Calculation of Capital Gain for Fred

Discuss about the Foundation of Taxation.

The case study concerns with the implication of learning the Australian’s government taxation laws and other schemes according to the Income Tax Assessment Act of 1997 for analyzing the net capital gain and the aspects covering the transaction. Here, Fred is the example of study where all the attributes of his transaction will be examined after his engagement in buying a home. It is plainly understood that Fred’s home functionality, building and other renovations come under the assessment of important laws of calculations for net capital loss/gain (Dubert & Merrill, 2001). And hence, computation (Lind, 2005) is performed as per the assessment act. The report is a personal analysis of facts and figures set as per the explanation which is imperative to discuss the details of capital gain/loss method.  Well, it is a point to note that not all transactions obey the law in the computational technique of capital net research (Faccio, Marchica & Mura, 2016). As every layout is set upon a specified tool, computation is applicable only after a proper understanding of the terms superannuation and capital gain/loss. The conceptual definition of the terms varies with the personal opinions of different scholars (Csikós, 2007). With learning the details of the three concepts, it is quite clear that net capital gain measure is succeeded when net long term capital benefit surpasses the net short term capital loss for the year, but net capital, on the other hand prevails when the overall capital amount is deduced (Kahn, 1997). The third kind of classifying or superannuation process is the kind of sorting people generally performing for collecting capital funds and the providing people at the time of retirement.

Let’s you see some example that do not follow any capital profit or loss. Cars or an automobile doesn’t relate with capital gain and it possessed for 10,000 or less is scorned (Goh et al., 2013). Like the Assets necessary before 20 September, repayments for specific illness or injury, family homes that are detached from the main residence. Other examples include people owning private properties that are $10,000. Painting cost $ 500 is another set of items that do not enter into computation (Enthoven et al, 1998).

Anyways, the answers would be different if loss is ensuing from the auction of an antique vase. If my opinion is concerned, Fred faced net capital loss because of selling of the antique case (Graham, Leary & Roberts, 2015). My conclusion comes from the loss of share he encountered for his personal pleasure and use and hence his net capital is above $10,000 (Blum, 2009).

Exceptions and Exemptions

It is known matter of fact that tax results from the fringe benefits and hence the introduction deals with understanding it more vividly. The topic of discussion relates to the fringe benefits and fringe benefit tax, previously that is discussed and stated by many scholars. Fringe benefits with additional benefit mean the enrichment of an employ’s salary (Poterba, 1992). Company car, Financed meals, health insurance and more some of the example. Fringe Benefit, according to an employer’s viewpoint, is called as independent partner or contractor who is a middle man between to employees. In certain cases, tax is excused.

All those who attain a fringe benefits tax, must have an impartial market value for the year. It is noteworthy to quote certain examples of fringe benefits under taxation sanction (Hanlon, Maydew, & Saavedra, 2014). The employees and their families and other associates are largely benefited by the fringe benefit (Evans, 2003). The benefit can be either from their income or wage package (Poterba, 1992). Fringe benefit, unlike income tax, is calculated on the basis taxable value and is allotted every year from 1^st April to 31^st March. Fringe benefit Tax Act, 1998 Australia, functions the fringe benefits tax (FBT).  FBT in recent years have been segregated into varied sections, as mentioned below-

• Expense payment fringe benefits
• Loan fringe benefits
• Car fringe benefits
• Housing fringe benefits
• Board fringe benefits
• Car parking fringe benefits
• Living away from home allowance fringe benefits
• Residual fringe benefits (benefits not covered by the above categories) (www.ato.gov.au, 2015)
• Property fringe benefits (including property, goods or shares)
• Debt waiver fringe benefits 

Living away from home fringe benefits is generally denoted as LAFTA and is also called as living-away-from-home payment. This is a case of vivid disadvantage, where the employer gives the employees which occur due to the employee living away from his residence for his responsibilities and duties (Walton, 1995). 

Board Fringe Benefit that enables the employees to have payment connected to two meals per day and accommodation.

Housing Fringe Benefits

This type of benefit allows the employee to have an authority on accommodation, rent and even license. This aspect permits the employee and the unit as a whole to avail the residential rights.

Property Fringe Benefits

 In this case, the employer gives the employee a free discounted property seen in the case of Emma. She buys a bathtub at price of $1300 whose market price is actually $2600. This is how she gets a discount of 50% from the company (Enthoven et al, 1998).

Expense Fringe

In this type of benefit, the employ is associated with the third party which will either make the employee answerable or employee recompense for the cost met out at the end. Emma will attain the fringe benefit resulted out of the compensation made for vehicle and hence succeeds the expenses out of it (Walton, 1995).

Fringe Benefits Taxation

Debt Waiver Fringe Benefits

In this type of benefit accumulation, the employer lets off the employee from paying any debt.

Car Fringe Benefit

An employee, in this case, gets a car either he has to rent for private purpose or is a personal asset. 

This is a case which is implemented for a number of situations: if a car exceeds the mentioned time frame of car parking like four hours, if the car is leased by an employee, if the car is parked near to the employee’s place, in case of a commercial parking that is available from a radius of 1km ground from the worker’s job place, or if parking is done as per employment basis (Dubert & Merrill, 2001). 

Under loan fringe benefit, the employee gets an interest less than the current banks. In case of Emma, she got a loan of $500000 with an additional interest of 4.5% which is generally not ensued like that the existing banks. This is 47% as the FBT rate (Enthoven et al, 1998).

Emma gets a car benefit for personal purpose according to the provision of FBTA, s7. This is a vivid FBT outcome for the company (Enthoven et al, 1998). 

Dependent on the cost basis strategies and certain additional information, the constitutional methods used here is: 

Taxable value = (0.2 * $33,000 x 330/365) = $5,967

• Base value = cost of the car
• Number of days car provided as fringe benefit = 330 (car planned for annual repairs, car not available for personal use. Accessibility of car unless Emma gives it to her employee, parked at airport.
• Seeks no recipient because of Emma’s repayment of expenses.
• Repayment of Emma’s motor vehicle cost

This is considered for the expense payment fringe advantage but is excused under FTBA, s 53.

• Loan of $500,000

Allowance of the loan is a “loan fringe benefit”: FBTAA, Div 4

Taxable value = $500,000 x (5.95% – 4.45%) x (212/365) = $4,356

• NB: As Emma does not use the loan for earning assessable income, there is no reduction of tax under the deductible rule. 

The bathtub for $1,300

• Bathtub comes under house property fringe benefit. Periwinkle business sells it in the general plan: FTBA, Division 11.
• The bathtubs are manufactured and sold by the Periwinkle to the public by the ordinary business plan. Hence, taxable value = 75 % x $2,600 (lowest price sold to public) = $1,950. The taxable cost is abridged by $ 1,3000for receiver’s contribution to $650.
• As taxable value fits ‘in house fringe benefit’, it is reduced to nil below s 62 FTBA (considering as no other in-house benefits to Emma the same year). In order to find out the Type/Type 2 declaration of fringe benefit, it is imperative to find taxable value of each fringe benefit (Poterba, 1992)
• Car= Type 1 fringe benefit (as the amount is GST comprehensive and it is financial supply; hence no GST is appropriate).
• Car= Type 1 fringe benefit (and supposition is made about Periwinkle and consequently no GST is appropriate).
• Consider the taxable cost of bathtub is deduced to 0. 

Fringe benefits taxable amount = ($5,967x 2.0802) + ($4,356x 1.8868) = $12,413+ $8,219 = $20,632.

Fringe benefits tax liability = 47% x $20,632 = $9,697

Hence, Periwinkle must pay FBT of $9,697 in relation to the above items. 

In case Emma buys herself the shares 

If Emma buys the share all by herself using the $ 50,000 loan amount, then the cost can be utilized by for making income. They take the bonus from the company and will be made to produce income and get the cost of deduction from that of the equivalent interest rate. As per the deductible rule given under s 19 of the FBT Act, loan fringe benefits get lower by 10% ($ 50,000/$50,000) (Blum, 2009). 

Conclusion and Suggestions 

The detail case study of Emma and Periwinkle Company, it is quite clear the Emma attains benefit from the company to pay below fringe benefit subjected according to this benefit. To sum up, Fringe benefit as additionally given high standard service to the employer. The workers, according to me, has worked efficiently and produced productive work out after the encouragement. The FBT, this is why, must be reduced for encouraging the employers (Yagan, 2015). The employees are under a constant stress tension of FBT and there are chances for this to lead to non-attendance and refraining from of job. This will largely affect the country’s economy and result in low income availability, as per negative point of view. As productivity back-up persuades productivity, fringe benefit is put down so that they can motivate the employees to carefully allow employee to keep substantial price at hand. The study hence, talks of Emma and Fred’s case and makes it quite clear that learning the laws of institution is important because the situations applied are always not the same and hence it is imperative on your part to know the basics of the taxation policies (Enthoven et al, 1998). The detail analysis of the project by quoting example intends to make the concept clear of the students. By such citing of situations, it gets easier on the part of the explainer to explain and analysis the essentials related to the topic. The capital gain/loss situation mentioned wouldn’t have been easier to understand if the varied examples are not given (Kahn, 1997).

This allows the students and people associated with the concerns of this field to properly read and analysis the case study, enabling them to figure out the personal problem and issues. It strives for better acknowledging of the fact and facilitating the theme pervading the study, making it out loud clear. The basics and the explanations mentioned are sufficient enough to understand the terms and subject matter in proper (Ralph, Allett & Joss, 1999).

References

Blum, J., 2009. How escape from taxation and regulations by moving” offshore” ruined world’s economy”, contribution at conference of Heinrich-Boell-Foundation.

Dubert, C. and Merrill, P. 2001, Taxation of US Corporations Doing Business Abroad: US Rules and Competitiveness Issues (Morristown, NJ: Financial Executives Research Foundation and PricewaterhouseCoopers, 2001).

Evans, C., 2003. Studying the studies: An overview of recent research into taxation operating costs. eJournal of Tax Research, 1(1), pp.64-92.

Faccio, M., Marchica, M.T. and Mura, R., 2016. CEO gender, corporate risk-taking, and the efficiency of capital allocation. Journal of Corporate Finance.

Kahn, D. 1997, Federal Taxation of Gifts, Trusts and Estates. Federal inheritance taxes were in force for a total of, 17, pp.2-3.

Lind, S.A. ed., 2005. Fundamentals of Business Enterprise Taxation: Cases and Materials. Foundation Press.

Poterba, J.M., 1992. Taxation and housing: Old questions, new answers (No. w3963). National Bureau of Economic Research.

Ralph, J.T., Allett, R. and Joss, B., 1999. Review of Business Taxation: A Platform for Consultation: Discussion Paper 2, Building on a Strong Foundation.

Walton, P., 1995. Accounting rules, taxation and medium-sized business in the United Kingdom, France and Germany, a study for the Foundation for Manufacturing and Industry. British Library Document Supply Centre