CGT Events
The main purpose of this report is to provide the appropriate taxation consequences of Amber who owned a boutique chocolate shop and recently sold it. The taxation concerns over the CGT assets owned by Amber and the determination of capital gains or losses incurred by Amber will be subjected to analyze in this report. Several sections of the Income Tax
Assessment Act 1997 will be taken into consideration in order to establish the stated legislations in this report.
The recognition of all capital gains in a form of assessable income by an individual is stated in the section 102-5 of the Income Tax Assessment Act. The payable tax is calculated over the assessable income incurred by the individual in the concurrent year. The CGT qualification of the income or assets incurred by the individual is tested in order to evaluate whether the outcome is profitable or non-profitable (Sharkey, 2015). In order to identify the probable capital gains or loss, the CGT event A1 stated in the section 102-20 is used. The disposal of the CGT event is described in the section 104-10 of ITAA 1997.
In case of any expiry or end of an asset occur, it is regarded as CGT event C2. This CGT event is stated in the section 104-25 where the end of ownership over the assets is described. In order to calculate the goodwill of assets, CGT event C1 is applied for such circumstances. The CGT event C1 cannot be calculated unless the business is totally ceased by the owner of the business (Becker et al., 2015). In order to evaluate the disposal of goodwill or the interest implemented over the goodwill, taxation ruling 1999/16 is considered. The CGT event C1 only results if the business is permanently closed. It does not occur when the business is temporarily ceased.
In the case law of FCT v Murry, the citations regarding the identification and the taxation over the goodwill are stated. The goodwill is an intangible asset which is gained from the assets as a result of generating profits from the assets. It is needed to be regarded as a CGT assets as per section 108-5 is stated (Saad, 2014). The nature and the character of the goodwill changes over each business and the operations of the business determine the nature of the goodwill. The CGT value of Goodwill is added in the taxable income in case of the owner sell the goodwill incurred from the assets.
Goodwill and Restrictive Covenants
The restrictions regarding the competitiveness among the identical businesses are stated in the taxation ruling of 1999/16. In this ruling, the provisions applied for the taxpayer to put certain restrictions over the business activity made by them if the taxpayer is already in an agreement with the vendor (Parker, 2018). This provision does not allow the purchaser to attract the clients of the vendor in an identical business as per the agreement.
The payment received by the taxpayer for signing the agreement of restriction cannot be considered as an income for taxation purpose. As it can be seen in the citation of the case Jarrold v Boustead, the received payment could not be considered as an income as far as the taxation ruling was concerned for this case. Apart from that, another citation of the case FCT v Dickenson states that, the selling of the shell product cannot be considered as an income as far as the provision is stated (Richardson et al., 2015).
The CGT assets will be represented over the goodwill if the assets are vested with restrictive covenants. If any such restriction is vested upon the taxpayer regarding his assets by another individual or entity, CGT event D1 will be implemented upon the assets for creating the contractual rights over it. In the citation of the case Higgs v Olivier, the income gained by the individual upon the CGT event D1 will not be accounted as a taxable income as certain contractual rights were imposed upon the assets in a form of trade agreement (Altshuler et al., 2015).
In the next segment, the primary residential status of the individual will be regarded in order to figure out the provisions regarding the exemptions. In order to figure out the eligibility of the exemption status of the individual, the main residency of the taxpayer is needed to figure out. The main residence of the individual is considered as the primary dwelling place of the individual (Schenk et al., 2015). In accordance with the Commissioner of Taxation, the total period of physical occupancy in a place determines the main residence of an individual. A total period of 5 years is considered as a standard time for indentifying the residential status of the individual. The exemption over the main residency can be incurred as a capital loss or gain with a purpose of implementing the exemption over the asset. In case of generating any CGT assets by the exemptions, it will be considered as a capital gain or loss. A partial exemption can also be issued to the taxpayer in case of the residency of the taxpayer is considered as a CGT assets (Lang, 2014).
Exemptions for Primary Residence
The selling of shop by Amber resulted the permanent closure in the ownership of Amber over the shop and the incurred goodwill of it. In this case, the appropriate legislations which needed to be considered in order to figure out the taxation consequences of the case are TR 1999/16. Apart from that, the citation stated in the case law of FCT v Murry will also be evaluated (McCluskey & Franzsen, 2017). In accordance with section 104-25 of ITAA 1997, this transferring of ownership of the assets will be considered as CGT event C1 and the income will be counted as a capital gain. In the case law of IRC v Muller and Margarine Ltd, this capital gain will be included with the total taxable income as it is stated under section 104-10. This CGT event will be implemented upon the goodwill generated from the operations done in the past by Amber. This will also cause a permanent ending over the goodwill owned by Amber.
For the next segment, Amber signed an agreement with the purchaser of the shop stating that she will not be allowed to start another business in next 5 years within the radius of 20km. For signing this agreement, Amber was given a total amount of $50000 by the purchaser. In accordance with section 104-35, this income gained by Amber will be regarded as the CGT event C1. In the case legislations of Jarrold v Boustead, the declaration of CGT event C1 was stated (Mishel et al., 2016). For another instance, as it was stated in the case citation of FCT v Dickenson, the ownership of the goodwill will be vested to the new purchaser of the item and thus, the former owner of the assets cannot be able to use the goodwill gained from the assets by any means or by any form. Thus, as the goodwill will be treated as CGT event D1, no amount will be included in the taxable income.
Amber owned an apartment which was gifted to her by her uncle. She received this gift in 2013 and was a resident of that house from 2013 to 2018. At 2018, Amber sold the house. Now it is concerned that if there is any case of exemptions happened in this case from which Amber can get CGT benefits for selling her property to the purchaser (Chardon et al., 2016).
In order to evaluate the CGT benefits gained from the sales of the property, it is required to understand that the CGT benefits can only be obtained from the primary residence of an individual. In accordance with the Commissioner of Taxation, an individual need to have at least a total of two years of physical occupancy in a certain place in order to gain exemption over the residential place as a form of CGT benefit. In this case, Amber had lived in that place for 5 years and thus, it can be considered as the primary residence of Amber. Thus, in accordance with section 118-110 of ITAA 1997, an exemption will be available to Amber for selling her main residence (Taylor & Richardson, 2015).
Conclusion
In this given report, the taxation consequences regarding the sales of shop, sales of goodwill and the sales of apartment has been discussed. Several legislations which helps to calculate the appropriate CGT events and benefits relevant to this case has also been included and discussed. The case laws and the appropriate citations form the cases which seem to be appropriate and just for the current case scenario have also been used. In this report, several important CGT events such as A1, C1, C2 and D1 has been summarised and discussed.
The topic is focuses on the determination of fringe tax benefits that result in certain consequences with the taxpayer that actually originates from the reported authentic transactions on the taxpayer behalf.
In accordance to “section 6-1 of the ITAA 1997” the main income that is derived from personal exertion actually is the representation of the income that comprises of the wages, earnings, allowances along with the superannuation, commission, or the proceeds forms that can be obtained on behalf of the taxpayers in respect of the rendered service. The employment receipt and along with the person offering can be subjected to fill up the real purpose of income tax and the fringe benefits of tax from the employers (Besley & Persson, 2014). To get classified as actual income, for a receipt there must be a nexus along with the origination receipt from the section of personal service towards the taxpayer.
The nexus has been established evidently for those items that consist of the personal acclaimed services can commonly include the commission, wages and salary and the other sorts of ancillary payments that are within the periphery of labour incidents. The “Section 6-5 of the ITAA 1997” the income is genuinely based upon the concepts that are taxable under the “ITAA 1997”. The usually “Section 6-5 of ITAA 1997” the income majority comes under the taxpayer’s ordinary income. In the legal terms the income that is stated in the scenario of the case “Scott v Commissioner (1935)”. In the light of the situation, commissioner has also held upon the income that should have been ascertained based on the concepts that are ordinary and used for mankind (Awasthi, 2017). Being an income nature item, it can be derived for the benefit of the taxpayers on home-coming. On evaluating upon the decision of the court in “Dean v FC of T (1997)” it can be held along with payment fetched by retention and can be made to employees for the agreeing to remain fully employed for over a period of time of twelve months after the final takeover. It was regarded as an income in terms of remuneration from the segment of employment (Schneider et al., 2015).
The benefits of fringe represent the basic payment for the employee in the form of wages and salary. As per rules of legislation, the fringe benefits on taxes. The means effectively benefits that is provided to an individual for the reason of being an employee. The car fringes definitely benefit under the definition of “subsection 136 (1) of the FBTAA 1986”. On considering the virtue of the usage of the car in the context of employment the benefits the constitutes. According, to the legislation of the fringes benefits of the tax legislation, the benefits of the fringes represent all the benefits that can be offered in the employment respect (Bogenschneider, 2015).
The element of the car fringes originates from the employer that provides the group of an employee for use privately for the employee. This assures that an individual employee makes the use of the car for private purposes for the employee’s personal use.
Even the residual fringe includes the private kinds of benefits along with the services and the facilities that can be provided for the respect of the employee as well as the employment. It may benefit from the residual fringes that comprise mainly of the services to be provided based on professional or traveling or some kind of manual work related to use of the property (Berns, 2017). As compared to the general rule, the residual fringes are regarded as the benefit that can be received when a particular employee is provided with a specific type of benefit over a long span of time. The packages and the arrangement comprises of the total amount of remuneration that an individual can enter into an agreement with an employer.
The benefits that actually originates from the loan fringes provides benefits to the employees through loan fringes that results in a much lower charge of interest during the span of fringes that essentially benefits in a particular tax year. The interests are received at a much lower rate that is obviously lesser than that rate of statutory that also affects the rate of interest (Edwards et al., 2016). The value that is taxable of the specific loan fringe that represents the main differences between the interests that could have been accrued during the time of fringing while it is applied along with the statutory interest for understanding the rate of interest that is accrued in a real sense.
In the case of “Moore v Griffiths (1972)” winning over the prizes were not at all held upon as income. However, it can out rightly be held as a legitimate source of revenue when it is held as the income along with the right and sufficient exiting connection for generating the activities with the revenue of the taxpayers. In the case of the “Kelly v FCT”, on receiving an award, the taxpayers from the particular channel opts for being the fairest player. The amount that was regarded as an income became absolutely incidental to the work as well as the employment that can be related to the exercises of required skills. In the case of “FC of T v Stone”, the taxpayer happened to be a policewoman and incidentally, the javelin thrower had earned a lump sum through prizes and endorsements. There was a true assessment of the taxpayer for making the business of the professional athletes get carried in a and smooth way and finally let the money get held as an income (Adam Cobb, 2016).
The benefit of non – cash element have a nexus appropriate for making some of the personal services that can be held as an ordinary income that can be also considered as a non-convertible form of cash. On citing, the references of the decision of the court “Payne v FCT (1996)” redemption for some points of the frequent flyers that was actually accrued from some specific work related on travelling that can be held as income. While with the non-cash, benefits the taxable amount is considered under the “Section 15-2 of the ITAA 1997” that has chances of getting subjected to the condition of fringe tax benefits.
The usual situation that results in the expenditure that has been occurred by the employer, all the expenses are subsequently made to reimburse at the discretion of the employer. It also gives rise to the expense payment and the benefits of the fringes. Even the taxable value for the benefits of expense fringe that might also benefit the amount that is reimbursed or have been paid. On the issue, if the employee happens to incur an expenditure that is entirely based on the purpose of employment-related duties performance, then the following expenditure needs to be entirely held deductible for the sole purpose of income tax.
The case study that is presently discussed is basically based on the factor of determination about the fringe tax benefits that lead to the consequences of Jamie who has eagerly worked as a dedicates agent for the House R Us, that is a prominent real estate proprietorship company. Being a part of employment, Jamie already provided a salary of about $ 50,000 that was given in respect to the segment “Section 6-1 of the ITAA 1997” that was a receipt of the salary representation from the personal exertions. The receipt was actually of an amount of about $ 50,000 and the employment represents all the income that collected from services rendered on the personal ground and is subjected towards the tax payment.
Also in the “section 6-5 of ITAA 1997”. The salary can be considered and held as an income that is ordinary income as per “ITAA 1997”. Even citing the case for “Dean v FC of T(1997)”. The salary received can be held remuneration that is received from employment.
This case suggests that Jamie has been provided with his a car that belongs to the employer and can use it for both the private as well as the professional purpose. Jamie goes for constituting the benefits that lie under the “Subsection 136 (1) of the FBTAA 1986”. To be more detailed, the car fringes benefits represents the respect of the employment. The car uses represents the personal and private use made by Jimmie that was within as well as outside the weekends hours (Abdmouleh et al., 2015).
While in the subsequent year, Jamie got provided along with the pleasant package of salary an expensive laptop that costs around $2,300 and the handset that costs around $1,200 each and every year. The employer even reimbursed an amount of about $ 550 that needs to be provided to Jamie as an entertainment allowance. Presently, in this condition the expenses that Jamie incurred of an employee for the House R Us, where the payment of such benefits by employers results in an abrupt rising of the benefit of fringe (Isa et al., 2014). Therefore, in this case, Jamie is completely liable for the benefits of fringes under the section of taxation “FBTAA 1986”. He also received an amount of about $ 4,800 for the highest sales achievement within the record of last six months. The amount is actually regarded as the benefits that can be received from non-cash and is constituted as a reward for the service provided for his employment.
As it can be understood by all the facts, that the Houses R Us provides all their staffs with a regular sum of $ 100, 000 that also enables them to purchase houses at a rate of 4% per year. Jamie got a benefit for the change in the rate of interest that is much lesser than the statutory rate of interest (Snape & De Souza, 2016). However, Jamie considers accepting the loan from the employer. The taxable value of the loan that would represent the interest differences accrued to Jamie during the year of fringes on an application of the statutory interest.
Conclusion:
On the note of conclusion, it can be estimated that the salary that is actually received by employee Jamie can surely be considered a taxable amount under the “section 6-5 of the ITAA 1997”. With the proper use of the car constitutes Jamie’s benefit that constitutes under the section “subsection 136 (1) of FBTAA 1986”. The sum of about $ 4,800 also constitutes a reward for the service provided for employment and held upon an income for the connection of revenue generating activities of Jamie. Thus, it is proved that Jamie is out rightly held taxable for the payment expenses and his employees reimburse the expenses that can be occurred.
Reference
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