Capital Gains Tax Implications For Mayfield, NSW Antique Collector And Investor

Sale of Block of Vacant Land

Requirement [a]: Block of Vacant Land

In case and individual taxpayer acquired an vacant or empty land for the purpose of investment or private use, the requirement is to consider the land as a capital asset and it is subject to capital gain tax when the taxpayer sells it (Harding 2013). According to the Australian Taxation Office, the taxation treatment of the vacant land acquired by the taxpayer in the form of capital asset needs to be treated like other assets for capital gain purpose. For this reason, it is the obligation on the taxpayer to keep record of all the data and information related to the cost of the land. At the same time, the taxpayer needs to keep the records of related expenses of the land that are council rate and interest rate on the loan. These expenses are not subject to income tax deduction as they need to be included in the cost base related to the land at the time of the computation of capital gains or losses while selling the land (Grudnoff 2015).

It can be seen from the provide scenario that the taxpayer signed a contract for selling the vacant land for $320,000. Some of the ongoing expenses reported by the taxpayer related to the land are water and sewage rates, land tax and local council at the time of the ownership of the land. According to Section 104-10 (1), the occurrence of CGT event A1 can be seen at the time of selling the land (Mahar 2016). Thus, under Section 102-5, ITAA 1997, the taxpayer will be needed to show the capital gain net amount in his taxable income.

Requirement [b]: Antique Bed

The definition of Collectable can be seen under Subdivision 108-B. According to Section 108-10 (2), a collectable can be defined as the object that the taxpayer uses for the purpose of personal enjoyment and use (Dabner 2015). As per Section 118-10 (1), ITAA 1997, a collectable will be subjected to exempt from CGT taxation when its value is $500 or less than $500. It can be seen from the present scenario that someone stolen the antique bed from the building of the taxpayer. Later, it has been observed that the taxpayer did not include the stolen antique bed in his specific matters’ list in the insurance policy. Section 104-25 (1) indicates towards the occurrence of CGT event A1 when someone destroy or damage the asset. In this situation, the compensation receipt related to the stolen antique bed lead to the occurrence of CGT event A1 due to compensation received for the stolen antique bed (Boccabella 2015).

Sale of Antique Bed

Requirement [c]: Painting

Prospective functioning of CGT can be seen and it can be applied at the time of the occurrence of the CGT event related to the purchased assets on or after the date of 20^th September 1985. In case of most of the CGT events, the presence of exemptions can be seen related to the obtained assets before the date of 20^th September 1985 (Jacob 2018). For this reason, the assets are exempted from CGT assets in case they are purchased after CGT event. It can be seen from the provided situation that the taxpayer obtained the painting on 2^nd May 1985 and the painting has been sold by the taxpayer in the present taxation year for $125,000. In this case, it is needed to consider the pre-CGT asset as subject to exemption from CGT event as the taxpayer obtained it before CGT introduced or before 20^th September 1985 (Evans et al. 2014).

Requirement [d]: Shares

CGT is applicable for the investors or the individual taxpayers in case of the capital gains that the taxpayer has acquired from units or shares at the time of the occurrence of the CGT event; particularly, at the time of the selling of the asset by the taxpayer. In this context, it needs to be mentioned one needs to do the taxation treatment of units or shares of the company along with the managed funds as the same manner like the other assets related to the capital gain tax purpose (Kania 2013). The treatment of profits made by the taxpayer due to the sale of the shares needs to be done as ordinary income. It can be seen in the provided scenario that the taxpayer has reported capital gains from shares and they were acquired in Build Ltd, Common Ltd and PHB. After this event, reporting of loss can be seen from the side of the taxpayer from the sales of the shares of Young Kids Learning. For this reason, in this situation, the taxpayer has the option of setting off the capital loss due to the sales of shares of Young Kids Learning against the capital gain due to the sale of Common Ltd, PHB and Build Ltd (Daily, Kieff and Wilmarth Jr 2014).

Requirement [e]: Violin

Subdivision 108-C deals with the personal use assets. According to Section 108-20 (2), personal assets are the assets that are considered as the non-collectable assets and the taxpayers acquire these assets for personal use and enjoyment (Evans and Krever 2017). Furniture, boat, electricity goods and any items of household are this kind of asset. Land and building cannot be included under personal use assets. Section 108-30 states that it does not include the personal use asset’s cost of ownership. As per Section 118-10 (3), there is a requirement to ignore the cost base of persona asset having value $10,000 or less (Dabner 2015). The requirement for the taxpayer is to keep record of information of the assets having value more than $10,000. It can be seen from the provided scenario that the violin was purchased for $5000. It needs to be considered as the personal use asset as it has been bought for the purpose of private use only. It is evident that the cost of the violin is less than $10,000. For this reason, the sale of the violin along with the derived capital gain can be ignored as it is a personal use asset and is subjected to exempt from CGT.

Sale of Painting

Requirement [a]

Issue: The provided issue raise the question that whether the taxpayer is subjected to fringe benefits taxation related to the provided situation as per employee capacity under FBTAA 1986 or not. It also raises the question that whether the taxpayer is responsible for the payment of FBT for the provided car related to employment or not. It also considers the issue that whether the reimbursement of the expenses leads to FBT as per S 39A of FBTAA 1986 or not. Moreover, the issue is related to explain the fringe benefit from the loan to employees as per Sub Division FBTAA 1986.

Legislations: As per Subsection 1D of the FBTAA 1986, fringe benefit of an employee means the total sum for the year starting from 1.4.2000. In FBT, benefits include services, rights and privileges. As per the FBT laws, employees receive fringe benefits from the employers for the purpose of employment; and the persons receive fringe benefit as they are the employees of the companies. The employees can be from present employees to former employees. Employees are entitles to get salaries or wages from the companies or the benefits equivalent to salaries or wages (Voßmerbäumer 2013).

The employers need to be held responsible for the fringe benefit tax for the employees of their companies. For this reason, it is the obligation on the employers for making the payment of FBT irrespective of the situations that whether the employer is a partnership business, sole proprietor or the government authority. The payment needs to be done irrespective of the situation that whether the payment of FBT is done by the employer or any other party. Hence, FBT needs to be paid irrespective of the situation that whether other taxes like income taxes need to be paid or not (Buchan, Olesen and Carberry 2013).

As per Section 7, FBTAA 1986, fringe benefits for car comprises the benefits develop from the situation where the employers provide car to the employees for private use (Hemmings and Tuske 2015). Thus, the car to the employer is acquired for the use of the employee. For this reason, the employers make the car available for the private use for the employees when the employer is using the car. Thus, it needs to be mentioned that fringe benefit can only be occurred when the car is available for the employees for their personal use during any day when the car is not available in the building of the employer or the car is in the garage at the employee’s home.

Sale of Shares

As per FBTAA 1986, journey to and from the work place required to be treated as the private use of the vehicle. It will not be considered as the private use of the employee when the car is in the workplace due to repairing. However, it needs to consider for the private use of the employee when the car is in the workshop due to routine maintenance. In the case of “Lunney v FCT (1985)”, it has been explained it needs to consider the personal use of the employees of the car when travelling to and from the workplace (O’Connell, Martin and Chia 2013).

As per Division 5 of the FBTAA 1986, there can be the occurrence of fringe benefit when the employer makes payment for the employee’s incurred expenses. Moreover, the occurrence of fringe benefits can be seen when the employer pay any third party for the employee’s incurred expense. The expenses in both of the cases can be business expenses, private expenses or combination of the both. Thus, the value of fringe benefit includes the amount paid by the employer (Hodgson and Pearce 2015).

As per Division 10A of the FBTAA 1986, there can be the occurrence of fringe benefit for car when the employee gets the parking space of the provide car from the employer. As per Division 10A, FBTAA 1986, the below conditions are needed to be met for the occurrence of fringe benefit:

• The car is parked at the employer’s building
• The car is parked inside 1 kilometer of commercial parking for the entire day
• The duration of parking is more than 1 hour in the day
• Employee receives the car in relation to employment (Fisher 2015)

As per the explanation of Division 4 of the FBTAA 1986, there can be the occurrence of loan and debt waiver fringe benefit, when the employer charge low interest from the employee for the loan he/she has provide to the employee. It needs to be mentioned in this context that the low interest rate is lower than the statutory interest rate (Naik and Kohn 2013).

Application: As per the provided information, Jasmine is an employee of Rapid Heat Pty Ltd involves in selling electrical heaters. Jasmine needs to travel a lot as a part of his job and thus, she has received a car from the company that Jasmine can use her private purpose as well. Thus, there needs to be the application of Section 7, FBTAA 1986 as Jasmine has received the car from her employer for office as well as private use. According to the judgment in “Lunney v FCT (1958)”, the car is a fringe benefit for Jasmine and the liability is on Rapid Heat Pty Ltd to make the payment for fringe benefit tax on the car (Cooper 2015).

Interest in Collecting Musical Instruments

It can be seen in the later part of the scenario that Jasmine travel 10,000 km with the car and incurred $550 for the minor repair of the car that Rapid Head Pty Ltd reimbursed. In this situation, as per Division 5 of the FBTAA 1986, there is fringe benefit for the company for the reimbursement of $550; and the reason is that the company has made the reimbursement for car in behalf of Jasmine for the car maintenance. Thus, the chargeable value for the fringe benefit of Rapid Test Pty Ltd is the value of reimbursement (Allerdice 2014).

It can also be seen in the later events that the car was not used by Jasmine when she was interstate as it was parked in the airport for five days and the parked it for another five days at the workshop for schedule maintenance. Thus, as per Division 5 of the FBTAA 1986, there is not any parking fringe benefit for Rapid Test Pty Ltd as the car was not parked in the building of the company. In addition, Jasmine did not park the car within 1 kilometer where there was not any facility for car parking available. Thus, there will not be any fringe benefit taxation for Rapid Test Pty Ltd (Hodgson and Pearce 2015).

As per the case study, Jasmine received a loan of $500,000 from Rapid Test Pty Ltd at 4.25% interest rate. This aspect leads to the occurrence of loan fringe benefit due to the fact that the loan was provided to Jasmine in regards to her employment (Hodgson and Pearce 2015).

Conclusion:

It can be seen from the above discussion that Rapid Test Pty Ltd is accountable for the loan fringe benefit for the year during the taxation of FBT. However, the company is eligible in claiming an allowable deduction for the loan fringe benefit as the expenses were incurred during employment.

Requirement [b]

As per Section 8-1 of the ITAA 1997, a taxpayer is eligible for allowable deduction according to the general regulation when gaining taxable income was the reason for the expenses incurred. As per the imaginary situation, in case Jasmine used $50,000 for purchasing the shares instead of providing her husband with interest free loan, she might be eligible in claiming an allowable deduction for the interest amount of the loan. However, in actual, she has borrowed the money on interest for her husband. Thus, she will not be permitted with any allowable deduction under Section 8-1, ITAA 1997 (Buchan, Olesen and Carberry 2013).

References

Allerdice, R., 2014. Preface and publishing information. Marks’ Trusts & Estates: Taxation and Practice, p.139.

Boccabella, D., 2015. Reconciling the overlap of charging provisions in regard to non-cash benefits from employment, personal exertion and business. J. Austl. Tax’n, 17, p.85.

Buchan, H., Olesen, K. and Carberry, H., 2013. Fringe benefit tax on motor vehicles: Complexity and compliance cost. New Zealand Journal of Applied Business Research, 11(2), p.59.

Cooper, G.S., 2015. The defective jigsaw. Austl. Tax F., 30, p.783.

Dabner, J.H., 2015. Tax Simplification–An Accident Looking for a Place to Happen?.

Dabner, J.H., 2015. Tax Simplification–An Accident Looking for a Place to Happen?.

DAILY, J.E., KIEFF, F.S. and WILMARTH JR, A.E., 2014. Introduction. In Perspectives on Financing Innovation (pp. 13-16). Routledge.

Evans, C. and Krever, R., 2017. Taxing Capital Gains: A Comparative Analysis and Lessons for New Zealand.

Evans, C., Hansford, A., Hasseldine, J., Lignier, P., Smulders, S. and Vaillancourt, F., 2014. Small business and tax compliance costs: A cross-country study of managerial benefits and tax concessions. eJournal of Tax Research, 12(2), p.453.

Fisher, D., 2015. Mid market focus: No joy regarding FBT on travel expenses for FIFO arrangements. Taxation in Australia, 49(7), p.377.

Grudnoff, M., 2015. Top gears: How negative gearing and the capital gains tax discount benefit the top 10 per cent and drive up house prices.

Harding, M., 2013. Taxation of dividend, interest, and capital gain income.

Hemmings, P. and Tuske, A., 2015. Improving Taxes and Transfers in Australia.

Hodgson, H. and Pearce, P., 2015. TravelSmart or travel tax breaks: is the fringe benefits tax a barrier to active commuting in Australia? 1. eJournal of Tax Research, 13(3), p.819.

Jacob, M., 2018. Tax regimes and capital gains realizations. European Accounting Review, 27(1), pp.1-21.

Kania, B., 2013. Capital Gains Tax. In Steuerstandort Großbritannien (pp. 128-156). Springer Gabler, Wiesbaden.

Mahar, F., 2016. The distortive effects of the capital gains tax regime. Tax Specialist, 20(1), p.16.

Naik, L. and Kohn, M., 2013. Test case clarifies PBI endorsement criteria. Keeping Good Companies, 65(9), p.557.

O’Connell, A., Martin, F. and Chia, J., 2013. Law, policy and politics in Australia’s recent not-for-profit sector reforms. Austl. Tax F., 28, p.289.

Voßmerbäumer, J., 2013. Incentive effects and the income tax treatment of employer-provided workplace benefits. Review of Managerial Science, 7(1), pp.61-84.