A holder of the vacant land is accountable for income tax when the disposal of land give rise to gains that are taxable as the capital gains. The vacant land which a taxpayer holds as the capital asset will attract the same rules of capital gains tax as the other properties are held for assessment. A person that holds the vacant land should keep the records of the date when the land was acquired and the cost that is incurred in getting the land (Atkinson 2016). The holder of vacant land should also include the records of ongoing expenditure such as council rates and interest loan.
The holder of land cannot claim the deductions for the above stated expenses because no income was generated from the land. In its place the holder of vacant land can add these expenses in the cost base of the land for calculating their capital gains or loss when the land is sold (Roberts 2017). A contract to sale the empty land at $320,000 has been entered in the course of the year. The client acquired the land in January for $100,000 and incurred ongoing expenses of council rates water and sewage. Citing “Sara Lee Household v FC of T (2000)” the change in ownership and sale of land gave rise to CGT event A1 (McNulty and McCouch 2015). The capital gains made from the sale of vacant land will be taxable under section (104-10(1)).
In course of the present year the antique carrying the worth of $25,000 was stolen. The client reports the receipt of compensation from the insurance company of $11,000 since the antique was in the list of specified items in the client’s insurance policy. Under the quoted “s-104-10(1)” there was the rise of CGT event C 1 when the antique bed was stolen (De la Feria 2017).
The client in the current case reports the receipt of compensation from the insurance company for the loss of stolen antique bed. The compensation can be characterised as the CGT event C1 under (s 104-0(1)) since the CGT asset that the client owned is lost.
The concept of capital gains tax began on 20 September 1985 and introduces the capital receipts into the tax base. CGT operates only when the CGT event takes place that involves the CGT asset purchased on or after the 20/9/1985 (Drautzburg and Uhlig 2015). There is an exception to this rule if the CGT asset was purchased before the 20/9/1985. Asset purchased before CGT was introduced is not treated for CGT purpose.
During the month of May in the year of 1985 a painting valued $2000 was reported by the client. As the painting was acquired before the introduction of CGT on 20/9/1985. For that reason, there will be no taxable capital gains for the painting. The painting is the asset of Pre-CGT nature and omitted from CGT.
Whenever there is a sale reported by the taxpayer for the shares held by them there will be a CGT event. Shares constitute the nature of the CGT asset (Sheshinski 2015). But it should also be noted that if there is any form of loss upon the disposal of shares then these loss from the shares are set-off when there is capital gains reported by the taxpayer.
After making gains in the shares that was held by the taxpayer there was also the event where capital loss was reported from the young kids learning shares. Nonetheless there was the capital loss when the taxpayer sold the shares of young kids. Conferring to such loss an offset from the capital gains is easily claimable. .
As per (s 108-20 (2)) the personal use asset is defined as the asset that is kept or used for private purpose and enjoyment, except the land and building. The examples include the television, mobile phone for private use, yacht for personal enjoyment and bicycle (Baldry 2017). There are special rules applicable to personal use asset such as capital gains and loss must be disregarded when the first element of the personal use assets cost base is lower than $10k.
The client reports in the current tax year the sale of violin for $12,000 that was originally acquired for $5,500 on 1st June 1999. The capital gains made by client from the sale of personal use assets must be ignored under the first element of special rules as the cost of personal use asset is below the cost of $10k.
Issue:
Will the employer be held liable for fringe benefit tax under the fringe benefit legislation relating to the benefit that is provided in relation to the employment?
Rule:
The legislation of fringe benefit tax states that a fringe benefit is prearranged to the worker for their occupation. The member of staff can be the earlier or the forthcoming worker. Reimbursing the employee with the expenses paves way for the fringe benefit tax. The definition of employee also includes the person that are the holder of office or any has any kind of withholding on the basis through which the disbursement is provided (Aronson, Johnson and Lambert 2014). The employer can claim deductions for the GST inclusive expenses as the income tax deductions relating to expenses incurred in providing benefit and the amounts of fringe benefit the employer pays.
There is a car fringe benefit when the prearrange benefit is given to the worker or the member of the staff under the fringe benefit act of 1986. Whenever it is noticed by the employer that the employee is making the private usage of the car that is given in the occupation course this will give rise to the car FBT. It is essential under the definition of the fringe benefit tax assessment act that the worker or the member of the staff should make the private usage of the car (Easterly, Rebelo and Mundial 2013). A fringe benefit comes into the existence when at the house of the owner the car is not parked.
The general of court in “Lunney v FCT (1958)” held that the traveling to the workplace and to home is the private use of the vehicle (Popovi? 2017). The worker or the associate member of the staff should understand that whenever there is any kind of repair that are very much extensive in nature is carried out and forcing the worker to not use the car for a certain period then there cannot be a fringe benefit. But the exclusion to the rule is that the car is in the custody of the employee when the regular maintained is carried out and hence this will amount to fringe benefit for the employee. The company that provides the car benefit can make use of the statutory or operating method for calculating the chargeable sum of fringe benefit.
On repaying the outlays to the employee there is an expense imbursement fringe benefit. Secondly, when the employer pays the expense to the third party as the satisfaction of the expenses that is occurred by the employee (Kakwani 2017). The expense that are mainly occurred by the worker or the member of staff is generally incurred in gaining the taxable income or for any personal activities. Any amount that is compensated by the company or the employer will be accountable for the taxation purpose. The employer can make the use of the concessional rate for calculating the chargeable value of the in-house expense payment benefit.
A noteworthy information has been provided under the “Sub-Division B 39C, FBTAA 1986” regarding the car parking fringe benefit. Providing the car parking area to the employee there is a car parking FBT (Mills, Newberry and Trautman 2014). On meeting the conditions that is given below there is a taxable value of the fringe benefit relating to the parking of car.
Where an employer provides the employee with the loan the loan fringe benefit takes place under the “Division 4 of the FBTAA 1986” (Edmonds 2018). Whenever the company gives the worker or the member of staff any kind of loan then it generally charges the interest rate that is below the statutory rate of interest that is prevalent in the market.
Application:
The company in the question is the Rapid Heat Pty Ltd that produces electric heaters. The company gave a car to one of its employee named Jasmine since her job requires her to do most of the work by travelling. The car is also used by Jasmine for her private purpose. As a matter of fact under the “section 7, FBTAA 1986” a car fringe benefit aroused when Rapid Heat Pty Ltd provided Jasmine with a car (Popovi? 2017). Citing the example of “Lunney v FCT (1958)” a car fringe benefit occurred for Rapid Heat Pty Ltd when the car was made available to Jasmine for using it for personal purpose. The company here in the issue can make use of the statutory method to determine the amount of the chargeable value of the car fringe benefit that it has provided to Jasmine.
On 1st May 2017 the car travelled 10,000 km which led Jasmine to incur $550 as the expenses for conducting minor repair on the car which the company in the current case has compensated to the employee. An application of the subdivision B 22 A can be made under the law of FBTAA 1986 that the compensation of the expenses by the Rapid Heat resulted the fringe benefit of expense payment in nature (Mertens 2015). For the Rapid Heat here, the amount of tax that it is liable to pay for making the disbursement of the payment is the total amount of expenses that is disbursed by the company to Jasmine.
Jasmine reported that she did not used the car for 10 days when she was out of state. Jasmine parked the car at the airport which is neither under the control of the employer nor does the car is parked within the one kilometre range of the premises in which the car is parked (Abel 2017). For that reason there cannot be any kind of car parking fringe benefit for the Rapid Heat. However, the car would continue to be treated for private use of Jasmine when the car was not available for another five days for annual repairs.
As it has been found from the case study the Jasmine was provided with the loan by the Rapid Heat based on the 4.25 per cent interest. Rapid Heat should be considered accountable for Loan fringe benefit on the basis of the “Division 4 of FBTAA 1986” as the company has given loan to the employer (Manning, Sciacca and Alford 2016). Rapid heat will be liable for the taxation with respect to the difference between the statutory rates of interest than the actual rate of rate interest on which the loan was provided.
Conclusion:
The benefits were provided to Jasmine were in respect of the employment and in capacity of the employee during the FBT year. Rapid heat here will be treated for the taxation purpose relating to the amount of fringe benefit that is given to Jasmine.
Conferring to the “section 8-1, ITA Act 1997” interest on loan for purchasing the personal assets is not allowed for deductions while the interest on loan for purchasing the revenue producing asset is allowed as deductible expenses (Mills and Plesko 2013). Jasmine rather than giving the leftover amount to her husband should have used the amount in acquiring the shares on her own. Eventually Jasmine would have gained the advantage of section 8-1 in claiming the permissible tax deductions for interest incurred on the borrowed amount.
References:
Abel, J., 2017. Review of: Daniel Shaviro: Taxing Potential Community Members’ Foreign Source Income (Tax Law Review, Vol. 70 (2016), S. 75-109).
Aronson, J.R., Johnson, P. and Lambert, P.J., 2014. Redistributive effect and unequal income tax treatment. The Economic Journal, pp.262-270.
Atkinson, A.B., 2016. Public economics in action: the basic income/flat tax proposal. OUP Catalogue.
Baldry, J.C., 2017. Income tax evasion and the tax schedule: Some experimental results. Public Finance= Finances publiques, 42(3), pp.357-383.
De la Feria, R., 2017. Harmonizing Anti-Tax Avoidance Rules. EC Tax Review, 26(3), pp.110-111.
Easterly, W., Rebelo, S. and Mundial, B., 2013. Marginal income tax rates and economic growth in developing countries. Country Economics Department, World Bank.
Edmonds, R., 2018. Resource Capital Fund IV LP: the issues on appeal?. Taxation in Australia, 53(1), p.22.
Kakwani, N.C., 2017. Measurement of tax progressivity: an international comparison. The Economic Journal, 87(345), pp.71-80.
Manning, R., Sciacca, R. and Alford, A., 2016. Tax Inversions: A Preliminary Review of Company Financial Data. Bates White, January, 12.
McNulty, J. and McCouch, G., 2015. Federal estate and gift taxation in a nutshell. West Academic.
Mills, L., Newberry, K. and Trautman, W., 2014. Trends in book-tax income and balance sheet differences.
Mills, L.F. and Plesko, G.A., 2013. Bridging the reporting gap: a proposal for more informative reconciling of book and tax income. National Tax Journal, pp.865-893.
Popovi?, A., 2017. The Fundamentals of Monetary Fulfilment in Tax Administration. Public Governance, Administration and Finances Law Review, p.25.
Roberts, K.W., 2017. Voting over income tax schedules. Journal of public Economics, 8(3), pp.329-340.
Sheshinski, E., 2015. The optimal linear income-tax. The Review of Economic Studies, 39(3), pp.297-302.
Todres, J.L., 2017. Return to Fundamentals? Tax Malpractice Damages-Recovery of Additional Taxes.
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