Taxation Law And Compliance : Assessment Answer

Describe about the Taxation Law and Compliance for Elite Retail.

1: The important part of this case is nothing but its relation to the taxation law. Here in this case Mary Jackson was a marketing consultant received some benefits from her employer Elite Retail. This tax case focuses mainly in FBT or Fringe benefits Tax. The important aspect of this tax case is to assess the primary benefits received in relation to the employment.  The fringe benefit has significant taxation implication in the hands of the company (S 32.20).

The following benefits are mainly linked benefits;

The Fringe Benefit but tax are personally used or for dual purpose;

• Car parking facility
• Car
• Expenses related to c
  
  ar services like
• Low interest loan
• Entertainment expenses
• Reimbursement of personal expenditure (S 32.25).

There is some equipment and protective dressing which is being used by the employee in relation to his work is not considered as fringe benefits. The list of fringe benefits is allowed to be treated as exception and hence the following expenses are not charged under FBT;

• Phones, tablets, laptops, GPS navigation
• Computer software
• Briefcase
• Other items used in the service only.

All of the equipments provided to the employee in due course of his employment and used for official purpose are not to be considered as FBT[1].

The duel use items for the benefits to employee which can be either used for work related purpose and personal reasons will have to be considered as fringe benefit;

• Use of car for the private purpose
• The discounted loan offering
• Paying for the gym membership
• Entertainment tickets

In this case study these factors which are related to FBT is witnessed;

The following benefits are being received by Mary Jackson;

• Transfer for furniture $4000
• Entertainment allowance $5000
• Laptop $2400 and mobile phone $800
• Home Telephone $330, 50% used for personal purpose
• A company car valued $30,000
• An allowance for professional subscription $1500
• Low interest loan of $500,000 used for purchasing property

The entertainment allowances are fixed allowance paid to her and added with salary. Therefore this allowance cannot be considered as fringe benefit[2] (S 32.20).

Tax Liability of Mary Jackson
Salary	$120,000
Add:
Entertainment allowance	$5,000
Professional Subscription	$1,500
Total Salary	$126,500
Tax Liability on Salary
$18,201 – $37,000 @19%	$3,572
$37,001 – $80,000 @32.5%	$13,975
$80,001 – $126,500 @ 37%	$17,205
Total Tax Liability	$34,751

 

FBT in the hand of Elite Retail
	$	$
Telephone		165
Low Interest Free loan	500000
(Benchmark interest during the period is 5.65%)
Interest according to benchmark rate @5.65%	28250
Less: Actual Interest paid @4%	20000
Benefit		8250
Total Fringe benefit		8415
FBT @49%		4123.35

2:

Scott is an accountant and had purchased a plot of land and constructed house on the property.  The capital gain is the difference between cost price of the capital asset or at the selling prica eats which it is disposed off. Once capital gain tax liability is calculated in a different manner but the tax rate is at par with the normal tax rate in Australia.  Apart from capital loss no other loss can be adjusted against capital gain[3] (S 100.10).

The personal assets are not considered as capital assets and any profit generated out of the sale of the assets cannot be treated as capital gain. CGT is not applicable for depreciating assets⁵.

There are two methods that can be used to ascertain capital gain, one is indexation method and discount method. Indexation benefit will be given to those assets acquired before 21 September 1999. The consumer price index (CPI) is used for the indexation. Indexation is primarily used to increase the cost base of the asset⁴ (S 100.20).

Capital Gain Tax indexation
Sale price		$800,000
Less:
Indexed cost of land		$225,417
CPI 30 Sept 1986	43.2
CPI 31 March 2016	108.2
Less: Indexed cost of construction		$150,278
Capital Gain		$424,306
Capital Gain Tax Discount
Sale price		$800,000
Less: Cost of land		$90,000
Less: cost of construction		$60,000
Capital Gain		$650,000
Capital gain would be reduced by 50%		$325,000

Scott purchased the land in 1980 in Brisbane and constructed a house for $60000. According to Australia Income Tax Assessment Act, 1997, capital gain or capital loss can be calculated on the basis of discount method and indexations method. The discount method of calculation is better for individuals and it saves cost.

Capital gain will be reduced by 50% under discount method. This use of the asset is also an important part in calculation of capital gain (S 100. 30).

Here the property was assumed to be transferred to his daughter at the lower cost at $200,000 than the market price. There would be no respite for the tax payer even if the asset was sold at lower price; market value will have to be ascertained during calculation of tax. The tax calculation would be based on the market price reduced by the cost price of the asset or the indexed cost price[4].

Bibliography:

Australian Taxation Office, Types of fringe benefits (25 September 2016)

<https://www.ato.gov.au/General/fringe-benefits-tax-(fbt)/types-of-fringe-benefits/>

Australian Taxation Office, Working out your capital gain (25 September 2016)

< https://www.ato.gov.au/General/Capital-gains-tax/Working-out-your-capital-gain-or-loss/Working-out-your-capital-gain/>

Australian Taxation Office, The indexation method of calculating your capital gain (25 September 2016)

< https://www.ato.gov.au/General/Capital-gains-tax/In-detail/Calculating-a-capital-gain-or-loss/The-indexation-method-of-calculating-your-capital-gain/>

Australian Taxation Office, Why do you need a market valuation? (25 September 2016)

< https://www.ato.gov.au/General/Capital-gains-tax/In-detail/Real-estate/Transferring-real-estate-to-family-or-friends/?page=3>

Australian Taxation Office, FBT exemptions and concessions (25 September 2016)

< https://www.ato.gov.au/General/Fringe-benefits-tax-(FBT)/FBT-exemptions-and-concessions/>

Australian Taxation Office, Work-related items exempt from FBT (25 September 2016)

< https://www.ato.gov.au/General/fringe-benefits-tax-(fbt)/do-you-need-to-pay-fbt-/work-related-items-exempt-from-fbt/>

Australian Taxation Office, Capital gains tax (25 September 2016)

< https://www.ato.gov.au/General/Capital-gains-tax/>

[1] Australian Taxation Office, Types of fringe benefits

²Australian Taxation Office, FBT exemptions and concessions

3Australian Taxation Office, Work-related items exempt from FBT

³Australian Taxation Office, Working out your capital gain

⁴Australian Taxation Office, The indexation method of calculating your capital gain

5 Australian Taxation Office, Capital gains tax

[4] Australian Taxation Office, Market valuation