The focus of this assessment is to analyze the taxation provisions which are applicable on a business in relation to capital gains of a business. The capital gains of the business are included in the computation of taxable income of the business and the same is covered under the “section 102-20 of the ITAA 1997”. The legislation which are established in relation to established in relation to capital assets which are disposed are covered under CGT even A1. In the case laws of “Sara Lee Household v FC of T (2000)” as soon as taxpayers enters a contract CGT becomes applicable on the individual and moreover the same needs to be included in the tax liabilities of the individual for the year (Burkhauser, Hahn and Wilkins 2015).
There are further provisions which is applied in case of CGT such as in case of damage of assets which is of capital in nature the same will result in capital gains as per “Section 104-20(1)” under which CGT event C1 is attracted. Similarly, there are other instances in which capital gains taxation becomes applicable on a business.
The case which is provided in the assessment deals with CGT application on a taxpayer which is engaged in antique collection. The taxpayer is under the acquisition of a vacant land which was acquired for a sum of $ 100,000 in 2001. The taxpayer has incurred expenses such as water and sewerage expenses and also incurred land taxes on the same (Evans, Minas and Lim 2015). The taxpayer has entered into a contact to sell the plot of land for an amount of $ 320,000.
As per the provisions of Australian taxation legislations, the vacant land which is owned by the taxpayer will be considered to be a capital asset and the same also attract CGT as the taxpayer has sold the plot if land in excess amount in comparison to the amount in which the land was incurred thus making capital gains (Dietsch and Rixen 2016). CGT is applicable on a sales of capital asset when the same complies with the applicability provisions which states that a capital asset should be applicable to CGT if the acquisition takes place on or after 1985. In addition to this, the taxpayer needs to have records of all the expenses which was incurred on the asset for the purpose of computing the capital gain taxes.
The expenses which the taxpayer incurs on the land such as land tax, sewerage and water rates are to be considered while computing the CGT for the same. However, it is to be noted that expenses incurred by the taxpayer will not be allowed as deduction in case of CGT. Therefore, the sales of plot of vacant land will be considered for taxation under CGT.
As per the case which is provided, the taxpayer was in possession of an antique bed which was currently valued to be $ 25,000 and the same was purchased by the taxpayer at an amount of $ 3,500 in 1986. This bed was stolen for which the taxpayer filed an insurance claim. The insurance company notified that the bed was not specifically covered in the contact and therefore the maximum insurance claim which can be provided is $ 11,000.
Firstly, it is clear that the event certainly falls under the applicability clause of the business. The provisions of “Section 118-10 (1), ITAA 1997” states that the collectible items which are of value up to $ 500 or equal to $ 500 will be exempted from the purview of taxation. However, the taxpayer in this case receives $ 11,000 which should be considered to be taxable. In addition to this, “section 104-25 (1)” makes it clear that in event of any loss caused by damage of property CGT event C1 is attracted (Chardon, Freudenberg and Brimble 2016). Hence therefore, the stolen property will be considered to be part of the tax obligation for the taxpayer.
The provisions which are covered in “section 108-20(2), ITAA 1997” is related to the discussion regarding personal use of assets. It is also advised by the tax legislations that capital losses should be excluded in case of assets belonging to personal property of assets. The case shows that the taxpayer acquired a painting whose value has significantly increased in the market. The painting was initially acquired on 2.05.1985. In order to analyze the tax applicability of the case, “section 118-10(3), ITAA 1997” is to be considered which stated that personal property of a taxpayer should not be considered if the value for the same is less than $ 10,000.
As per the information regarding the case which is provided above, the paint was acquired in 2nd May 1985. The applicability clause states that in order come under the Purview of CGT legislation, acquisition should be considered on or before September 1985. Therefore, the case fails to meet the clause stated in legislation and hence will be considered to be pre-CGT which will not be considered by the taxpayer while computing the tax obligation during the year.
As per the case which is provided in the assessment, the taxpayer maintains a portfolio which consists of shares of different companies which are being sold by the taxpayer in current year. This needs to be considered from the point of view of CGT (Eccleston 2013). The income which is generated from the sales of such shares are related to the shares of PHB, Common Ltd and Build Ltd and the business also has incurred losses in case of shares.
The income which the tax payer generates from the sale of shares will be considered while computing the tax obligations, but it is to be noted that taxpayer also has the option to set off the losses with profits generated by the business and the remaining shall be considered to be taxable income of the business.
The case deals with the fact that taxpayer in the current year sold a violin for $ 12,000 which had initially costed the client $ 5,500 in 1999. The provisions of “Subdivision 108-C” deals with assets which are of personal usage. These assets are considered to be non-collectible in nature and includes furniture, products of electrical nature. The assets should be considered for the use of personal enjoyment as shown in the case therefore cannot be covered under CGT requirement.
In addition to this, the assets which are of personal use are only to be included in the computation of the asset when the value for the same is less than $ 10,000 which the case in the scenario and therefore the same is not covered under CGT requirements.
The computation of CGT is shown to in the figure below:
2.
Part a
This part deals with the Fringe Benefit taxes (FBT) which is applicable on a business as per the legislation of “FBTAA 1986”. The provisions cover several instances of benefits which can arise in a business due to effective benefits which are provided to an employee during a period. Some of the significant benefits and the respective FBT which is attracted are shown in the discussion below related to the case study.
Fringe Benefits taxes arises when an employer provides certain benefits to the employees which are generally provided during the course of employment for the employee (Silver, McGregor-Lowndes and Tarr 2016). The legislation provides that such benefits which are provided by the employer to the employee should be during the course of employment n order to consider the same as fringe benefits (Emery 2016).
The fringe benefits which is provided for the benefits of expenses are covered under the legislation of “Subdivision B 22A of the FBTAA 1986”. The expenses which are incurred by the employee for private or official use and which are reimbursed by the employer are identified as expenses fringe benefits which is provided by the organization. Such benefits should be provided during the course of employment of the business (Harding 2014). Therefore, the value of reimbursed expenses which are provided by the employer will be considered to be taxable under FBT rulings.
The fringe benefits which is related to car parking benefits are covered under the tax rulings of “Sub-Division B 39C of the FBTAA 1986”. There is certain condition which are to be met in order to qualify as fringe benefits relating to car parking facilities and the same is provided below:
As per “Division 4 of the FBTAA 1986” the loan fringe benefits arise when the employer grants a specified amount of loan to the employee at a concessional rate of interest which is much lower than the statutory rate of interest which are much higher (Hodgson and Pearce 2015). The difference between the statutory rates and the concessional rates will be considered to be fringe benefits for the business (McLaren 2017). The provisions of FBT will be applicable in such a case as the employee is getting benefits of lower rate of interest from the employer.
In addition to this, the fringe benefits which arises from availability and use of car services by the employee which is provided by the employer during the course of employment is also covered under FBT as per “sub-section 136 (1), FBTAA 1986”. The benefits for car services is used by employee for travelling from home to place of work and also for personal use as well (Fisher 2015). As held in the case of “Federal Commissioner of Taxation v Lunney (1958)” FBT will be applicable when such a benefit is provided to the employee by the employer during the course of employment.
As per the case study which is provided in the assessment, relates to the operations of Rapid heat PTY ltd where Jasmine is an employee who receives various benefits from the employer and on the basis of the discussion conducted in the rulings it is to be decided whether the tax rulings are taxable on the business or not. The employer has provided a car to Jasmine for the purpose of providing her ease in travelling from office to work and also for personal use. The provisions of “sub-section 136 (1), FBTAA 1986” identifies that car fringe benefits was provided to Jasmine and therefore the same will be considered to be taxable as per the case laws of “FC of T v Lunney (1958)”.
The case study also shows that Jasmine was provided a loan of $ 500,000 from the company and the interest which was applied on the loan was of lower rate as compared to the statutory rate and therefore loan fringe benefit provisions will be attracted as per “Division 4 of the FBTAA 1986”. The same shall be included for the purpose of tax assessment under FBT.
In the case study it is also stated that Jasmine had also parked the car in an commercial airport. The situation does not satisfy the condition for attracting car parking fringe benefits as the car is not parked within 1 km radius from the premise of the employer and therefore no FBT shall be applicable in this case (Barkoczy 2015). The case also provides that Jasmine was also reimbursed for expenses incurred by her towards repairs of car which is considered for FBT under “subdivision B 22A of the FBTAA 1986”.
Conclusion
The above discussion shows that Jasmine is provided with numerous benefits which attracts fringe benefit taxes as shown in the discussion above. The loan fringe benefit taxes will be applicable to the business of Rapid heat Pty Ltd and the business can also claim deductions which are incurred during the course of employee’s employment.
The expenses which are incurred by the businesses in normal course of action in relation to business can be claimed as deductions as per “section 8-1 of the ITAA 1997”. As per a hypothetical example, If Jasmine purchased shares worth $ 50000 from the loan taken instead of giving the same to her husband, then Jasmine could have claimed the deduction. However, as she gave the loan taken to her husband no deduction is applicable to her as per the provisions of “section 8-1, ITAA 1997”.
References
Barkoczy, S., 2015. Australia’s industry innovation and competitiveness agenda and the proposed new rules for taxing benefits under employee share schemes. Austl. Tax F., 30, p.37.
Burkhauser, R.V., Hahn, M.H. and Wilkins, R., 2015. Measuring top incomes using tax record data: A cautionary tale from Australia. The Journal of Economic Inequality, 13(2), pp.181-205.
Chardon, T., Freudenberg, B. and Brimble, M., 2016. Tax literacy in Australia: not knowing your deduction from your offset. Austl. Tax F., 31, p.321.
Dietsch, P. and Rixen, T., 2016. Global tax governance: what it is and why it matters. Global Tax Governance What is wrong with it and how to fix it, ECPR Press, Colchester, pp.1-24.
Eccleston, R., 2013. The tax reform agenda in Australia. Australian Journal of Public Administration, 72(2), pp.103-113.
Emery, J., 2016. Decoding the regulatory enigma: how Australian regulators should respond to the tax challenges presented by bitcoin.
Evans, C., Minas, J. and Lim, Y., 2015. Taxing personal capital gains in Australia: an alternative way forward. Austl. Tax F., 30, p.735.
Fisher, D., 2015. Mid market focus: No joy regarding FBT on travel expenses for FIFO arrangements. Taxation in Australia, 49(7), p.377.
Harding, M., 2014. Personal tax treatment of company cars and commuting expenses.
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.
McLaren, J., 2017. The Economic Development of Northern Australia: A Critical Review of the Taxation Benefits and Incentives Both Past and Present and the Potential Taxation Options for the Future. J. Australasian Tax Tchrs. Ass’n, 12, p.1.
Silver, N., McGregor-Lowndes, M. and Tarr, J.A., 2016. Should Tax Incentives for Charitable Giving Stop at Australia’s Borders. Sydney L. Rev., 38, p.85.
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