1. The objective of the given scenario is to compute the net capital gain or capital loss for the given client who is not only an investor but also an antique collection. The relevant capital gains implications of the various transactions that have been enacted in the given tax year are as presented below.
Section 149-10 ITAA 1997 states that any asset that has been acquired before September 20, 1985 would be a pre-CGT asset and hence exempt from Capital Gains Tax (CGT). It is apparent that the given block of land has been purchased in January 2001, hence the land would not be considered a pre-CGT asset (Barkoczy, 2017).
Section 104-5 states that the underlying transaction is an A1 event whereby a CGT asset in the form of land block has been sold. The capital gains/(loss) on the same would be computed by deduction of the sales proceeds and the cost base of the asset. For the computation of cost base, s. 110-25 ITAA 1997 ought to be considered. As per s. 110-25(1), there are essentially five elements which comprise the cost base of the asset as indicated below (Nethercott, Richardson and Devos, 2016).
In the given case, purchase price of land = $100,000
Ownership period expenses = $ 20,000
Cost base of the asset = 100000 + 20000 = $ 120,000
Another issue in the given case is whether the capital gains would be considered in the current year when sale contract is signed or in the next year when the settlement of the contract would be done. As per TR 94/29, the capital gains needs to be included in the same year where contract is signed for asset disposal even though the actual payment of CGT can be done upto 30 days from the settlement of contract without attracting any penalty from ATO. Thus, the capital gains would be represented in the current year tax filing (Reuters, 2017).
Capital gains on land block = Sale proceeds – Cost base = 320000 – 120000 = $ 200,000
There is a previous year capital loss to the tune of $ 7,000 which would be used to settle against the above capital gains. Hence, capital gains = 200000-7000 = $ 193,000
As per s. 115-25(1), a discount of 50% is available on the capital gains arising from the disposal of long term assets i.e. those whose holding period exceeds one year (Woellner, et.al., 2017).
Thus, capital gains subject to CGT = 0.5*193000 = $ 96,500
As per s. 118-10, antique items fall within the ambit of collectables considering their broad definition. Further, as per s. 118-10(1), any capital gains or losses on the antique item would be disregarded for CGT purposes if the underlying asset was acquired for $500 or less. In accordance with s. 104-5, the underlying transaction is an A1 event whereby a CGT asset in the form of land block has been sold. The capital gains/(loss) on the same would be computed by deduction of the sales proceeds and the cost base of the asset.
In the given case, the antique bed has been purchased post September 20.1985 and also the buying price is greater than $ 500 and hence resultant CGT liability would not be disregarded,
Clearly, there has been involuntary disposal of bed, leading to realisation of $ 11,000 which would be treated as the disposal price.
As per s. 115-25(1), a discount of 50% is available on the capital gains arising from the disposal of long term assets i.e. those whose holding period exceeds one year (Hodgson, Mortimer and Butler, 2017).
In accordance with s. 149(10) ITAA 1997, any asset that has been acquired before September 20, 1985 would be a pre-CGT asset and hence exempt from Capital Gains Tax (CGT). It is known that painting purchase date lies in pre-CGT era thus disqualifying this asset from CGT imposition. Since the given painting is a pre-CGT asset, hence the resultant capital gains arising from the sale of painting would be discarded and no CGT would be applied on the same. Hence, no capital gains or losses arise from the sale of the given painting (Deutsch, et. al., 2015).
In accordance with s. 104-5, the underlying transaction is an A1 event whereby a CGT asset in the form of shares been sold. The capital gains/(loss) on the same would be computed by deduction of the sales proceeds and the cost base of the asset (Woellner, 2016).
In the given case, it is apparent that the violin is a personal use item and not an antique or collectible. This is because, it is apparent that the client has several violins and plays them on a regular basis. Thereby, there is usage of the assets for entertainment purposes and hence it is an use used for personal use (Coleman, 2016). With regards to personal use items acquired for a cost of less than $ 10,000, there is exemption from both capital gains and losses. In the given case, it is known that the violin has been acquired for $5,500 and therefore irrespective of the selling price would be exempt from capital gains.
The tax treatment applied on the variety of fringe benefits needs to be analysed with the Fringe Benefits Tax Assessment Act 1986 (FBTAA86). Fringe benefits are extended by the employer to their employees during their employment with the company and are taxable on the part of employer only. In the present case, employer Rapid Heat has provided fringe benefits to its employee Jasmine and therefore, the fringe benefits tax implications need to be discussed in accordance of FBTAA86 (Wilmot, 2014).
Jasmine has received three fringe benefits (car, loan and expense) from Rapid Heat. The implication of these fringe benefits is calculated below.
Section 7 indicates the car fringe benefit being extended to employee only when private usage of car by employer is permitted irrespective of the use for professional purpose (Coleman, 2016). It is evident that Rapid Hear has provided car to its employee Jasmine for private usage and hence, fringe benefits liability would arise on Rapid Heat.
In order to find the FBT liability, the grossed up taxable value would be calculated based on the given information as per section 9F. Further, car is categorised as Type 1 goods as discussed in Goods and Service Act 1999 and therefore, the tax rebate on GST input credits can be requested by employer Rapid Heat (Wilmot, 2014).
Rapid Heat has purchased the car for $33,000 and has issued to Jasmine. Further, Rapid Heat has reimbursed the incurred expense of $550 to Jasmine which has incurred on the minor repairs on the car.
Based on the information provided, the employer purchased the car on May 1, 2017 and handed it for use to Jasmine and this continues till the end of year which applies deduction only for April. Further, five days for which the car was not available to Jasmine would not be deducted from 335 because the car was sent for minor repairs and expenses incurred on minor repairs would not amount for deduction. Despite the car being at the airport parking for ten day period, deduction in this regards cannot be claimed since the car could be used by Jasmine or her husband as it was available for use but was not used by either of them.
Total number of days = 335 days
Grossed up value for car
Grossed up value = $32450 *20 %*( 335 /365)* 2.0802 = $12,390.86
FBT liability
Fringe benefits tax liability = $12,390.86*47% = $5823.70
Therefore, the fringe benefits tax liability on account of car fringe benefits would be $5823.70
Employer provides financial help in terms of extending loans to their employee at concessional interest rate or at zero interest rate which leads to loan fringe benefits. These concessional rates are lesser than the benchmark interest rate set by the Reserve Bank of Australia (Barkoczy, 2017). The applicable benchmark interest rate for the year terminating on March 31, 2018 is 5.25%. It is apparent that Rapid Heat has provided a loan of $500,000 to Jasmine at an interest rate of 4.25% which is lower than the statutory interest rate of RBA and thus, the extension of loan would amount to loan fringe benefits and FBT liability on Rapid Heat. The extension of loan by employer has been done on first day of September and hence the total duration during the given assessment year is taken as 213.
Saving of interest amount
Saved interest amount
Therefore, the fringe benefits tax liability on account of loan fringe benefits would be $2580.43.
Employer Rapid Heat can demand for the tax deduction on the amount of loan $450,000 which is used by employee Jasmine to purchase a holiday home. However, the essential condition for the applicability of deduction is that the holiday home generates income for Jasmine (Wilmot, 2014).
Rapid Heat sold the electric heater to public for a price of $2,600. However, Jasmine has purchased the same heater for $1,300 which shows that Rapid Heat has provided an internal expense fringe benefit (Gilders,et.a., 2016).
Amount of internal expense fringe benefits = Selling price of heater – Price given to Jasmine = $2,600 -$1,300 =$1,300
75% of the sale price of heater = 75%* 2,600 =$1,950
Gross up rate
Electric heater is categorised as Type 1 goods as discussed in Goods and Service Act 1999 and thus, the applicable gross up rate would be 2.0802.
Grossed up value
Grossed value of internal expense fringe benefits = ($1,950-$1,300)*2.0802=$1352.13
FBT liability
Fringe benefits tax liability = $1352.13*47% = $635.50
Therefore, the fringe benefits tax liability for internal expense fringe benefits would be $635.50.
If Jasmine has used the amount of $50,000 to purchase the shares in Telstra rather than giving the amount to her husband to purchase the shares, then in such scenario the amount of interest saved on loan ($50,000) would also be considered for tax deduction by Rapid Heat since it is used for income generation by employee. The additional amount of for deduction can be calculated as shown below (Hodgson, Mortimer and Butler, 2017) .
Hence, the FBT Liability for Rapid Heat would fall down by $500 from the net amount calculated in part a, if Jasmine used $50000 to purchase the shares.
References
Barkoczy, S. (2017) Foundation of Taxation Law 2017. 9th ed. Sydney: Oxford University Press.
Coleman, C. (2016) Australian Tax Analysis. 4th ed. Sydney: Thomson Reuters (Professional) Australia.
Deutsch, R., Freizer, M., Fullerton, I., Hanley, P., and Snape, T. (2015) Australian tax handbook. 8th ed. Pymont: Thomson Reuters.
Gilders, F, Taylor, J, Walpole, M, Burton, M. and Ciro, T (2016) Understanding taxation law 2013. 6th ed. Sydney: LexisNexis/Butterworths
Hodgson, H., Mortimer, C. and Butler, J. (2017) Tax Questions and Answers 2016. 6th ed. Sydney: Thomson Reuters.
Nethercott, L., Richardson, G., and Devos, K. (2016) Australian Taxation Study Manual 2016. 8th ed. Sydney: Oxford University Press.
Reuters, T. (2017) Australian Tax Legislation (2017). 4th ed. Sydney. THOMSON REUTERS
Wilmot, C. (2014) FBT Compliance guide. 6th ed. North Ryde: CCH Australia Limited.
Woellner, R. (2016) Australian taxation law 2014. 8th ed. North Ryde: CCH Australia.
Woellner, R., Barkoczy, S., Murphy, S. and Pinto, D. (2017) Australian Taxation Law 2017 27th ed. Sydney: Oxford University Press Australia.
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