Taxation - Theory - Practice & Law Capital Gain

Question: Discuss about theTaxation,Theory,Practice Lawfor Capital Gain. Answer: Introduction The report centers on the detail analysis of Freds overall net capital gain covering the various related transactions, noted after his involvement in the purchase of his holiday house. The study basically denotes the importance of learning the required laws of calculation in order to understand the concepts of overall net gain and net loss. Fred, the example of study in this report, demands the understanding of law as the home functions, development, and renovation comes under the Australians law of government strategies which even includes other taxation laws as per the Income Tax Assessment Act of 1977. This is done to make computation (Mertens, 1942). Concerning with the net capital gain or loss of Fred, the report personally evaluates and analyses the various facts and figures relating to the explanation to set the capital loss/gain method. Here it is important to note that, there are transactions that do not follow the computational method of capital research. The term computati on is imperative to understand as the concepts of net capital gain/loss and superannuation adopts the computation functionality (Graetz Schenk, 2009). Every layout is basically based on the computation tool. Computation definition hence is described by various tax and law scholars with each definition carrying specific application for different purposes and situation. Superannuation is the process of accumulating or gathering funds from the people to give them at the time retirement (Cronin et al., 2013). Calculation of Capital Gain for Fred Computation Of Capital Gain For FRED For The Year Ended On 30 June Particulars Amount (in$) Total Amount (in $) Add: #Proceeds of selling holiday home in the current year 800,000.00 Less: Cost Base of holiday home in 1987 100,000.00 700,000.00 Less: Total legal fees 2100.00 697900.00 Add: Cost base of garage 20,000 717900.00 Less: Cost of garage after indexation 20000*123.4/71.3 34,614.30 683,285.70 Less: Agent commission 9900.00) 673,385.70 Less: Stamp duty payable on acquisition (2000.00) 671,385.70 Less: Previous Year Capital Loss Deduction (10,000.00) Total capital gain 661,385.70 Less: 50% discount for using property for more than 12 months (330692.85) Net capital gain 330692.85 Exceptions and Exemptions: As mentioned above, there are certain values or transactions that do not obey the capital gain or capital loss concept. So, here various examples are quoted in order to the get a clear idea of what are these values. Examples like reimbursement requested for any specific illness or injury, assets that are required before 20 September 1985, people having personal asset of $ 10,000. These examples are the values or the asset that are considered disdain if implemented. Cars, vehicles or motorcycle, again cannot be included in the capital profit/loss category and is disdained if owned for 10,000 or less (Bittker Rahdert, 1976). Other examples like the collection of items like painting worth $500 or less is not counted under the computation, various items like family homes that are detached from the original housing. What will be the answer if there is a sale of an antique vase? What about the answer if the loss is resulted from the sale of an antique vase. Well, if my analysis is concerned, Fred faces an utter loss because of his selling of the antique vase (Musgrave, 1969). This conclusion is deriving from the subtraction of the loss received by the sale of shares, which Fred intended for his personal or private use and hence his net capital is more than $ 10,000. An Overall Analysis on the Fringe Benefits and Fringe Benefits Tax It is now a known fact that the tax is a resultant of fringe benefit which indeed sets the introduction and importance of fringe benefit analysis. This report gives a detail account of the fringe benefit and fringe benefit tax including various context and discussions by different scholars. Fringe benefits cover the additional benefit that increases the employees salary. Subsidized meal, company car, health insurance and more are the distinct examples. Fringe Benefit anyway is described with various point of analysis (Vickrey, 1947). As per the employer point of view, Fringe benefit is considered as a free partner and contractor resting between two employees where in certain cases the tax is let off. These are few examples of fringe benefit under the taxation sanction (Bittker Rahdert, 1976). The fair market cost is included for all those receive fringe benefit tax, in that year. Fringe Benefit also gives advantage to the employee, their family and the acquaintances (Rowley, Tolliso n Tullock, 2013). This extra amount is added to the wage package or salary. Fringe benefit, unlike the income tax, is assessed every year from 1st April to 31st March. The fringe benefits tax (FBT), in Australia, is regulated by the Australian Fringe Benefit Tax Act, 1988. The FBT anyways, in the recent few years is classified into different sections, mentioned below: Expense payment fringe benefits Debt waiver fringe benefits Housing fringe benefits Loan fringe benefits Car parking fringe benefits Board fringe benefits Living away from home allowance fringe benefits Residual fringe benefits Property fringe benefits including the goods, property or shares Living Away From Home Fringe Benefits Living away from home, shortly addressed as LAFTA, is the allowances provided for living away from the original residence. The employer, in this case, gives the employee some benefit for staying away from the home for his personal duties. But the strategy sometime encounters disadvantages (Musgrave, 1969). Property Fringe Benefits In this type of benefit, the employee receives a discounted property from the employer, which is clearly seen in the case of Emma. Emma purchases a bathtub of cost $1300 whose actual market value is $2600. By this, she gets a discount of 50% from the company (Willis, Pennell Postlewaite, 2006). Board Fringe Benefits In Board Fringe Benefit, the employees are given with the permission relating to the two required meal of the day and accommodation (Blum Kalven, 1978). Housing Fringe Benefits In this type of benefit, the employee is provided with the right over the accommodation and rents or even license. The employee attains the residential rights, as the strategy grants the unit as a whole (Blum Kalven, 1978). Debt Waiver Fringe Benefits In this type of benefit, the employer lets off the employee from paying the debt. Car Parking Fringe Benefit Well, the application and utility of this benefit can arise in different situations like: if a car is parked in the area of the employer or if car parking exceeds the time frame like 7am to 7pm, in case if the car is parked in the employees place of work, if employment considered for granting a parking, is there is a commercial area available within 1 km radius of the employee work area or if the employee manages the car (Bittker Rahdert, 1976). Car Fringe Benefit In case of car fringe benefit, the employee receives a car either he has rented for his personal use or of his own asset. Expense Fringe Benefit In this type of benefit, the employer gives a certain amount to the employee to pay it to the third party and if not made, this will make the employee answerable or else the employee will recompense the expanses met in the end. Emma receives the advantage from the fringe benefit from the compensation for the vehicle and hence qualifies the expenses from it Loan Fringe Benefits Here the employee gets a loan that is at less interest rate that that of existing banks. For Emma, she got a loan of $500000 at 4.5% interest which is not like that accrued by existing banks. As FBT is taken, this is 47% rate (Friedman et al, 2000). FBT Consequences for the Company Car receives the fringe benefit and is given to Emma for her personal use according to the provision of FBTA, s 7. Depending on the cost basis strategies and other additional information, the constitutional methods are used here: 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 listed for annual repairs and the car is unavailable for personal use. Accessibility of the car until Emma gives it to her employee, parked at airport. Emma receives no recipient for the reimbursement for the expenses. Repayment of Emmas motor vehicle expenses This is excused under FTBA, s 53 but is adapted for the expense payment fringe. Loan of $500,000 Provision 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 loan for earning assessable income, no reduction is attained for tax under deductible rule. Purchase of bathtub for $1,300 Bathtubs are sold under the ordinary business plan of Periwinkle: FBTA, Division 11 as bathtub are considered as house fringe property. The taxable value of the bathtub is reduced by $1, 3000 for recipients payment of $650. Bathtubs are manufactured and distributed by Periwinkle to the public in the ordinary course business, hence the taxable cost= 75% x $2,600, which is in fact the lowest price sold to the public which equal to $1,950. Since the bathtub belongs to the house fringe benefit, the taxable value is decreased below s 62 FTBA considering as no other in-house advantage to the Emma in that year. After subtracting the taxable value from each fringe benefit, it is important to find out the Type/Type2 declaration of the fringe benefit. Car = Type 1 fringe benefit (as the amount is GST comprehensive and supposition is done about Periwinkle being unrestricted to input tax credits) Loan = Type 2 fringe benefit (it is a financial supply; therefore no GST is applicable) Assume that taxable value of bathtub is reduced 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 Therefore, Periwinkle must pay FBT of $9,697 in relation to the above items. What will be the Answer if Emma Purchases the Shares by Herself? The variation in the answer is expected. If Emma buys all the shares by herself by the means of $50,000 loan amount, then the cost will be used to produce income. It is because they take the dividends from the organization that is profitable and gets the amount of deduction from the equivalent interest rate. Loan fringe benefit, in this case gets lower by 10% ($50,000/$ 50,000) according to the deductible rule proposed under s 19 of the FBT Act. Conclusion and Suggestions After reading the study, it must be clear by now that the analysis of the case of the Periwinkle Company and Emma, the benefits received by Emma comes from the company. It has to pay under benefit tax which is directly exposed according to this advantage. Well, it quite evident that Fringe benefit has offered standard jobs to the employer. But it is matter of fact that the workers will certainly perform well if motivated properly, thoroughly, and continually (Bittker Rahdert, 1976). This why FBT must not anyway discourage the employees as it has a direct effect on their psychology and performance. FBT stress results in the discouragement of the employee affecting the work and leading to quitting of job and absenteeism. This will have a greater affect on the overall countrys economic condition and low income availability over the tax. As productivity encouragement persuades productivity, fringe benefit is given in order to motivate and encourage the employees to carefully allow the e mployee to keep good price at hand (Bittker Rahdert, 1976). This conceptual analysis on the case has resulted in the clear conclusion of the understanding of the term of capital gain/loss. The examples quoted are an attempt to make the basics apt and clear. The readers must correlate with the set examples and situations, to perform and adopt the meaning of the terms productively. References Areeda, P., Kaplow, L. and Edlin, A.S., 1988.Antitrust Analysis: problems, text, cases(p. 160). 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