Capital Gain Tax And Fringe Benefit Tax For Australian Taxation Law

Law Application Regards this Case Study

Discuss about the Capital Gain Tax and Fringe Benefit Tax for Australian Taxation Law.

Fred, dweller of Australia wants to sell his house which is situated in Blue Mountain. In the month of February at the present year the sale was complete as well as Fred received the sum of $800000 from the buyer. After the amount which Fred paid for lawful cost inclusive the GST at around of $1100 and real estate representative’s fee of $9000 inclusive the GST for selling of his home (Tax, 2010). In the month of March, Fred bought the holiday house for the sum of 100000. At the same time, also transfer fees had been paid by him in stamp duty of $2000 as well as $1000 for lawful cost. On the other hand, Fred created a garage by spending $20000 by a builder in January, 1990.

Now it can be identified that;

Fred’s entire capital gain for the current year will be calculated and the previous year capital loss was $10000 for trading the share.

If the loss appeared from auction a traditional vase, in this circumstance the capital gain or loss desires to resolute.

Any assets are sold it needs a calculation for selling price and actual cost for appearing CGT whether it is gain or loss. If the selling price is greater than the actual price then it is called capital gain and when the selling price is lower than the actual cost then it is called capital loss as per the Australian Taxation Law (Woellner, Barkoczy, Murphy, 2016).

The assesse would liable to pay definite taxes on the amount of capital tax; this type of tax is called as capital gain tax. If the assesse has faced capital loss then the similar would be computed as well as deducted from the entire Capital Gain. Capital gain and capital loss are same type but different functionality. Those are applicable to the people undertaken by laws action. 

CGT is not applicable on the property utilized in trade or depreciable. Private properties, such as furniture, motor car, bikes are exempt from Capital Gains Tax. In the case, an Australian individual definitely needs to pay (CGT). Another side if any foreign dweller buys any assets in Australia then he has to pay the CGT, as per the Australian Taxation Laws.

In this following case study, Fred is a dweller of Australia; he needs to pay the Capital Gains Tax for his property. He sold his holiday house for $ 800000 which he purchased for $ 100000 in the year 1987. A Single room is owned by an individual then it is free from Capital Gains Tax. Though, Fred has an extra house, which is also situated in Australia, but he never thought to rent it out, however he must give the CGT. 

Ultimate selling cost Commission of legal cost and agent The net removal amount Cost of purchase should be Stamp duty will be Cost for legal action Cost for home production Total cost liable (Fred)  Fred’s capital gain (total) Capital gain from prev year will be 50% discount in Capital Gains Tax

$800,000 (as per question) ($9,900 + $1,100) = $11,000 $789,000 $100,000 $2,000 $1,000 $20,000 $123,000 ($789,000 – $123,000) = $666,000 $10,000 $656,000 * 50% = $323,000

His capital loss from last year was $10,000

Law for the Case Study

So total taxable amount for CGT = $323,000

Capital loss faced by Fred from previous year for the traditional vase, as per the Capital Gains Tax (CGT) in Australia. The main thing is if the traditional vase was purchased previous to 26^th June, 1992. In this case, that will not be counted as traditional property so the capital loss will not deduct. On the other hand, Fred bought a vase after the significant date due to this reason the vase will ignored from the Capital Loss and it doesn’t needs to be computed.

Conclusion for the Case Study 1

About to see the calculation part of the case study 1 there are few things which are dependable upon the law of Capital Gains Tax formulas. Here after calculation the whole part by the case study it can be identified that need to discount 50% also at the last period of the calculation otherwise cannot be found the original CGT value. As capital gain and capital loss are same types but different functionality. Those are applicable to the people undertaken by laws action. After analyzing the Australian laws and regulations, Fred should have given the Capital Gains tax (CGT) at the year ending. The sum of CGT Fred has to pay for the auction of his home, which is located in Blue Mountains and it cost is $323000. The loss of selling the vase, it must be deducted from the CGT at this year. So the entire CGT computation is done by the help of proper taxation law in Australia (Woellner, Barkoczy, 2011).

Periwinkle Pty Ltd is the largest and greatest bathtub maker in Australia.  The company is famous for making bathtub and provides proper service to the direct consumer (Appleby and Carr, 2005). . Emma is one of the worker of the following company.. Emma is working is in a division where she has to travel every day. For the reason, the firm provided a car for use. But there is no restriction for the usage of the car. On 1^st may, 2015 the car was bought by the firm for $ 33000 as well as Emma was given the car since that day.

Emma works in a department, where she has to travel a lot every day so he travelled 10000 kilometers (from 1^st May 2015 to 31^st March, 2016). At the same time Emma spent $ 550 on the car for some repairing which has been paid by Periwinkle Pty Ltd. Emma said that the car was   not utilized for 10 days as well as also not used for 5 days, when it was in garage for repairing. On 1^st September, 2015 Emma got the Loan from her company Periwinkle Pty Ltd of $500000 at an interest fee of 4.45%. Emma bought a holiday house from the loan, which value was $ 450000 and lends her husband the rest amount which was surely interest free. Similarly her husband bought the shares of Telstra by rest of the money. If there needs a loan to purchase any assets in Australia, that is not included in Capital Gains Tax as well as interest of buying property must be deductable from CGT (Brown, Keim, Kleidon, 2008).

Conclusion for the Case Study 1

Throughout, this year Emma bought a Periwinkle bathtub for $ 1300 as a worker, however its worth in marketplace is &2600. The manufacturing price for bathtub is $700.

Now it can be identified that,

Now it is important to instruction Periwinkle Pty Ltd the Fringe Benefit Tax (FBT) cost on the above case including computation of it.

Similarly, if Emma utilized the money to purchase the shares for herself the changes on Fringe Benefit Tax (FBT) desires to be evaluated.

According to the FBT Assessment Act 1986, under section 7 stated  that if the firm provides a vehicle to their staff for official and personal purpose, in that case the FBT desires to pay the employee himself..  Under section 9 of this particular law gives the law in which the computation of Fringe Benefit Tax of the car as well as the whole expenditure can be computed. Under section 16 FBT Assessment Act 1986, it is declared that if the owner of the company gives a loan any worker to its staff, in that case FBT must be computed by the owner himself (Henry, Harmer, Piggott, 2009).

The Fringe Benefit Tax (FBT) for this following case study has to be computed thorough the following laws. (Under section 16 FBT Assessment Act 1986)

Answer of case study (1) v  As per this case study 2 the amount of the car is around $33,000 including capital gains tax and without this it will be $30,000

o  The car repairing charge will be around $550 and without the capital gains tax it will  be $500

o   According to the case study 2015-106 should be needed to take into the account and total number of days will be 335

o   For the repairing purpose car did not travel at around 15 total days

o   Calculated day car travelled approx 320 days

o   Traveling kilometer 10000 Km

o   So the Fringe value: =$30,000*0.2*320/365 =$5260.27                                                   (Hall and Rabushka, 1995)

FBT would be approximately around =($5260.27 + $550)  $5810.27

Answer of case study (2)

v  In the second part of the case study it has been identified that Emma had been provided $500,000 loan with 4.45% interest value. v  Total loan value $22.250

o   As Emma purchased the holiday house and decided to give rest of her money to her husband so the FBT will be around $24,750

v  According to the 3rd stage of this case study Emma purchased a bathtub from this company periwinkle and the value of that around $1300 v  So firm to pay the tax by means of FBT around $(2600-1300) = $1300

For the Periwinkle case study 2 and according to Australia’s FBT rate will be $34,860 [ $5810.27+27,750+$1300 ] (Browning, 1987)

v  So the amount which the company has to pay to the Australia Government will be $34,860 x 47% = $16,299

Answer to case study (3)

According to the case study 3 it can be identified that Emma bought shares of Telstra and whether she bought without knowing her husband then tax will be deducted from her bank account

Then fringe Benefit Tax amount for the loan will be $450,000 * (10-4.45) % = $24,975.  The FBT value will be around $24,976                                     [450,000 x (10-4.45)%]

FBT amount will be 47% of = $15,080                     [($5810.27 + $24,975 + $1,300)]

Conclusion of the Case Study 2

As those calculations what can be identified in the answer sheet it has been decided that FBT cost more to people. Fringe benefit tax value will not be same as for three different case studies what can be seen in the chart. In accordance with rules and regulation of Australian Taxation laws in the first part of the case study, the FBT value of Periwinkle Pty Ltd needs to disabuse is $16299. For the next part of the case study the Fringe Benefit Tax value will be $15,080. There is dissimilarity in the amount if there has been an alteration in the utilization of the loan cash. 

References

Henry, K., Harmer, J., Piggott, J., Ridout, H. and Smith, G., 2009. Australia’s future tax system. Canberra, Commonwealth Treasury.

Browning, E.K., 1987. On the marginal welfare cost of taxation. The American Economic Review, pp.11-23.

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

Tax, C.G., 2010. Capital Gains Tax. Newsletter.

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

Richardson, G. and Lanis, R., 2007. Determinants of the variability in corporate effective tax rates and tax reform: Evidence from Australia.Journal of Accounting and Public Policy, 26(6), pp.689-704.

Brown, P., Keim, D.B., Kleidon, A.W. and Marsh, T.A., 1983. Stock return seasonalities and the tax-loss selling hypothesis: Analysis of the arguments and Australian evidence. Journal of Financial Economics, 12(1), pp.105-127.

Hall, R.E. and Rabushka, A., 1995. The flat tax (Vol. 423). Hoover Institution Press, Stanford University.

Woellner, R., Barkoczy, S., Murphy, S., Evans, C. and Pinto, D., 2011.Australian Taxation Law Select: legislation and commentary. CCH Australia.

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