Discuss about the Taxation for Income Tax Law.
Capital gain refers to the difference between the acquisition costs and proceeds from capital of the capital gain tax. There are three methods that can be used for the calculation of capital gain tax. The first method is the discount methods that are applied for more than twelve months before the event of the capital gain tax (Newnham, 2012). The second method is indexation method that would be applied when the assets are acquired or purchased before the date of September 21st and held that assets for more than twelve months before the event of the relevant capital gain tax. The final method or the third method is the residual method that is applied when the assets are held for around less than 12 months. Therefore, the computation of the capital gains is estimated by applying the following the three methods.
Items that are exempted from gain on the sale of the capital asset are as follows:
The property that is acquired before the date of September 20th 1985 that is:
Carry forward of the losses that arises from the capital gains
Capital loss (long term): The long term losses of capital can be set off against the capital gain in long term only. It is not possible for other set off. Therefore, it can be carried forward to the successive assessment years and to be set off against the long term loss of capital only.
Capital loss (short term): The capital losses in short term can be set off against the same sources or from the capital gain in long term (Prince, 2011). Therefore, it can be carried forwarded to the successive assessment years and to be set off against both the long term gains and short term gains.
In the given case study, Mr. Dave Solomon who is living in a two storey building for the last 30 years and the building was purchased for an amount of $70,000. The building was sold by him on 27th June for an amount of $8, 50,000 of the tax year. However, the resident was sold originally at an auction and the purchaser paid $85,000 as the advance money against the purchase of the resident. But, consequently the purchaser did not have enough money to purchase the resident and hence the advance amount was forfeited (Meagher and Agrawal, 2008). The amount of money $85,000 that was received should be charged to the “Income from the other sources”.
Computation of the capital gain
Calculation of the capital gain
Proceed from sale = $8, 65,000
The sale proceed is exempted under CST I.E home exemption (family)
Long term capital gain = NIL
The painting of the pro hart that was purchased on the date September 20th, 1985 for an amount of $15,000 that was sold for an amount of $1,25,000
The capital gains are as follows:
Sale Proceeds= $1, 25,000
Less: Indexed acquisition cost
15,000*123.4/71.3 = $25,961
Long Term Capital Gain = $150, 961he luxury motor cruiser that was purchased in 2004 for an amount of $1,10,000 and was sold on June 1st of the current accounting year to the local boar broker for an amount of $60,000
Hence the capital gain would be as follows:
Proceeds from sale = $60,000
Less: Indexed acquisition cost = $ 1, 10,000
Long term capital loss = $50,000
The parcel of shares was sold by him in a listed mining organization that was new on June 5th of the current fiscal year for an amount of $80,000. On 10th January, the shares were purchased by him in the current year for an amount of $75,000 (Lee Jae Ho, 2009). The sale brokerage of the shares was paid by him of amount $750 and the stamp duty for the share was purchased for an amount of $250. According to the income tax law, the loan interest is not the part of the acquisition cost. Therefore, loan interest has not been included.
Hence, the capital gain would be as follows:
Proceed from sale= $80,000
Less: Brokerage = $750
Less: Acquisition cost = $75,000
Less: Stamp duty = $250
Short Term Capital Loss = $4,000
The tax return of the Mr. Dave for the current accounting year at the end of June 30th of the previous fiscal year shows the net capital loss of amount $10,000 from sale of the shares. The amount can be adjusted with the long term capital gain of current year (Poff, 2015).
So, the net capital gain in long term for the current fiscal year is $1, 04,961 – $10,000
= $94,961
The net capital gain is the total amount gain from the sale of the capital assets minus all the losses incurred on the sale of the capital assets that includes loss on the sale of the capital assets from the previous year (Yoon Oh, 2012). Therefore, it can be concluded that capital gain tax is not the separate tax. The capital gain assets forms the part of the assessable income and subsequently the tax must be paid on the gain earned from the sale of the capital assets in the current income year is which the sale of the asset was took place (KimSungKyun, 2007). The gain on the sale of assets was earned by Mr. Dove as result he contributed funds to his superannuation fund. Therefore, he has to maintain records when major and important transaction took place that includes purchase receipts, interest on loans, legal fees, and expense paid for litigation fees. The records include maintenance and repairs of the assets and the records of the brokerage paid on the shares.
The net capital loss is sum of all the losses earned from the sale of the capital assets that includes loss from the previous year. It is not possible for assessed to set off the capital losses from other source of the income but must carry forward for the following years and deducting it from the capital gains earned in the subsequent years. However, the capital losses can be carried forward for the indefinite periods (Hewson, 2014). The assessed does have the legal rights to select not to set off the capital losses against the capital gain and they can deduct the losses as per the choice with the capital gain. In case, if positive gain is not there for Dave then he may sale more assets or takes loan that will contribute to the personal superannuation funds and ten purchasing the rented apartment and withdrawing the tax amount for the superannuation fund and attaining the age of 60 in the next year of august.
Part a)
Periwinkle Pty Ltd is Manufacturer Company, mainly produce bathtub. The company sells it products directly to the customers. The company has an employee named Emma and on May 1, 2015 the company gave a car to Emma for official use. Emma uses the car others purpose also along with official work (Pattenden, 2006). The company procure the car on May 1, 2015 for $ 33,000.
Emma did tour by the car around 10,000 K. M. Within the period of 1st may 2015 to 31st March 2016. The company reimbursed Emma $ 550 for repairing expanse of the car. In order to repair the car was parked in the garage for 10 days and afterwards the car was parked at the airport. On September 1, 2015, the company sanctioned loan amount of $ 5, 00,000 and for this loan Emma has to pay 4.45% interest to the company. By the loan amount Emma has bought a holiday home for $ 450,000 as well as the balance amount of $ 50,000 she gave her husband for purchasing shares of Telstra (Fringe benefit tax, 2000).
Throughout the period, Emma bought a bathtub produced by the Periwinkle Pty Ltd for $ 13, 00; however, the manufacturing cost of the bathtub is $ 700 and sold to the public at $ 2600.
The fringe benefit tax decide the benefit, which are given to the workers by the company or employer. The Fringe benefit tax is applied for the cash as well as non-cash benefits, which are provided by the companies to their employees (Plancich, 2003). Therefore, certain amount of exemption made for the tax benefits, which are mentioned below:
The Fringe benefit tax is applicable for the car, house, transport, airline as well as for the car parking. The fringe benefit tax is defines the station wagon as a car which is used to carry the goods less than the weight of one ton and the vehicle is also used to carry the goods as per the management of the wastes and thus it also helps in the exact calculation of the strategies. However, if the passengers in the car which is provided to be employees, the definition of the car is signified as the fringe benefit of the taxes and thus it also helps in providing the benefits to the employees that are provided by the employers for the proper enhancement of the taxes for the computation of the benefits. The car that was provided by Emma also helps in 1qualifying the definition of the fringe benefits and thus t also helps in the relating the fringe benefit taxes to the car that was provided by the company (Double taxation, 2003). Therefore, the car provided by the company is under a fringe benefit and as Emma used it for personal use, the company y has to pay Fringe benefit tax for giving car to the employee.
As per the question
Base value of the car is $33,000
Number of days applied for the car for fringe benefit tax =335-5 = 3
$33000*20%*330/365 = $5,967
Less expenditure incur by the worker = $550
Fringe benefit tax $5,417
The treatment for the loan given to the worker by the company at low interest rate is also applicable for Fringe benefit.
Moreover, the Fringe benefit tax is calculated at the time the company y gives the loan to the workers at low interest rate (Cerexhe, 2008). Therefore, the standard rate of interest free loan is applied for Fringe benefit tax and this can be computed according the given process:
The standard rate of interest is 5.95% whereas the rate of the interest for the loan provided by the Company is 4.45%.
Therefore, the fringe benefit tax would be calculated as follows:-
5,00,000* 1.50% = $7,500
The employee utilized $4, 50,000 and therefore the usage of the loan for buying of the house as well as the rest of the amount has been given to her husband (Apps, 2008). Therefore, Emma incurred $4, 50,000 for the house and thus the taxable value remains unchanged i.e. $7,500.
As per given in the case, the Emma utilizes the total amount for the loan in order to buy the property that are valued $ 4, 50,000 as well as the fringe benefits that are calculated by the process are as follows:-
i) The assessable value for taxation on the loan fringe benefit devoid of the deductive value
$7, 5005, 00,000*1.50%
ii) In case of ignorance, any interest levied as well as expects that the loan was devoid of interest
$5, 00,000*5.95%
= $29,750,
iii) Now assume that the worker made payment of the interest equal of the amount of assessable tax value
$ 29,750*10/100 = $2,975
iv) Now, the actual circumstances that can be seen in case the worker is charged interest on the loan
$5, 00,000*4.45%*10%
= $2,225
v) Minus iv from iii
$ 2,975- $2,225
= $750
vi) Assessable tax value (i-v) = $7500-$750 = $6,750
References
Yoon Oh, (2012). A proposal to improve capital gain taxation in Korean income tax law.Journal of IFA, Korea, 28(2), pp.177-221.
Toward tax reform. (2009). [Falls Church, Va.]: Tax Analysts.
Prince, J. (2011). Tax for Australians for dummies. Richmond, Vic.: John Wiley & Sons Australia.
Poff, J. (2015). The Effect of Increases in the Capital Gain and Dividend Tax on the Effective Tax Rate for Investments in Stock. Journal of Business and Economics, 6(6), pp.1157-1164.
Plancich, S. (2003). Mutual Fund Capital Gain Distributions and the Tax Reform Act of 1997.National Tax Journal, 56(1, Part 2), pp.271-296.
Pattenden, K. (2006). Capital Structure Decisions Under Classical and Imputation Tax Systems: A Natural Test for Tax Effects in Australia. Australian Journal of Management, 31(1), pp.67-92.
Park Nosu, and Hun Park, (2014). Research on Unified Application of Tax Laws related Contractual Rescindment on Capital Gain Tax, Gift Tax and Acquisition Tax. Seoul Tax Law Review, 20(1), pp.243-292.
Newnham, M. (2012). Tax For Small Business. Hoboken: John Wiley & Sons.
Meagher, G. and Agrawal, N. (2008). Taxation Reform and Income Distribution in Australia.Australian Economic Review, 19(3), pp.33-56.
Lee Jae Ho, (2009). A Study on the Taxation of Capital Gain from the Disposition of Treasury Stocks. Seoul Tax Law Review, 15(1), pp.341-387.
KimSungKyun, (2007). Review of Inheritance Tax System―focused on unrealized capital gain―. Seoul Tax Law Review, 13(2), pp.375-413.
Hewson, J. (2014). The Politics of Tax Reform in Australia. Asia & the Pacific Policy Studies, 1(3), pp.590-599.
Fringe benefit tax. (2000). [Wellington, N.Z.]: Inland Revenue.
Double taxation. (2003). [Washington, D.C.]: U.S. Dept. of State.
Cerexhe, P. (2008). Smarter property investment. Crows Nest, N.S.W.: Allen & Unwin.
Apps, P. (2008). Comment:‘Taxation reform and income Distribution in Australia’. Australian Economic Review, 19(3), pp.57-59.
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