HI6028 Taxation Theory, Practice & Law

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This paper discusses the issue, and what relevant rule says about the issue. After discussing the
issues the paper analyzes the issue and provide conclusion.

Q1:

a) Vacant Block:

Issue:

In the scenario given the client is involved in contract of sale, the client has signed the contract
and the vacant land is agreed to be sold in the period agreed. For the contract the initial amount
which is received is 20,000 $ at the time of the contract. The issue arises in this scenario are what
is the period of capital gain tax under the section 108-5 and what are the guiding principles under
the contract signed section 104-10 (2).

Rule:

The corporation act 1997 contains the information how to deal with the capital gain tax and its
respective treatment. The section 108-5 of the corporation act explain the sale of the property and
the dealing of the capital gain tax and dispose of the property and bind the two parties. This
division 110 guides upon the cost of the capital gain on the asset. In the section it is stated that
cost of the asset should include the cost which is incurred after the acquisition of the asset. In the
section 116-20 information lies how to calculate the capital gain tax and the section 115-5
contains the information how to deal with the discount of 50 % on the capital gain. According to
the rule capital gain is permitted to discount when the asset that is acquired 12 month before.

Analysis:

According to the rule the amount which is agreed in the sale proceeds is 320,000 $. The asset
was bought in 100,000 $. According to the rule the amount should be included which is incurred
in the asset, such as the council tax is included in the cost of the asset. The total cost of the asset
would be 120,000 $ and the capital gain would be 200,000 $. According to the tax the gain is
taxable in the year of the contract.

Conclusion:

This shows that contract is very important which decided the period of the capital gain tax which
is now due and the remaining amount does not impact in which tax year it is paid.

b) Antique Bed:

Issue:
Client had antique bed which is stolen but the market value is recovered through the insurance
claim. The issue arises here that the amount of the claim which is received is taxable under the
tax law section 104-20. Also, discuss the application of the index rule in the given scenario.

Rule:

The sections which provide the guidelines for the antique quality that are held by the tax payer
are the 104-20. Items more the 500 $ at the time of the purchase are taxable under capital gain
tax. The asset which is stole has value more than this. The index rule applicable here because the
asset is bought in 1986 which is many years ago.

Analysis:

From the above calculation capital gain tax incurred during the year and is taxable. The index
rule is also applied because the asset purchased is before 1999, which enhance the cost to 7884 $.
This will also provide some relief in the tax as well. The index is given in the guideline in the
Australian Taxation Office.

Conclusion:

As the asset is collectable the tax liability arises during the year the reason is that value is more
than 5000 $ and index rule is also applicable because asset is bought in 1986.

c) Painting:

Issue:
The client had a painting which is sold. The sale proceeds are higher than the cost incurred to
buy this. The issue is that capital gain tax arises or not.

Rules:

As the asset is collectable so under the section 104-10 the tax is applicable according to the
capital gain tax.

Analysis:

The painting was acquired in 1985 so it becomes ancient. This is excluded from the capital gain
tax because it was applicable from Sep 1985 and the painting is purchased in May 1985. The
capital gain tax is not applicable in this sale proceeds.

Conclusion

The sale proceeds recoded but the amount is not considered in the capital gain tax because it is
before the application of capital gain tax under the section 104-10.

d) Shares:
1) Issue:

The shares are sold by the investor. The first stock of 1,000 was purchased in 2001 which is now
sold. The section which provides the guideline is the sec 108-5. It provides the information about
the investment in the share and the capital gain tax. The issue which is discussed is the sale of the
share is taxable or not.

Rule:

This is guided in the section 104-10. The sale proceed is taxable the reason for this is that the
amount of proceed is higher as compare to the purchase of the shares. The shares are purchased
in 16,300 $ and are sold in 47,000 $. The amount of the capital gain tax is taxable under the
corporation act.

Analysis:
The amount of the capital gain is taxable but no index rule is applied in it. Therefore no
indexation is applicable in this. The proceeds of the sale are under the common bank so the
discount is permitted on the tax which is under the section 115-25 of the corporation tax.

Conclusion:

The sale of the share is either capital gain or capital loss. This is considering as taxable under the
tax rules. This is usually calculated on the gain on proceed after deducting the amount of the
discount.

2) Issue:

Another investment of the share is proceeds to sale totaling 2,500 shares and arise the capital
gain tax. This issue has been discussed under the section of the capital gain and is same as the
sale proceed of the share.

Rule:

The tax rule provides guide line that this is earned during the year under the section 104-10. The
sale proceeds are higher as compare to the purchase so the gain is taxable. The amount of the
purchase is 32,500 $ while the sale proceed is 62,500 $. The capital gain tax is calculated under
the tax code.

Analysis:
The capital gain in the given scenario is 30,000 $ and no index rule is applicable here. The
capital gain on the PHB iron investment is discountable under the section 115-25.

It is evaluated from the scenario that under the tax code the capital gain is calculated and the
individual is liable to capital gain tax in the current tax year.

3) Issue:

Issue:

There are some share of 1200 are proceed to sale during the year, and this caused to be consider
as capital gain tax on the issue. The rule of the capital gain tax is applicable here under the
section 104-10.

Rule:

The sale is calculated under the tax code and considered that during the proceeds of the sale loss
has occurred. That means the cost of the share is excess as compare to the sale proceeds. The loss
is assessable and is utilized against the capital gains such as the tax on the capital gain. [ CITATION
Wor \l 1033 ]

Analysis
This loss of 6,000 $ is utilized against the capital again and no index rule is applied. The loss is
occurred and according to tax code the loss on proceed is settled against the capital gain tax.

Conclusion:

This is evaluated from the scenario that the sale proceeds of the share is calculated under the tax
code and loss occurred, the losses are claimed under the tax code against the capital gain in the
year.

4) Issue:

The shares are purchase and are disposed of in the same year. The sale proceeds is a capital gain
and the issue arise the capital gain on the sale of the share is taxable or not this is under the
section 104-10.

Rule:

The rule here is the discount on the transaction is not permitted as this is not in the possession of
the investor for one year. The further evaluation reveals that the amount which is earned on
proceeds is greater than the cost of the purchase. The capital gain of 13,000 $ is assessable as the
amount of purchase is 12,000 $ and the sale proceed of 25,000 $. This amount of 13,000 $ is
assessable under the tax rule. [ CITATION Wor \l 1033 ]

Analysis:
In the scenario no index rule is applicable as the sale proceeds and the purchase is in the same
year. The amount of the sale is high so the 13,000 $ is incurred during the year and no discount is
applicable on this. The cost of the broker and the stamp office are part of the cost.

Conclusion:

The capital gain is taxable, the other costs which are incurred to sale are part of the cost, but the
discount available on the capital gain tax is not available in this scenario.

e) Violin:

Issue:

Violin is held for the personal use and for enjoyment and sold. This scenario is under the code
108-20.

Rule:

The rule under the tax code state that if the value of the personal use asset is more than 10,000 $
then the gain is earned is taxable. [ CITATION Cap \l 1033 ]

Analysis:

The scenario states that the value of the violin is under the benchmark which is present in the
code of the Capital gain tax so the sale proceeds are not taxable.

Conclusion:

No tax is payable on the sale of the violin due to less in the value of the sale which is mention in
the section.
The statement of the capital gains is as follows:

The main area to consider here is the how loss and the discount is measured against the capital
gain tax. The reason is that there are two assets which are not discounted and not taxable as well
as saving tax due to loss incurred. The previous year loss is also adjusted in the capital gain tax.
The calculation is as follows:

The taxable gains are as follows:

Q2:
a)

Issue:

The car is given to the employee for the personal use. The issue arises in this scenario is that the
car is under the fringe benefit or not.

Rule:

The FBTAA section 7 guides this scenario and provide information. If a car is provided to the
employee for full time and there is no terms and conditions attached causes restriction, than this
benefit is considered as fringe benefit and the tax liability is considered. [ CITATION Cap \l 1033 ]

Analysis:

From the scenario the condition and the circumstances shows that jasmine has been provided the
car for the full time, no condition are applied on handing over the key to the employer and other
restriction which shows that it is provided under the condition. This is under the fringe benefit
and calculated as follows:

Taxable value of the car fringe benefit= 0.2 x 33,000 x 331 / 366 = 5,969 $

The car value is provided and the number or the days which are used are provided, and the
month is not included of repair and maintenance. The other day is included because during that
period the car was under the use of the Jasmine. Because, the car was in her use and she can
access to car anytime. The other thing which can be consider here is if there is any expense from
the Jasmine to reimburse, but in the scenario no such condition is mentioned and no contribution
is seen. The cost of reimburse would be considered as benefit.

The tax rules are applied to calculate the distance:

Annual kilometers = 10,000 x 365 / 330 = 11,061

This is not huge distance so there is no tax assessmnet on this value.

Conclusion:

The scenario shows that the car is under the use or the employee and no condition is applied to
the fringe benefit is assessed and the amount calculated is payable by the employer on the value.

2) Issue:
The other benefit which is assessed and that may cause the fringe benefit is the loan of the
500,000 $. The loan has been granted to the employee at low rate of interest. The issue arises if
the amount is taxable and if yes then how it can be calculated.

Rule:

The rule states that the loan creates the tax liability for the employer under the tax FBTAA. The
loan on the other hand is provided to jasmine due to her employment and the interest rate is also
low so this is considered as fringe benefit. [ CITATION Fri \l 1033 ]

Analysis:

The taxable value of the loan benefit is:

Taxable value = 500,000 x (5.65 % - 4.65) x (213 x 366) = 2909.84

Conclusion:

This is evaluated from the scenario that the tax is payable on the value that is provided by the
employer.

3) Issue:

Purchase of the electric heater from the jasmine in the current tax year. The price of the purchase
is low as compare to the actual value. The issue arises in the scenario that it is under the fringe
benefit or not.

Rule:

The rule here describes that the sale was under the ordinary course of the business and the sale
value to the employee is 75 % of the retail would be taxable. [ CITATION INC974 \l 1033 ]

Analysis:

The electric heater is not taxable as the amount of the heater is less than 1000 $ and is exempt
from the tax. The taxable value will be calculated as:

Taxable value = 75 % x 2600 = 1950 $

This will be further decrease as the payment of the jasmine is excluded. The net value of the
heater would be 650 $.

Conclusion:

This is evaluated that the benefit are not taxable such as house, the car and the loan benefit are
considered in the scenario and are taxable while the purchase of the heater is not included in the
tax as this is not exceeded the benchmark of the tax code.
Works Cited
AUSTLII.EDU.AU. (1997). INCOME TAX ASSESSMENT ACT 1997. WEBSITE.

Capital gains tax. (n.d.). Retrieved from Australian Government:

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

Fringe Benefits Tax Assessment Act 1986. (n.d.). Retrieved from Federal Register of Legislation:
https://www.legislation.gov.au/Details/C2015C00

Working out your capital gain. (n.d.). Retrieved from Australian Government:
https://www.ato.gov.au/General/Capital-gains-tax/Working-out-your-capital-gain-or-
loss/Working-out-your-capital-gain/