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Australian Taxation Law : Intangible Investment

  0 Downloads   |   8 Pages 1,754 Words   |   Published Date: 30/01/2018

Question:

Describe about the Australian Taxation Law for Intangible Investment.

 

Answer:

Case Study 1

“Calculation of Net Capital Gain or Loss of an Individual”

It is important to calculate net capital gain or loss of an individual for bringing solutions whereby Fred is an Australian Resident. In other words, Fred is not responsible in conducting any other kind of trading business (Ato.gov.au. (2016).  In the present year, Fred had sold his holiday home and it was his direct assets rather any other types of trading stock. Addition to that, Fred had never generated revenues earlier from its present assets.

“Calculation of Net Capital or Loss”

Discounted as well as Indexation method are used for making the calculation of net income or gain in the current financial year.

Name of Taxpayer : Fred

Type : Individual

Calculation of Net Capital Gain/Loss

for the period ending on 30th June,2016

 

Discounted Method

 

Indexation Method

Particulars

Amount

Amount

 

Amount

Amount

 

$

$

 

$

$

a) Sale of Holiday Home :

 

 

 

 

 

Sales Consideration

 

800000

 

 

800000

Less : Cost Base of the Property

100000

 

 

148043

 

Legal Fees on Sales (Exclusive of GST)

1000

 

 

1000

 

Commission of Real Estate Agent

9000

 

 

9000

 

Stamp Duty on Purchase

2000

 

 

2961

 

Legal Fees on Purchase

1000

 

 

1480

 

Construction Cost of Garage

20000

133000

 

23853

186338

Capital Gain on Sale

 

667000

 

 

613662.3

Less : 50% Exemption on Capital Gain

 

333500

 

 

 

Taxable Capital Gain (A)

 

333500

 

 

613662

Less : Capital Loss of Previous Year

 

10000

 

 

10000

Net Taxable Capital Gain

 

323500

 

 

603662

Table: Calculation of Net Capital Gain or Loss

(Source: Created by Author)

Major key Assumptions

It has been noticed that Fred has acquired related asset after 20th of September in the year 1985 (gov.au. 2016). This means the figure will be considered as CGT assets. It should be further eligible for taxable capital gain or loss for computation purpose

Acquisition of asset was done before 21st of September 1999. This means the cost base as well as other expenses incurs for given period for asset purchasing. It can be easily evaluated using the indexation method for calculation purpose.

Additionally, Fred has made garage on that particular property. This can be even be taken for as substantial improvement. Therefore, garage construction cost includes from the deductible expenses (gov.au. 2016). It was conducted before 21st of September 2999 as well as calculated using indexation method.

In accordance with Australian Taxation rules, acquisition of assets before 21st of September 1999 means individuals applying for any types of method for calculation (Pearce and Pinto 2015). This can be either discounted method or indexation method especially for capital gain or loss calculation purpose

In case of discounted method, taxpayer are liable to get exemption of capital gains of any of the given assets as it is owned by certain taxpayers for given period of 12 months. Holiday home was acquired by Fred for a period of 19 years. Fred can even claim exemption of 50% using discounted method (Chan 2014).

As far as shares are concerned, it can be easily treated as assets such as real estate property. Net capital loss on sale of shares figures are taken from the previous year (Conesa and Domínguez 2013). This can be even adjusted using current year net capital gain especially from property sale at the same time.

Summarized analysis

The above analysis can be concluded that net capital gain has been calculated for Fred using discounted method amounting to $323500. In case of using indexation method it amounted to $603662. As far as discounted method is concerned, Fred needed to pay less tax especially on capital gains and should consider discounted method. It requires making the computation on net capital gain amounting to $323500 (Eccleston 2013).

“Net Capital Gain Consequences”

It is viewed that Antique vase was under collectable status. In accordance with Australian Taxation rules, calculation was made for net capital loss especially from sale of collectables that requires to be adjusted with capital gains (Jones 2016). In that case, net capital loss undertaken from previous years arises from antique vase sales that cannot be adjusted in accordance with net capital gains. It involves sale of house property. In other words, Net capital gain of Fred arrives at $333500.

 

Case Study 2

Part A

“Calculation of Fringe Tax benefit of Periwinkle Pty Limited as per the consequences”

In this particular case study, it is assumed that Periwinkle Pty Limited is an employer company. This is an Australian Company entitled to gain tax benefits as provided by small business entities. This particular company aims at providing few benefits to Emma considers as an Employer. It is assumed to be an Australian Resident. Addition to that, this company entitles in gaining fringe benefits for various additional benefits (Woellner et al. 2012). It is required to check on the FBT consequences in relation with such benefits need discussion with proper justification.

“Car Fringe Benefit”

In the particular case study, Emma was found using car for private as well as office purposes. Benefits from car need to be included in the car fringe benefits. At the time of foreign visit, Emma parked the car at airport rather parking on the office premises (Evans, Minas and Lim 2015). This car was kept in the garage and requires annual maintenance. This does not require unscheduled repairing. Therefore, car remained unused for number of days involved in the calculation of FBT.

It requires using statutory method whereby car benefit of the company provided by Emma. The calculation shown as under:

Calculation Of Car Fringe Benefit:-

Particulars

 

Details

Total Kms. Travelled during the FBT year

A

10000

No. of Days in the FBT year

B

366

No. of Days of Travel

C

336

Annualised Kilometers

(A x B/C)

10892.857

Statutory Rate as per Annualised Km.

E

20.00%

Cost Base

F

$33,000

No. of Days available for Private Use

C

336

No. of days in FBT Year

B

366

Taxable Value

(FxExC)/B

$6,059.02

Table: Calculation of Car Fringe Benefits

(Source: Created by Author)

“FBT for Interest on Loan”

In case of any kind of loan interest, it is needed by an employee with employee for considering required fringe tax benefits. Rate of interest on loan arrived to be 4.45% that is considered lower in comparison with the benchmark of loan interest such as 5.95% (Faccio and Xu 2015). FBT calculation based upon the actual rate of interest. FBT of company for loan interest are rendered by an employee as well as calculated as under:

Calculation of Interest on Loan for FBT:-

Particulars

 

Details

Loan to Employee

A

$500,000

Benchmark Interest Rate

B

5.95%

Actual Interest Rate

C

4.45%

Taxable Value Interest on Loan

D = (AXC)

$22,250

Table: Calculation of Interest on Loan for FBT

(Source: Created by Author)

FBT for Special Discount Rate

In this case, employee can easily claim for any FBT for gaining special discount. It is provided to employee based upon own product. FBT calculation is conducted at 75% that is on normal selling price (Harding 2013). Calculation is shown as under:

Calculation of Special Discount for FBT:-

Particulars

 

Amount

 

 

$

Market Price of the Bathtub

A

2600

Special Price for the Employee

B

1300

Taxable Value of the Bathtub

C=A x 75%

1950

Taxable Value of Benefit

C - B

650

Table: Calculation of Special Discount for FBT

(Source: Created by Author)

FBT Calculation

In this case, car expenses are inclusive with GST and equalizes by multiplication of FBT values in relation with gross up rates. As far as fringe tax benefits are concerned, it considers general companies as 49% (Hodgson and Pearce 2015). For the purpose of FBT calculation, liability of Periwinkle Pty Limited calculation is discussed below:

Name of Taxpayer : Periwinkle Pty. Ltd.

Type : Company

Calculation of Fringe Benefit Tax

for the period ending on 31st March,2016

 

GST Inclusive

GST Free

Particulars

Amount

Amount

 

$

$

Car Benefit

6059.02

 

Interest on Loan

 

22250

Sale at Special Rate

 

650

Total of GST Inclusive/Free Benefits

6059.02

22900

 

A

B

Gross-up Rate

2.1463

1.9608

 

C

D

Gross-up Value

13004.47

44902.32

 

E = A x C

F=B X D

Total Taxable Fringe Benefit

57906.79

 

G = E + F

 Fringe Benefit Tax Rate

49%

 

J

Fringe Benefit Tax Liability

28374.33

 

K = G x J

Table: Calculation of Fringe Benefit Tax

(Source: Created by Author)

Part B

Alternative Consequences

In case Emma would have purchased shares herself as well as earned dividend from these shares then she need to pay tax on such income (Jacob and Jacob 2013). Total FBT value as well as FBT liability of the employer considered to be lesser based upon the income amount by an employee from loan amount at the same time (Stilwell 2016).

 

Reference List

Ato.gov.au. (2016). How to calculate your FBT | Australian Taxation Office. [online] Available at:https://www.ato.gov.au/General/fringe-benefits-tax-(fbt)/how-to-calculate-your-fbt/ [Accessed 30 Aug. 2016].

Ato.gov.au. (2016). Loan and debt waiver fringe benefits | Australian Taxation Office. [online] Available at: https://www.ato.gov.au/General/Fringe-benefits-tax-(fbt)/In-detail/Employers-guide/Loan-and-debt-waiver-fringe-benefits/?page=8#8_8_Reduction_in_taxable_value_where_interest_would_have_been_deductible_to_employee [Accessed 30 Aug. 2016].

Ato.gov.au. (2016). Property fringe benefits | Australian Taxation Office. [online] Available at: https://www.ato.gov.au/General/Fringe-benefits-tax-(fbt)/In-detail/Employers-guide/Property-fringe-benefits/?page=4#Goods_manufactured_or_produced_by_the_provider [Accessed 30 Aug. 2016].

Chan, C., 2014. Earnouts and CGT: Fine-tuning the. Tax Specialist, 18(1), p.27

Conesa, J.C. and Domínguez, 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

Evans, C., Minas, J. and Lim, Y., 2015, September. Taxing personal capital gains in Australia: an alternative way forward. In Australian Tax Forum (Vol. 30)

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

Jones, D., 2016. Capital gains tax: The rise of market value?. Taxation in Australia, 51(2), p.67

Pearce, P. and Pinto, D., 2015. An evaluation of the case for a congestion tax in Australia

Stilwell, F., 2016. Taxing times in Australian capitalism. Australian Socialist,22(1), p.2

Woellner, R., Barkoczy, S., Murphy, S., Evans, C. and Pinto, D., 2012.Australian taxation law. CCH Australia

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