Australian Taxation Fringe Benefit Taxation and Capital Gain Taxation

Question: Discuss about theAustralian Taxationfor Fringe Benefit Taxation and Capital Gain Taxation. Answer: Case 1 In the given case, the subject Mary Jackson is requested by her organization to relocate to Brisbane. She does so, on 10th February, 2016. In cases where the organization requests the employee to relocate to a different city/country, certain expenses are borne by the company for facilitating the relocation. In this case, $4,000 was incurred by Elite Retail, the employer, for the relocation of her furniture and fixtures. Included in her annual salary of $120,000; she was given entertainment allowance worth $5,000 in order to entertain her clients. If one was to notice the other perks that were given to her, one could have a look at the below table: Perks Valuation ($) Laptop 2,400 Mobile phone 800 Home telephone bill 330 (50% consumption was personal) Company Car (On-road cost) 30,000 Professional Subscriptions 1,500 Loan at 4% interest 500,000 The Fringe Benefit Tax rate as per the financial year ending 31st March, 2016 is 49%. In the calculation below, well come up with the conclusion as to what are the tax consequences of the above benefits given to Mary from Elite. Furniture transfer worth $4,000 The transfer of furniture to Brisbane is a special benefit given to the subject by the employer, and therefore the fringe benefit taxation will definitely apply. Therefore, FBT = 49% of $4,000 = $1,960 In the CTC provided to Mary, was included a special amount known as the entertainment allowance which was primarily put to use by her to take care of any sort of accruing entertainment expenses, in order to take care of the needs of her clients. For example, meal costs for a client meeting. Since the subject was a marketing professional, such a cost was a benefit given to her by the organization (Australian Government 2016). Therefore, FBT = 49% of $5,000 = $2,450 The realms of the Fringe Benefit Assessment Act clearly states that any sort of electronic devices provided to the employee for the purpose of execution of work is barred from being charged upon a fringe benefit. Therefore, no fringe benefit is charged on the laptop worth $2,400 and mobile device worth $800. The monthly rental bill for telephone was $330. Under the assumption that GST is charged therein, lets consider the amount to be $300 per month. The bill for two months, February and March will be considered for the year-ending, thereby summing the taxable amount to $600. Therefore, FBT = 49% of $600 = $294 Section 7 of the Fringe Benefit Assessment Act 1986 provides for the taxation of fringe benefit on the on-road cost of vehicles given to employees. In our case, the on-road cost of the Mazda given to Mary would come down to $30,000 and hence this amount will be chargeable with fringe benefit taxation rates (Boccabella, 2013). Therefore, FBT = 49% of $30,000 = $14,700. An amount of $1,500 was being transferred to the employee Marys account on the grounds of payment for professional subscriptions. This would include amounts for magazine and books and other such professional subscriptions which would enhance her professionally. Under the guidelines, any benefit related to the professional development is chargeable with FBT. Therefore, FBT = 49% of $1,500 = $735 Under section 16 of the Fringe Benefit Assessment Act 1986, any benefit given to the employee for a loan in context of low interest rates will be charged with FBT. In this case, let us assume that the market rate of the loan was 10%. Therefore, Mary received the benefit of $500,000 x (10%-4%) = $30,000. Therefore, total Fringe Benefit Tax accrued = $(1,960 + 2,450 + 294 + 14,700 + 735 + 30,000) = $50,139. Case 2a) In the present scenario, Scott (an accountant in Brisbane) purchased land worth $90,000 on 1st October, 1980. Later, Scott built a house worth $60,000 on 1st September, 2016. Ever since the propertys construction was completed on 1st September, 2016; it had been leased out on rent; until 1st March, 2016, when Scott sold the house for a humongous amount of $800,000. It has also been pointed out that Scott had purchased a painting worth $15,000 in February 2005 which was later stolen on 15th September, 2015, uninsured. The assignment has been objectified with the purpose of finding out the capital gain/loss for the year ending 30th June, 2016 under the given circumstances and under the situation where, Scott engaged in selling the property to his daughter at $200,000. In any given scenario where capital assets are sold, either a capital gain or a capital loss will occur. In our case, we are put forth with the objective to calculate the same. The Australian taxation system offers an individual with the provision to either opt for indexation method or discount method; both have been put to application here, in order to calculate his capital gain/loss. Application of Indexation Method Indexation for Year Value 1999 68.7 1986 43.2 2016 108.6 2005 82.1 The Net Indexation for 1999 has been computed below. 68.7/43.2 = 1.59 The Net Indexation for 2016 has been computed below. 108.6/82.1 = 1.32 Therefore, the indexed cost of acquisition = $60,000 x 1.59 = $95,400. The Selling Price of the property = $320,000 Therefore, the Capital Gain arising out of the sale of the property = $(320,000 95,400) = $224,600. Capital Loss on the stolen painting comes down to $21,780. Hence, the Net Capital Gain can be computed in the following fashion = $224,600 - $21,780 = $202,820 Application of Discount Method The Selling Price (SP) of the property is equal to $800,000 x 40% = $320,000. The cost of acquisition (COA) of the property can be computed only at the time of the construction. Therefore, COA = $60,000. Therefore, in the simplest calculations, Capital Gain = $(320,000 60,000) = $260,000. However, given the fact that the house was held under possession for a period exceeding 12 months, therefore, the individual is eligible to apply the discount method (Australian Government, 2016). It must be noted that the individual had purchased a painting at a cost of $16,500 in February 2005 which was uninsured and stolen later; thereby, making it eligible to attract capital gain. Therefore, Net Capital Gain under Discount Method is computed below. 50% of $(260,000 16,500) = $121,750. Hence, Scott is liable to pay the capital gain taxes for $121,750 under the discount method; which is much less than the amount coming through the calculation under the indexation method. This puts Scott at an advantage. Case 2b Under the present scenario, Scott sells off the property to his daughter at an amount of $200,000. Section 116-30(2) of the Capital Gains Taxation Act states that a capital asset should either be valued at the market rate or the selling price, whichever is higher, for the purpose of calculating capital gains (Terrano, 2016). The Market Value of the sold property in question was $800,000 while the property was sold at $200,000. Therefore, under such provisions, the calculation of capital gain tax remains the same, at the amount of $121,750. We notice that the provisions of the Australian Capital Gain taxations are strengthened in a manner where there is no compromise on the calculation of capital gain taxes, even if the individual has sold it to their own relative at a low cost. Bibliography ato.gov.au/, 2016. Loan and debt waiver fringe benefits. [Online] Available at: https://www.ato.gov.au/printfriendly.aspx?url=/General/Fringe-benefits-tax-(fbt)/In-detail/Employers-guide/Loan-and-debt-waiver-fringe-benefits/ [Accessed 6th October 2016]. ato.gov.au, 2016. ato.gov.au. [Online] Available at: https://www.ato.gov.au/Rates/FBT [Accessed 6th October 2016]. ato.gov.au, 2016. Capital gains tax. [Online] Available at: https://www.ato.gov.au/General/Capital-gains-tax/ [Accessed 6th October 2016] ato.gov.au, 2016. Choosing the indexation or discount methods. 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