loan at small interest rate. If the employee gets loan at a very low interest rate or at a value which is lower than benchmark then, in that case the fringe benefit tax can be calculated as:

The benchmark rate of interest is found to be 5.95% but the organization gave the loan at an interest of about 4.45%.

So, fringe benefit tax is estimated as:

5,00,000* 1.50% = $7,500

As seen Emma used her some amount of money in purchasing home and remaining was given to her husband. Emma obtained 4, 50, 000 dollars for doing works related to house and so, the taxable value comes to the same as 7, 500 dollars.

Part- B

Later, if Emma utilizes her whole money in doing her personal works. She spends it on purchasing property with an amount of 4, 50, 000 dollars and buying the shares at 50, 000 dollars. Fringe benefit tax is found to be:

1. The taxable data of the fringe loan profit without the other deducted value $7,5005,00,000*1.50%

2. Assume that the loan was interest-free and neglect any interest charged $29,750$5,00,000*5.95%

3. Now when the employee paid same amount of taxable value as that of given interest$ 29,750*10/100 $2,975

4. Now look at the main situation if employee is being asked forcibly to pay interest on loan$5,00,000*4.45%*10% of $2,225

5. Subtract iii-iv $2,975-$2,225 = $750

6. Taxable value i-v 7500-750 $6,750

Debt waiver fringe benefit

As seen from the case provided, Emma purchased a bathtub at a cost of about 1, 300 dollars which was to be sold to other publics at 2, 600 dollars. So, as calculated the differing value is- 2600 dollars- 1300 dollars= 1300 dollars. 1300 dollars is the fringe benefit liability. 

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