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Taxation : FBT Calculation

Question:

Discuss about the Taxation for FBT Calculation.

Answer:

Case study 1

Analysis of Fred

Name of the Taxpayer : Fred

 

        Entity Type: Individual

 

Computation of Net Capital Gain/ Loss

 

     for the year ended 30th June, 2016

 

 

Indexation Method

 

Discounted Method

Particulars

Amount

Amount

 

Amount

Amount

 

 

 

 

 

 

Holiday Home Sale:

 

 

 

 

 

 Consideration of Sales

 

      800,000

 

 

      800,000

Less:

 

 

 

 

 

Base Cost of the Property

      151,656

 

 

     100,000

 

Legal fees on Sales (Excluding GST)

          1,000

 

 

         1,000

 

Real Estate Agent Commission

          9,000

 

 

         9,000

 

Legal fees on Purchase

          1,517

 

 

         1,000

 

Stamp Duty on Purchase

          3,033

 

 

         2,000

 

Garage Construction Cost

        24,448

      190,654

 

       20,000

133,000

 

 

 

 

 

 

Capital Gains

 

      609,346

 

 

667,000

(-) Exemption on Capital Gains @ 50%

 

0

 

 

      333,500

Taxable Capital Gain (i)

 

      609,346

 

 

333,500

 

 

 

 

 

 

Less: Capital Loss of Last Year

 

        10,000

 

 

        10,000

 

 

 

 

 

 

Net Taxable Capital Gain

 

      599,346

 

 

323,500

The above assessment and calculations are done on the basis of the information given for the person named Fred, who is an individual. It is clear from the case study that Fred is not involved with any sort of business activity as he has just sold his holiday home to an organization named Blue Mountain. The property sold by him was his own belonging and so it can be said that till the time Fred acquired it, the property was an asset to him. It is not even clearly mentioned that the property, which has been sold out by Fred in the accounting year was used for any profit generating purpose.

As per the rules stated by the Australian Taxation office, any assets purchased on or after the date 20th September 1985 is claimed as capital gains tax assets. In this study, it is clearly mentioned that Fred bought the holiday home on March 1987 and thus this assets falls under Capital Gains Tax and so the sale of this asset will be considered while evaluating the taxable value of the capital gains or loss (Cortis, and Eastman,  2015).

As stated earlier, the property was purchased after 20th September 1985 so it is not a Pre-CGT asset and also the property was purchased before 21st September 1999 and thus Fred has the privilege of using both discount and indexation method for computing the capital gains or loss tax and can use the minimum value of the two to ascertain the taxable amount.

The discounted value method is a simple process where all the expenses are deducted from the sale of the asset and then an exemption of 50% is adjusted if the acquirer has obtained  the asset for more than two years to find out the net taxable amount. The indexation method on the other hand involves a complex process, which evaluates the property index of the current year of sale with respect to the index value in 1999.  Fred can use any of these two methods as all the necessities to receive both the methods are relevant for Fred. The indexation method also considers the original cost along with the expenditures, which are incurred during the acquirement of the assets. While computing the taxable capital gain or loss, all the expenditure are excluded from the profit to find out the net revenue generation and the tax is deducted from it to help the tax payer loosen its burden (Harding, 2013).

During the acquirement of the asset, Fred had also incurred an expenditure of building a garage in the holiday home to provide garage assistance for him. The construction of a garage increases the value f the property as it provides extra benefit to the asset holder. The expense incurred is to be treated as deductible expense and the actual amount is to be estimated using the tax index of the concerned years (Jones,  2016).

The study also reveals that Fred faced a loss in the previous year from selling shares. It is known that all transactions relating to trading of shares comes under the capital gains assets and losses faced from any such activities are compromised in the real estate property capital gains. According to the scenario Fred can sell off an antique vase to write off the loss incurred from the sale of shares to exempt from tax but this process is not valid as the loss of shares cannot be adjusted with the sale of antique vase as the loss is to be treated in the sale of shares to eliminate the chances of any malpractice

Case Study 2(a)

This study concentrates on an Australian organization named Periwinkle Pty. This enterprise provides its employee Emma with some additional benefit by giving her car as her work is related to travelling from place to place. It is assumed that Emma is a citizen of Australia and thus any extra favor from her employer is treated under the FBT or Fringe Benefit Tax. The evaluation of the Fringe Benefit tax for Emma is stated below:

Workings:

Computation of Fringe Benefit Tax for Emma's Car

               

Particulars

Working

                Information

 

 

 

Total Number of Kilometers Travelled during the Year

(a)

10000

Number of Days in the accounting year

(b)

366

Total Number of Travelling days in the year

(c)

336

 

 

 

Annualized Travelling Kms.

[a *b/c]

10892.86

 

 

 

Rate according to the Annualized kilometer

(d)

20%

 

 

 

                                   Base Cost

(e)

33,000

 

 

 

Total Number Days used for Private Purpose

(f)

20

 

 

 

Number of Days in the accounting Year

(b)

366

 

 

 

                             Taxable Amount

[e*d*f]/b

360.66

 

Computation of Interest on Loan of Emma for Fringe Benefit Tax:-

 
               

Particulars

Working

Information

 

 

           $

Employee Loan

    (i)

                500,000

 

 

 

Standard Interest Rate

    (ii)

5.95%

 

 

 

Actual Rate of Interest

   (iii)

4.45%

 

 

 

Amount Taxable on Interest on Loan

(iv)= (i)*(iii)

                  22,250

 

Computation of Discount for Fringe Benefit Tax of Emma:-

             

                                Particulars

Working

Amount($)

 

 

 

 

 

                Market Selling Price of Bathtub

    (i)

2600

 

 

 

 

 

                Exclusive Price for Emma

     (ii)

1300

 

 

 

 

 

                Taxable Amount for the Bathtub

(iii)= (i)*75%

1950

 

 

 

 

 

                 Amount Taxable for Benefit

(iii)-(ii)

650

 

Computation of Emma’s Taxable Fringe Benefit

 

Name of the Taxpayer : Periwinkle Pty

   
 

                      Entity Type: Company

   
 

Computation of Fringe Benefit Tax

   
 

for the accounting year ended 31st March 2016

   

 

Inclusive of GST

Exclusive of GST

Particulars

Amount ($)

Amount ($)

 

 

 

Benefit from Car

360.66

 

 

 

 

Interest on Loan

 

22250

 

 

 

Sale at Special Rate

 

650

 

 

 

Total amount of GST Benefit(Inclusive

                               (a)

                                 (b)

   and Exclusive)

360.66

22900

 

                                (c )

                                 (d)

Rate of Gross-up

2.1463

1.9608

 

            (e)= (a)* (c )

           (f)= (b)* (d)

Gross-up Amount

774.08

44902.32

 

 

 

Amount of Total Taxable Fringe Benefit

45676.40

 

 

                 (g)= (e) + (f)

 

 

 

 

Tax Rate of Fringe Benefit

49%

 

 

                                (j)

 

 

 

 

 

           (k)= (g) * (j)

 

Tax Liability on Fringe Benefit

22381.44

 

Case Study 2(b)

According to the question, it can be analyzed that Emma is liable for taxation if she uses the amount for purchasing shares for herself because the income from acquiring the shares via dividend is taxable. The liability of fringe benefit tax will fall depending upon the total amount of income gained by the employer from the granted amount of loan (Ato.gov.au. 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). 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].

Balli, F., Kalemli‐Ozcan, S. and Sørensen, B.E., 2012. Risk sharing through capital gains. Canadian Journal of Economics/Revue canadienne d'économique, 45(2), pp.472-492.

Barrett, J.M. and Veal, J.A., 2016. Tax Rationality, Politics, and Media Spin: A Case Study of the Failed ‘Car Park Tax’Proposal. Centre for Accounting, Governance and Taxation Research Working Paper, (102).

Cortis, N. and Eastman, C., 2015. Salary sacrificing in Australia: are patterns of uptake and benefit different in the not‐for‐profit sector?. Asia Pacific Journal of Human Resources, 53(3), pp.311-330.

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.

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

Joshi, M., Cahill, D., Sidhu, J. and Kansal, M., 2013. Intellectual capital and financial performance: an evaluation of the Australian financial sector.Journal of intellectual capital, 14(2), pp.264-285.

Oats, L. ed., 2012. Taxation: a fieldwork research handbook. Routledge.

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

Pomerleau, K., 2014. The high burden of state and federal capital gains tax rates. Tax Found, pp.1-8.

Schneider, K.N., 2013. Soften the blow by providing tax-free fringe benefits to terminated employees. Journal of Legal Issues and Cases in Business, 2, p.0_1.

Series, F.A.A.I., 2015. A More Precise Way To Measure After-Tax Performance: FTSE ASFA Australia Index Series.

Woellner, R., Barkoczy, S., Murphy, S., Evans, C. and Pinto, D., 2016.Australian Taxation Law 2016. Oxford University Press.

 

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