"TAXATIONCase StudiesStudent’s Name:Table of ContentsAnswer to Question 1 ........................................................................................................ 3Part a) .............................................................................................................................................. 3Part b) .............................................................................................................................................. 6Part c) ............................................................................................................................................... 6Answer to Question 2 ........................................................................................................ 7Part a) .............................................................................................................................................. 7Part b) ............................................................................................................................................10References .......................................................................................................................... 112 Answer to Question 1Part a)Issue: The said case is about a person named Dave Solomon who is at the verge ofretirement. He is 59 years of age and is going to retire when he will be 60. Hence, tohave a peaceful life after retirement he is planning to sell his assets. His expectation isto get at least $1,00,000 by selling majority of his assets. He then intends to rent a cityapartment and withdraw tax-free amounts from his personal superannuation accountonce he turns 60 in August of the next year. In previous year his taxation return hadshown a net capital loss of $10,000 from the sale of shares. Hence in this we need toth compute the net capital gain or loss for the year ended 30 June.Rule: As per Australian Taxation Law, if there is a capital loss then it cannot beclaimed against income, but it can be reduced from capital gain in the same incomeyear. If there is a capital loss in a particular year then such loss can be carried forwardand be deducted against capital gains in future years. All the assets which are acquiredth on or after 20 September 1985 then Capital Gain tax will be charged on it unlessspecifically excluded. There are some assets which are exempted from capital gaintax, which are own home, car, assets which are used for personal use acquired fro lessthan $10,000, assets used for exempt income and depreciating asset which is onlyused for taxable purposes. Even a share in a company or a unit trust is treated in thesame way as any other capital gain asset. Capital Gain applies to capital; gain onshares or units when a capital gain tax event happens, such as when it is sold.There are two methods on the basis of which capital gain can be calculate. The twomethods are: (Ato.gov.au, 2016)? Discount method: this would be applied for those assets which are held fortwelve months or more before the relevant CGT event. In this case capital gain3 is reduced by discount: 50% for individuals and 33.33% for super funds. It isnot available to companies.? Indexation method: this would be applied on those assets which are acquiredst on or before 21 September 1999 and held for 12 months or more before therelevant CGT event. Under this method consumer price index is applied on thepurchase method to increase the cost base. (Ato.gov.au, 2016)Application: In this case Dave has several capital assets which he had sold in thecurrent year. It is assumed that Dave would apply indexation method on all the capitalth assets and assumed current year would b e 30 June 2015. The calculation of capitalgain in each of the capital asset is given below:? In the first case Dave had planned to sell his two-storey residence situated atSt. Lucia. The amount at which it was about to sold was $865,000 including$15,000 agent commission. It was originally purchased at a price of $70,000.But unfortunately buyer did not have enough funds to purchase the property,hence the deposit money got forfeited. Capital gain would not arise in thiscase since as per Australian Law home is not a capital asset. Capital gainwould not arise in such case. But Dave received $85,000 as deposit and thenbuyer didn’t completed the transaction. Hence, there is no capital gain in thiscase but the amount of $85,000 would be taxable under the head income fromother sources.? In the second instance a painting was sold by him which was purchased onth 20 September 1985 at a price of $15,000. The painting was sold in thest auction on 31 May at a price of $125,000. 4 th th Consumer price index for quarter 30 June 2015 is 107.5 and for 30September 1985 is 39.7. Hence the Indexed cost of acquisition would come to= $15,000 * 107.5/39.7= $40,617 (approx.)Painting was sold at a price of $125,000. Hence, there would be a capital gainin this case which would amount to ($150,000 - $40,617) = $109,383.? In the third instance he had sold his luxury motor cruiser at a price of$60,000which was purchased in late 2004 at a price of $110,000.In this caseindexation method will not apply since the asset was purchased in the year2004. Hence, discount method would be applied in this case. Sale proceeds: $60,000Cost of the asset: $110,000Capital Gain would be ($60,000 - $110,000) = ($50,000)In this case there is a capital loss of $50,000. ? In the fourth instance he had sold shares at a price of $80,000on June 5,th which was purchased on 10 January at a price of $75,000. Apart from thisthere were certain expenses spent to purchase these shares. The expenses werebrokerage paid for $750 and $250 paid for stamp duty. He had also paidinterest on loan amounting to $5,000 but as per ATO this would not beallowable deduction since shares were not generating any assessable income.Sale proceeds: $80,000Cost: $75,000Expenses ($750 + $250) = $1,000Hence Capital Gain would be ($80,000 - $75,000 - $1,000) = $4,000Hence total net capital gain after considering all the four cases would be 5 (NIL + $109,383 - $50,000 +$4,000) = $63,383Since Dave is an individual, discount method can be applied in this case. 50%discount can be applied on the net capital gain of Dave.Capital gain of current year would be $63,383 * 50% = $31,692.Net capital loss of previous year was $10,000Hence net capital gain after setting off loss of previous year would be ($31,692 -$10,000) = $21,692.Part b)If Dave has capital gain then he can contribute some funds to his superannuation fund.Part c)If Dave has capital loss then he need to sell more of his assets or acquire loan so thathe contribute to his personal superannuation fund.6 Answer to Question 2Part a)Issue: Present case deals with the concept of Fringe Benefit Tax liability in Australia.Periwinkle Pty Ltd manufactures bathtub and it sells it directly to the public. Emmawas an employee of Periwinkle to whom it provided a car for travelling for workpurposes. Since she used to travel a lot, company decided to give her a car. But Emmaused this car for her personal purposes too. The cost of this car to the company was$33,000 including GST. Value excluding GST would e $30,000.Car was purchasedst st on 1 May 2014 and till 31 March 2015 car was travelled for 10,000 kilometers.Even some expenses were incurred on minor repairs which were later reimbursed bythe company. Expenses were amounted to $550 including GST. Excluding GST valuewas $500. In that year car was not used for After providing a car company also provided a loan amounting to $500,000 to Emmaat the interest rate of 4.45% Out of this Emma used $450,000 to purchase a holidayhome and the balance $50,000 she lent to her husband to purchase interest free sharesin Telstra. After this Emma also purchased a bathtub from her company at a price of$1,300 but actual selling price in the market was $2,600. (strattonfinance.com.au,2016)Rule: This case deals with the provision of Fringe Benefit Tax Assessment Act1986. Provisions which need to be applicable in this case are discussed in below indetail:? Section 7: this section states that if an employer of any company allows hisemployee to use company car for their private use then in such case Fringebenefit tax needs to be charged on this. Hence employer is liable to pay fringebenefit tax on it. (Atogovau, 2015)7 ? Section 8: this section tells the provisions in which fringe benefit tax would beexempted.. (taxpayer.com, 2016)? Section 9: this section states shows how the fringe benefit tax needs to becalculated on cars. Fringe Benefit Tax ofa car needs to be calculated asbelow. This is the statutory formula method for calculating FBT. This is themost popular method used to calculate FBT.(Cpaaustraliacomau, 2015)? Section 16:this section states that whenever an employer give loan to hisemployee then it is a benefit given to an employee. Hence Fringe Benefit Taxwould also be applicable in this case.Application: Periwinkle would attract fringe benefit tax in the present case. All thecalculations of this are discussed in detail below:st ? In the 1 case company lent a car to Emma whom she used for both work andpersonal purpose. Value of Car was $33,000 including GST. Hence Base value should be excluding GST which would be $30,000Emma ha also spent some repair expenses on it which is $550 including GST.Base value excluding GST value would be $500.st Kilometerstravelled by the car till 31 March 2015 was 10,000.st st No of days car was available for use: 335 days (31 March 2015 – 1 May2014). Out of this 335 days 15 days needs to be reduced since for 10 days carwas not used as Emma was interstate and for 5 days car went for annualrepairs. Hence number of days would be 335-15 = 320.8 Fringe benefit value =$30,000*0.2*320/365 = $5260.27In this even Emma incurred expenses of $550 for minor repairs which wasalso reimbursed by the company.Hence Final FBT Value on cars would be $5260.27 + $550 = $5,810.27.nd ? The 2 case would also attract FBT since the company gave loan to Emma.Loan amount was $500,000 out of which Emma used $450,000 for purchaseof holiday home. Interest was 4.45%.Interest would be $500,00*4.45% = $22,250.Assumed interest rate in the market for the same amount of loan was 10%.Hence Emma would have taken loan from market she would have been payinginterest at the rate of 10% instead of 4.45% Hence interest amount would havebeen $500,000*10% = $50,000Now company needs to pay FBT on amount ($50,000-$22,250) =$27,750.Interest on $450,000 will not be deductible since it is used forpurchase of holiday home and even the balance $50,000 was given to herhusband for purchase of shares. If she would have purchased the shares theninterest would have been deductible but in this case it won’t be deductible.Hence Value on which FBT needs to be paid would be $27,750.rd ? The 3 case deals with Emma in which she purchased bathtub from thecompany at a low cost of $1,300. But the market price of the same bathtubwas $2,600. Hence Emma was given an advantage since she was an employeeof the company. Hence even in this case company needs to pay fringe benefittax on it. Amount on which FBT needs to be paid is $2,600-1,300 = $1,300.st FBT Rate in Australia for the year 31 March 2015 was 47%9 Total value on which Periwinkle needs to pay FBT comes to ($5810.27 + $27,750+$1,300) = $34,860Hence Fringe Benefit tax would be 47% of $34,860 = $16,385 (approx.)Part b)This case is different from the case discussed above since here Emma has herselfpurchased the shares in Tetra instead of her husband. Hence since she has purchasedshares it would be a deductible expenditure and Fringe benefit tax would not bechargeable on itNow value on which Fringe benefit tax needs to be paid was $450,000*(10-4.45)% =$24,975.Hence total value on which FBT needs to be calculated would be 47% of ($5,810.27 +$24,975 +$1,300)Fringe benefit tax in this case would be 47% of $32,085 = $15,080 (approx.).10 ReferencesAustlii.edu.au, (2015). FRINGE BENEFITS TAX ASSESSMENT ACT 1986 - SECT18Taxable value of loan fringe benefits. [online] Available at:http://www.austlii.edu.au/au/legis/cth/consol_act/fbtaa1986312/s18.html [Accessed13 Sep. 2015].Atotaxrates.info, (2015). Fringe Benefits Tax - AtoTaxRates.info. [online] Availableat: https://atotaxrates.info/businesses/fringe-benefits-tax/ [Accessed 13 Sep. 2015].Comlawgovau. (2015). Comlawgovau. Retrieved 13 September, 2015, fromhttps://www.comlaw.gov.au/Details/C2013C00082/Html/Volume_2Cpaaustraliacomau. (2015). Cpaaustraliacomau. Retrieved 13 September, 2015, fromhttp://www.cpaaustralia.com.au/cpd/fbtextract.pdfFinserv.uwa.edu.au, (2015). Loan Fringe Benefits Tax (FBT) Policy : FinancialServices : The University of Western Australia. [online] Available at:http://www.finserv.uwa.edu.au/tax/fbt/policy/loan [Accessed 13 Sep. 2015].Mcneill, J.U.L.D.Y. (2012). Local Government in the Australian Federal system. (2nded.).Strattonfinance.com.au, (2015). What is the Statutory Formula Method of calculatingFringe Benefits Tax (FBT), and how does it work? - Car Finance - stratton Australia.[online] Available at: https://www.strattonfinance.com.au/car- finance/learn/faq/novated-lease-salary-packaging/fbt-statutory-formula-method.aspx[Accessed 13 Sep. 2015].Taxpayercomau. (2015). Taxpayercomau. Retrieved 13 September, 2015, fromhttp://www.taxpayer.com.au/article/10209/Novated-leases-and-FBT-explainedWolters. (2011). Australian Income Tax Legislation. (2nd ed.).11 Consumer price index | Australian Taxation Office . 2016. Consumer price index |Australian Taxation Office . [ONLINE] Availableat: https://www.ato.gov.au/Rates/Consumer-price-index/. [Accessed 21 May 2016].CGT events affecting shares and units | Australian Taxation Office . 2016. CGTevents affecting shares and units | Australian Taxation Office . [ONLINE] Availableat: https://www.ato.gov.au/General/Capital-gains-tax/Shares-and-units/CGT-events- affecting-shares-and-units/. [Accessed 21 May 2016].CGT exemptions, rollovers and concessions | Australian Taxation Office . 2016. CGTexemptions, rollovers and concessions | Australian Taxation Office . [ONLINE]Available at:https://www.ato.gov.au/General/Capital-gains-tax/CGT-exemptions,- rollovers-and-concessions/. [Accessed 21 May 2016].Shares and units | Australian Taxation Office . 2016. Shares and units | AustralianTaxation Office . [ONLINE] Available at: https://www.ato.gov.au/General/Capital- gains-tax/Shares-and-units/. [Accessed 21 May 2016].Working out your capital gain | Australian Taxation Office . 2016. Working out yourcapital gain | Australian Taxation Office . [ONLINE] Availableat: https://www.ato.gov.au/general/capital-gains-tax/working-out-your-capital-gain- or-loss/working-out-your-capital-gain/#Choose_your_calculation. [Accessed 21 May2016].12 "