Case Study on Capital Gains Tax and Fringe Benefits Tax

It is assumed that Dave Solomon, is an individual, whose main source of income is the salary, paid by his employer. He is not involved any kind of trading business. The assets sold by him in the current tax year can be considered, completely, as his capital assets. Moreover, he has generated any revenue from those assets earlier. The net taxable capital gain or loss, generated from the sale of assets by David Solomon in the current tax year, is presented below (Law.ato.gov.au, 2016):- Calculation of Net Capital Gain/Loss for the period ending on 30th June,20†¦. Less : Purchase Price of the painting Less : 50% Exemption on Capital Gain Less : Purchase Price of the Cruiser Less : Purchase Price of the Shares Less : Stamp Duty on purchase of Shares Less : Capital Loss of Previous Year The net capital gain, earned by David Solomon in the current year, will be added with the other assessable income to ascertain the net taxable assessable income of the taxpayer. The income slab for taxation purpose will be then determined on the basis of that net taxable income. If David Solomon would generate any net capital loss, then that would be carry forwarded into next tax periods. It would be adjusted only if the taxpayer would generate any capital gain in future.   It is assumed that Periwinkle Pty. Ltd. is a normal company and not entitled to any benefit for small business entities.   The FBT consequences of Periwinkle, aroused for the benefits provided to Emma, one of the employee of the company is discussed below:- 1) It is assumed that the employee uses the car not only for office use but for non-work related purpose in frequent and regular basis. Therefore, the car benefit should be accounted for FBT as it is allowed to use for private purposes (Stilwell 2016). During the interstate travel of the employee, the car was parked at airport, not at the employer’s premises and the repairing of the car was annual maintenance type, not an unscheduled repairing. Therefore, the ten days, when the car was not used, also to be included in the FBT calculation (Hodgson and Pearce 2015). The statutory formula method is used for estimating the car fringe benefit. The calculation of car fringe benefit is shown in the following table:- Calculation Of Car Fringe Benefit:- Total Kms. Travelled during the FBT year Statutory Rate as per Annualised Km. No. of Days available for Private Use 2) The interest charged on the loan, given to the employee, should be treated as FBT. The Benchmark Interest Rate for such loan is 5.95% (Ato.gov.au, 2016). The company has charged the loan at an interest rate of 4.45%. As the actual rate is lower than the Benchmark Rate, the FBT should be calculated on the actual rate of interest (Pearce and Pinto 2015). The calculation for FBT on interest on loan is shown below:- Calculation of Interest on Loan for FBT:- 3) The bathtub provided to the employee at a special discounted rate, is a FBT expense. The taxable value of the bathtub is estimated at 75% of the normal selling price and the FBT is calculated accordingly in the following table (Ato.gov.au, 2016):- Calculation of Special Discount for FBT:- The Fringe Benefit Tax for Periwinkle Pty. Ltd. is calculated in the following table according to the above-mentioned assumptions (Ato.gov.au, 2016):- Name of Taxpayer : Periwinkle Pty. Ltd. for the period ending on 31st March,2016 Total of GST Inclusive/Free Benefits If the employer, herself, purchased the shares, instead of her husband and earn dividend from such shares, then the part interest on loan for $50000, will be considered as an deductible expenses of the employee. Therefore, the FBT of the employer will also get reduced accordingly (Eccleston 2013).   Ato.gov.au. (2016).  How to calculate your FBT | Australian Taxation Office.   Ato.gov.au. (2016).  Property fringe benefits | Australian Taxation Office.   Chan, C., 2014. Earnouts and CGT: Fine-tuning the.  Tax Specialist,  18(1), p.27 Conesa, J.C. and Domà ­nguez, B., 2013. Intangible investment and Ramsey capital taxation.  Journal of Monetary Economics,  60(8), pp.983-995 Eccleston, R., 2013. The Tax Reform Agenda in Australia.  Australian Journal of Public Administration,  72(2), pp.103-113 Faccio, M. and Xu, J., 2015. Taxes and capital structure.  Journal of Financial and Quantitative Analysis,  50(03), pp.277-300 Harding, M., 2013. Taxation of dividend, interest, and capital gain income 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 Jacob, M. and Jacob, M., 2013. Taxation, dividends, and share repurchases: Taking evidence global.  Journal of Financial and Quantitative Analysis,48(04), pp.1241-1269 Law.ato.gov.au. (2016).  TR 1999/19 - Income tax capital gains: treatment of forfeited deposits (As at 11 October 2000).