"ANEWER TO QUESTION 1 FOLLOWING ITEMS ARE EXEMPTED FROM GAIN ON SALE OF CAPITAL ASSETth Any property acquired before 20 September 1985Motor vehiclesAmount reimbursed for particular injuriesSelling of residential family houseAny collectable acquired at a cost less than $ 500A)In the given question Mr. Dave Solomon who lived in a two-storey building for last 30 years which wasth purchased for $ 70,000. He sold the building for $ 8, 50,000 on 27 June of the current tax year. Theresident was originally sold at an auction and buyer paid $85,000 as advance money against purchase.But subsequently the buyer did not have enough funds to proceed with such purchase. Hence themoney was forfeited. Hence, $ 85,000 received be charged to “Income from other sources”Calculation of capital gainSale proceed$8, 65,000It is exempted under the definition of CST I.E Family home exemptionLONG TERM CAPITAL GAINNILLong term capital gainNILIncome from other sources$85,000th B) A painting of pro hart which was purchased on 20 September, 1985 for $ 15,000 was sold for $1,25,000Hence Capital Gain is as follows:Sale Proceed$ 1, 25,000Less: Indexed costof acquisition15,000*123.4/71.3 $25,961LONG TERM CAPITAL GAIN $150,961st C)A luxury motor cruiser which was purchased in late 2004 for $ 1, 10,000 was sold on 1 June of thecurrent year to local boat broker for $ 60,000Hence capital gain will be as followsSales proceeds $ 60,000Less: Indexed cost of acquisition $ 1, 10,000LONG TERM CAPITAL LOSS $ 50,000th D) He sold a parcel of shares in a newly listed mining company on 5 June of the current year for $th 80,000. He purchased these shares on 10 January of the current year for $ 75,000. To purchase theseshares he borrowed a loan of $ 70,000 and paid interest on the loan of $5,000. He also paid $750 asbrokerage for sale of the shares and $250 in stamp duty for purchase of share. As per income tax law,interest on loan is not a part of cost of acquisition. Hence interest on loan has not been included.Hence capital gain will be as follows:Sale proceed $ 80,000Less:Brokerage $ 750Less: cost of acquisition $ 75,000Less: stamp duty $ 250 SHORT TERM CAPITAL LOSS$ 4,000SET OFF AND CARRY FORWARD OF LOSSES ARISING FROM CAPITAL GAINLong Term Capital Loss: Long term capital loss can be set off against long term capital gain only. Noother set off is possible. It can be carried forward to next 8 Assessment years and can be set off onlyagainst Long Term capital loss.Short Term Capital Loss: Short term capital loss can be set off against same source or from long termcapital Gain. It can be carried forward to next 8 Assessment Years and set off against both short termGain and long term gain.So Capital gain for the year is as follows:Long term capital gain on sale of residential property $ NILLong term capital gain on sale of painting $ 1, 50,961Long Term capital loss on sale of Boat $ 50,000Short term capital Gain on sale of share $ 4,000LONG TERM CAPITAL GAIN $ 1, 04,961 Now the tax return of Mr. Dave for the year end 3oth June of the previous year shows a net capital lossof $10,000 from the sale of shares. Hence it can be adjusted with current year long term capital gain.So, Net Long term capital gain for the current year is $ 1, 04,961-$10,000 =$ 94,961A)LONG TERM CAPITAL LOSS $ 1, 13,853INCOME FROM OTHER SOURCES$ 85,000B)NetCapital gain is summation of all gain arrived from sale from sale of capital asset minus all lossincurred on sale of capital asset which includes loss on sale of capital asset from previous year as well.We can say that capital gain tax is not a separate tax. Capital gain asset forms a part of assessableincome of an assessed and subsequently tax should be paid on gain arising on sale of capital asset in therelevant income year in which sale took place. Thus Mr. Dove has earned gain on sale of asset. As aresult he can contribute fund to his personal superannuation fund. Mr. Dove has to maintain relevantrecords when some important and major transaction took place which includes, Interest on loans,Purchase receipts, Expense paid in regards to litigation fees, legal fees etc. Records regarding repairs andmaintenance of assets and records of brokerage paid on shares.C)Net Capital Loss is summation of all loss arrived from sale of capital asset which includes loss fromprevious year. Assesse cannot set off his capital loss from other source of income but should carryforward for subsequent years and deduct it from capital gain arrived in subsequent years. Capital losscan be carry forward for indefinite periods .A assesse does not have the right to choose not to set offcapital losses against any capital gain however they can deduct such loss as per their choice with capitalgain.If Dave does not have a positive capital gain, he shall sell more of his assets or acquire loan so thathe can contribute to his personal superannuation fund and then buy a rented city apartment andwithdraw tax free amount from his personal superannuation fund once he attains the age of 60 inaugust of next year.ANSWER TO QUESTION 2st Periwinkle Pty ltd, a bathtub manufacturer sells bathtub directly to public. On 1 may 2005, thecompany provided to Emma, one of its employees with a car as Emma does a lot of travelling for workpurpose. However the car can be used for any purpose and is not just restricted for work purpose. Thest company purchased the car for $ 33,000 on 1 May 2015st st Emma travelled 10,000 kilometers in the car for the period 1 may 2015 to 31 March 2016. Emmaincurred expenses of $ 550 on repairs which was reimbursed by the company. The car was not used for10 days and was parked at the airport. Moreover the car was not used for five days when the car wasscheduled for repairs. On September 1, 2015 the company provided a loan of $ 5, 00,000to Emma at an interest rate of 4.45%.Emma purchased a holiday home worth $ 4, 50,000 with the loan amount and the balance amount wasgiven to her husband to purchase share in Telstra.During the year Emma purchased a bathtub manufactured by Periwinkle for $ 13, 00, though the cost tomanufacture a bathtub was $700 for periwinkle and such bathtub was sold to public at $2600.FRINGE BENEFIT TAX: Fringe benefit tax isthat tax which has been paid by the employer on certainbenefits provided by the employer to the employee. Fringe benefit tax is applied on non-cashbenefitswhich are paid by the company to their employees. CERTAIN EXEMPTION IN FRINGE BENEFIT TAXLoans which are exemptedExpenses related to workBenefits of car provided by the company to staff provided the car has been used for workpurposeBenefits having taxable value of less than $ 300Relocation expense of employeesHousing allowance provided that the house is located at remote place.FRINGE BENETFIT TAX ARE LIABLE ONCar, Loan, Payment of Expense, Housing, Airline,transport, Car parking, Property, Residual.The car which is provided to Emma qualifies as perthe definition of car. Hence Fringe benefit tax in relation to car provided by the company toEmmaFringe benefit tax can be calculated by two methods1) Cost Basis method2) By Applying Statutory formulaAs per questionBase value of the car $33,000Number of days car provided as fringe benefit tax=335-5 = 330Note: Car went for repairing and was not used for 5 days w o n ’t be counted in total days used byEmma for private use. Whereas car parked at airport will be included in total days used byEmma for private use. Has the keys of the car been given to the employer the same would nothave been included in Total Days. The car runs for less than 15000km during fringe benefit period. As a result the rate would be20%Taxable Value$33000*20%*330/365$5,967Less expense incurred by employee$550 $5,417Treatment of Loan provided by employer to employee at a low rate of interestWhen an employer provide a loan to employee at a rate lower than bench mark or interest freeloan the tax fringe benefit tax will be calculated as follows:The benchmark rate of Interest is 5.95%The company provided a loan at interest rate 4.45%Hence fringe benefit tax is as follows:= 5, 00,000* 1.50%= $7,500Now the employee used $4, 50,000 for the use of buying a house and rest was transferred toher husband for purchase of shares. Since Emma incurred $ 4, 50,000 for house work, hence the taxable value will remain same i.e.$7,500B) Now if Emma use the entire amount of loan by herself i.e. for buying property worth $4,50,000 and buying shares worth $ 50,000. Fringe benefit tax would be computed as followsI) Taxable value of the loan fringe benefit without the otherwise deductible value $7,500 5, 00,000*1.50%Ii) Ignore any interest charged and assume that the loan was interest free $29,750 $ 5, 00,000*5.95%Iii) Now suppose that the employee had paid interest equal to the amount of taxable value$ 29,750*10/100$2,975iv) Now look at the real situation if employee is being charged interest on loan$5, 00,000*4.45%*10%$2,225v) Subtract iii-iv$ 2,975- $2,225$750Vi) Taxable value i-v 7500-750$6,750 DEBT WAIVER FRINGE BENEFIT In the given case Emma purchased bathtub for $1,300 which was sold in the market to generalpublic for $ 2,600. Hence the difference i.e. $ 2600-$1300=$ 1300 is fringe benefit liability "