The report is based on the case of Dave Solomon and his net capital, while the main objective

is to determine whether it is a gain or a loss for Dave when it comes to net capital. Here, I

have to advise Dave about what an individual should do in such circumstance when either it

is net capital gain or else net capital loss. For this, profound knowledge regarding the

Australian laws is necessary as these laws govern the superannuation schemes along with the

fundamental taxation laws and the most imperative one known as 1997 Income Tax

Assessment Act. While analyzing the given figures, it has also been described here whether

these figures are actually relevant to calculate the net capital gain or net capital loss or not.

While, calculating the net capital gain or loss, it has been seen that certain transactions are

ruled out by the Australian laws. Prior to the in-depth analysis of the mentioned question, it is

essential to know about net capital gain, superannuation scheme and net capital loss. Net

capital gain can be defined as, the amount up to which the net long-term capital gain

supersedes the net short-term capital loss for a specific year of income figures. On the other

hand, net capital loss can be defined as the loss of the individual because of decreasing nature

of capital asset value; here capital asset can be either real estate or else an investment. Now,

the Australian Superannuation scheme reflects the various arrangements that have been made

in the country so that accumulation of the funds is possible that are provided to the people as

retirement income.

Net Capital gain or net capital loss in the case of Dave Solomon

From the case study, one thing is clear that Dave Solomon is going to retire in the upcoming

year as he will reach his 59th year of livelihood. That’s why Dave thought that it would be

good to put the funds in the personal superannuation scheme, for which he disposed some

parts of his properties. This disposal included the building situated at St. Lucia that is of two
storeys, his motor cruiser that was quite luxurious, the pro hart painting and his shares in the

new mining organisation. Dave sold his two-storey building with a price of $850,000 for

which he had to pay $15,000 to a real estate agent for the purpose of commissions, however

accumulated $85,000 that the bidder deposited. So, he got the total amount of $935,000. He

actually had bought that house with just $70,000 so he gained $865,000 after selling the

house. But, he had to sell the luxury motor cruiser at $60,000 which he actually bought for

$110,000. In this case, he lost $50,000. On the other hand, the Pro Hart painting which he

bought for $15,000 got sold at $125,000 which means he made substantial gain worth

$110,000. In case of the mining company shares he bought it for $75,000 but sold it with a

gain at $80,000. He actually took a loan of $70,000 while purchasing the shares with a $5,000

interest which means the payable loan amount was $75,000. In addition this, he paid $250 in

case of stamp duty and $750 for the purpose of brokerage. Some losses were also there in

case of sales of shares during the past year’s finance which was $10,000. He made a profit

from the sale indeed which was of $5,000 except he is the one who has to expend the profits

from the sale so that the payable loan will be paid off. So, the $5,000 that left Dave will have

to deduct $1,000 which he utilized for the purpose of stamp duty as well as brokerage. Then,

he will have the rest of $4,000 which Dave must use offsetting the losses which he made last

year due to similar transactions. After offsetting the loss, Dave will have to bear the loss of

$6,000 because of the transaction he made by selling the shares. Here,

Net Capital Gain= Total Capital Gain- (Total Capital Loss + Discounts on CGT)

Sum of Gains = $865,000 + $110,000 = $975,000

Sum of Loss = $50,000+$6,000 = $56,000

So, Net Capital Gain = $975,000-$56,000 = $921,000

However, ATO specified about the fact that the interest related to the loan is not deductible,

in which case the net capital gain is- $926,000 ($921,000+ $5,000).

Net Capital Loss

If Dave had accumulated the net capital loss as per the current financial year, it would have

well for him because he would have in a position at which loss because of the $10,000 he lost

during last year due to sales of losses could be pushed forward towards the next financial

year. In that case, he could have deducted the loss by making the net capital gain in the

mentioned year. This principle is useful in case of taxpayers as they can save themselves

from huge losses that can’t be recovered, despite the fact that they have to pay the taxes

consistently. This can be called tax credit that is for encouraging the taxpayers for tax

payments in future. An ideal tax system can be identified by determining how convenient it is

and hence to that specific extent it is quite practical while allowing the taxpayers to not suffer

by paying full taxes two times which is pure loss. So, it is quite equitable while allowing

them the deduction of losses and simultaneously the ATO reduces the interest rate on loan as

it is a loss for Dave.

Case Study 2

Fringe benefits tax

To know about fringe benefits tax, it is necessary to understand fringe benefits. There are

diverse definitions and meanings of fringe benefits tax and that of fringe benefits as per many

scholarly articles written by top researchers and scholars. The additional benefit that

supplements the salary of an employee, for instance- health insurance, company car

provision, subsidized meals and many more can be delineated as fringe benefits, according to

Miller and Mulvey. Whereas, Veth defined fringe benefits as the benefits which an employer
provides to his staffs or partner or else an independent contractor and some of those are tax-

exempt when there are certain conditions that have to be met at first. Some fringe benefits are

taxable and others are not. Inclusion of taxable fringe benefits recipients takes account of the

fair market value related to the benefit while considering the yearly taxable income.

Moreover, according to Harmer, Smith, Ridout and Piggott FBT is nothing but a tax which

the employers have to pay for the benefits they are providing to their employees as well as

their families. Sometimes, it has been seen that the benefit is a part of the salary. But, FBT is

different from income tax as it is calculated by considering the taxable value linked with

fringed benefits. In Australia, it runs from April 1st to that of 2017 31st March. The 1986

Fringe Benefits Act governs the FBT in Australia. The different types of fringe benefits have

been mentioned underneath.

 Car fringe benefits

 Loan fringe benefits

 Car parking fringe benefits

 Entertainment fringe benefits

 Expense payment fringe benefits

 Staying away from residence allowance fringe benefits

 Debt waiver fringe benefits

 Board fringe benefits

 Housing fringe benefits

 Property fringe benefits (includes shares, goods and properties)

 Residual fringe benefits (those benefits yet not covered)

Currently, the FBT rate in Australia is 47%.

Periwinkle and FBI Liability

Here, in this case the fact is that Periwinkle is liable for tax payment due to the car fringe

benefits, loan fringe benefits, property fringe benefits and expense payment fringe benefits

which the company has given to Emma. As the company has bought a car for Emma that is

worth $33,000, car expense fringe benefits here can be subjected for FBT payment. While

considering loan fringe benefits, Periwinkle will have to follow FBT payment related to the

loan which the company has already given to Emma that is of $500,000. An employer

provides loan fringe benefit in case the employee is given a loan with no interest or else very

low interest rate. Low interest rate can be defined as the interest rate which is very much less

than that of the standard rate of interest. The standard interest rate was 5.95% for the last year

that ended on 2015 March 31st. After that, the company gave Emma a loan fringe benefit with

a 4.455 interest rate that was below the benchmark interest rate. A property fringe benefit was

also given to Emma with the help of which she bought a bath tub worth $1,300 which the

company sold at $2,600 and the actual manufacturing cost was $700. Here, by analysing this

transaction related to the tub, it can be stated as a $600 worth of property fringe benefit.

While repairing the car, the company had to bear the expense of $550 which can be

considered as expense payment benefits. So, here the total interest of the loan which is 4.45%

of the amount $50,000 can be calculated as $22,250. One can’t simply deduct the interest rate

of a loan while purchasing a private asset, so Periwinkle can’t deduct the interest rate from

$450,000 which Emma spent to buy her holiday home. It means, the company will have to

pay the FBT on interest which is $500,000, but the company is not privy towards this

transaction for which Periwinkle can’t purport the deduction of interest rate to the $500,000

of which Emma’s husband bought shares.

So, the total fringe benefit here is $56,400 ($22,250 + $33,000 + $550 + $600). The company

now has to pay 47% of the mentioned sum as well as the FBT worth $26,508.
What if Emma would have purchased the shares?

Affirmative answer to this question is quite obvious as if the shares were bought by Emma

then the interest related to $50,000 that was used from the buying of the shares would have

been perfect for deduction while FBT was calculated due to the interest rate on the loan to

buy income-producing assets which is deductible in nature. So, in this situation earlier

Periwinkle would have done the deduction of the interest rate from the figure- $50,000 of

which Emma bought shares all by herself. Then, it would have been a deduction of 4.45% to

$50,000 that is $22.25. In that case, the total amount which would be subjected in case of

Fringe benefits tax would have $56,400- $22.25 that is- $56,377,75. Here, 47% will be the

payable FBT of the earlier mentioned sum and hence the net amount will be $26,497,5425

because of 47% of the figure-$56,377.75.

CONCLUSION AND RECOMMENDATIONS

From the previous discussion, one thing is clear that Periwinkle will be subjected towards pay

fringe benefits tax due to the benefits given by them to Emma. But, my argument here is that

motivation is necessary in a work environment for better employee performance and it is a

fact in case a company wants productivity. So, the FBT rates should be revised especially at

the ground level of organizational structure so that the employees will not get discouraged. It

is because, the employees are more often afraid of the burden related to Fringe benefit taxes.

Here, the argument is based on the issue that the employees are also considered as the

taxpayers in Australia who will soon be demoralized with such principles. Eventually, the

case will turn into an end result of less productivity and soon there will be no more income to

which tax will be subjected. With this sort of policy Australian economy will get deteriorated

and soon instability will be seen in the rules, regulations, political framework and economic

areas of the country. Here, changes and improvement can shape the principles and policies
linked with fringe benefits taxation and many of the modern organizations have been working

on it for many years. While implementing such a FBT policy in real world scenario the

government should think about what will be the status of employees present at the lower level

of the chain of command.