With the changes in complex business structure, each and every organization needs to use the strategic tax planning process to mitigate the business risks. There are several concepts are discussed such as tax computation, computation of the car fringe benefit, assessment of income and tax computation in different circumstances.
There are several tax concepts which have been analyzed with a view to assess the income tax rules and ordinary concepts of the tax and income. It is analyzed that when a person gets benefits from his or her skills, talents or hobbies and other sources from where he earns money will be taxable as per the rules and regulation of the income tax. However, there are several exceptions for the same when the tax of the person does not need to be gone for the taxation. It is evaluated that when person receives voluntary consideration for his own skills. In this case, the consideration which he receives does not get taxed. For instance, if the auditors if sell his auditing skills to government with a view to strengthen the government owkr process in the best interest of government and general public then any amount of consideration received by him will be tax free. However, if he was intended to sell his skills then in this case, any amount of money received by him will be taxed under his hand (Saez, 2017).
Therefore, it could be inferred that the income earned by Hilary by selling the copyright for $ 1000, pictures for $ 2000 and manuscript for $ 5000 and all the amount which received as income consideration from the personal exertion and comes under the taxable income bifurcation.
However, she wrote the book for her own pleasure and satisfaction. Nonetheless, she later on had the clear intention to make money from her skills and started to sell her books. Therefore, the entire amount received by her will be taxable in the hands of her as per the rules and regulation of Australian tax practice (Saez, 2017).
It could be defied as benefit which is provided by employer to employees. The employees is given car to use for his personal and professional purpose. It is analyzed that in order to make the same arrangement, employer had to buy the car either through the hire purchase or lease. At the same time, employee uses the car for his personal purpose as well apart from using at the employer’s place (Dyreng, Hanlon and Maydew, 2017).
It is considered that the car parked in the premises of the employees beyond the fact that whether it is used by him or not will be considered as car used by him.
In order to compute the taxable value of the fringe benefit give to employees, there are two formulas given as below(Saez, 2017).
Statutory Formula Method
Operating cost method
These both formulas is used to calculate the taxable income of the fringe benefit using the tax amount payable on the fringe benefit.
Computation of taxable income of the fringe benefit using the tax amount payable on the fringe benefit as per the Statutory Formula method
These are the information shown in the question already.
Base value of car : $50,000
The number of days involved in the FBT when the car given to employees is used for the personal purpose : 183
Days in FBT years : 365
Employee contribution for the car : $1000
Car travelled (in kms) : 16,000 km
Formula used in this case does not required travelled kilometres.
The statutory rate given is 20%.
The formula is as follows:
= {(base value of car x the applicable statutory percentage x the number of days the car was used for personal purpose) / the number of days in FBT year} – employees contribution (Somers, and Eynaud, 2015).
= {(50000 x .20 x 183) / 365} – 1000
= {(1,830,000)/365} – 1000
= 5013.6986 – 1000
= 4013.6986
= $ 4014
There are several rules and regulation of the income tax which need to be complied by the person before determining the income tax payable on the earned income.
It is analyzed in this case that mother lent sum of $ 40000 to his son as loan amount which will be required to be paid after 5 years as whole sum of $ 5000.
They both did not have any formal agreement and there was no requirement to pay interest
Her son repaid the money back with in period of 2 years.
He made the payment of total capital which is accompanied with $44,000 as the capital repayment of $40,000 along with the interest of $4000 for two years.
The rate of interest payment was 5% per annum for the two years.
The total check given for the payment was $44,000, which includes all the capital payment of $40,000 and rest of the amount given as interest to mother will be taxed as taxable income of $4,000 in mothers hand.
The payment of $40,000 given to mother as repayment shall not allowed as tax deduction expenses. However, $ 4000 interest payment could be used by son as tax deduction in his taxable income.
The clubbing of income would have been applied to mother and son if the son were to be minor. In that case, all the income earned by the mother and son will be jointly taxed in the hands of the mother and she will be liable to pay tax on the total income of minor.
However, in this case, both person will be individually taxed as per the income tax rules (Richardson, and Lanis, 2007).
After evaluating the case, it could be inferred that the since 20th September, 1985, ,capital investment in the residence property brought before the time will be taxed as capital gain taxed if there is increment in the property value (Somers, and Eynaud, 2015).
Since 20 September 1985, the Capital Gain Tax (CGT) came into force. After that, any major capital improvement made in a residence property purchased before that shall be taken into account for capital gain tax. The arrangement has been taken place when the residence is not the person’s main residence (Somers, and Eynaud, 2015).
Investment made to improve the property will be considered that major capital improvement and capital investment
(Improvement will be considered or indexed in case of the given contract in which improvement capital investment is made before 21st September 1999 of the habitancy acquired before 1985.
Improvement cost capital investment
However, lower of the following given will be considered as the capital gain taxable in the hands of owners (Tran-Nam, et al., 2010).
The improvement revealed in the year of the income tax payable would be 1986-87 is $53,950 and for income year 2016-17 is $145,401 (Rendall, 2017).
It is required to check the major capital improvement in the net capital gain loss would be dwelling purchased before 20th September 1985.
It would be considered as capital amount of investment (Schenk, 2017).
Computation of the capital gain or loss
HENCE, THE CAPITAL GAIN IS $370,000
If the property sold to the Scott’s daughter then the following things will be analyzed.
The tax implication on the property would be around $370,000
There are different rule and regulation applicable on the individual and company in order to determine their taxable income. It is analyzed that if the owner of the capital assets is entity rather than the individual then implication of tax will be changed accordingly. Company and individual fall under the different slab rate of the tax payment and tax rate applies on the nature of the tax payer. If the tax payer is company then it will be completely liable to pay tax at flat 30% on the income without availing any deduction or slab rate discount (Blaylock, Gaertner, and Shevlin, 2017).
On the other hand, individual person could enjoy the benefit of tax slab and other deduction in his taxable income which will eventually reduce his taxable income.
The slab rate is computed after allowing the discount method which is no allowed to companies but for the individuals (Balakrishnan, Blouin, and Guay, 2018).
The indexation method could be used to compute the long term capital gains i.e. gain or loss from the assets which have been held by company for more than 12 months (Saez, 2017).
These above calculations applies to company and will also be used to compute the capital gain tax.
However, below given discount method would be followed to compute the tax amount of company (Heathcote, Storesletten, and Violante, 2017).
DISCOUNT METHOD: {proceeds of improvement – cost base of improvement (without indexation)} – 50% discount = (800,000-60000)*.50 = $370,000
Conclusion
After analysing all the detail and applicable taxation rules, it could be inferred that individual and company both needs to calculate their taxation liabilities differently. However, government has given certain exemption to individuals on their earning and beyond that they will be liable to pay tax on their earning. In this case, capital gain taxation analysis and individual tax analysis have been done which will assess the taxable income of company. Now in the end, it could be inferred that every single person should pay tax as per the applicable rules otherwise they will have to face high penalties. There are two methods for the calculations of capital gain tax of the company will also be used to compute the capital gain tax which company needs to pay to government.
References
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.
Somers, R. and Eynaud, A., 2015. A matter of trusts: The ATO’s proposed treatment of unpaid present entitlements: Part 1. Taxation in Australia, 50(2), p.90.
Tran-Nam, B., Evans, C., Walpole, M. and Ritchie, K., 2010. Tax compliance costs: Research methodology and empirical evidence from Australia. National Tax Journal, pp.229-252.
Rendall, M., 2017. Female market work, tax regimes, and the rise of the service sector. Review of Economic Dynamics.
Schenk, D.H., 2017. Federal Taxation of S Corporations. Law Journal Press.
Lim, T.C. and Azhar, Z., 2017. A Review of the Opportunities, Risk and Challenges of E-Commerce Tax Administration in Malaysia and Other Selected Countries.
Blaylock, B., Gaertner, F.B. and Shevlin, T., 2017. Book-tax conformity and capital structure. Review of Accounting Studies, 22(2), pp.903-932.
Balakrishnan, K., Blouin, J. and Guay, W., 2018. Tax Aggressiveness and Corporate Transparency. The Accounting Review.
Saez, E., 2017. Taxing the rich more: Preliminary evidence from the 2013 Tax Increase. Tax Policy and the Economy, 31(1), pp.71-120.
Heathcote, J., Storesletten, K. and Violante, G.L., 2017. Optimal tax progressivity: An analytical framework. The Quarterly Journal of Economics, 132(4), pp.1693-1754.
Dyreng, S., Hanlon, M. and Maydew, E., 2017. When does tax avoidance result in tax uncertainty?.
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