Block of Vacant Land
The concept of capital gains tax is applied to the asset that are acquired or other event taking place on or after the September 1985. Consequently, the terms of the pre-CGT and post-CGT is commonly used to refer the assets that is purchased or events that take place after the CGT event date (Seto 2015). The system of capital gains tax is applied on the system on the disposal of the assets or from any other specified events.
If an individual taxpayer has obtained the vacant land to use for the private purpose or for the investment the land is generally regarded as the capital asset that will be subjected to the capital gain tax when the land is sold by the taxpayer (Hoffman et al. 2014). As stated by the Australian taxation office vacant land that is held by the taxpayer as the capital asset and will be treated similar to any other asset for the purpose of capital gains. The taxpayer is under the obligation of preserving the records of the date and costs for obtaining the land and their ongoing expenses particularly the council rates and the interest on loan (Burns and Ziliak 2017). The expenses however cannot be claimed as the income tax deductions but will be included in the cost base of the land while computing the capital gains or capital loss when the land is sold.
In the current case the taxpayer contracted to sell the vacant block of land for a sum of $320,000. The taxpayer also reported outgoings on local council, water, sewerage rates and land tax during the period of ownership of the land. The CGT event A1 happened under “section 104-10 (1)” when the taxpayer sold the land (Stiglitz and Rosengard 2015). The taxpayer under “section 102-5, ITAA 1997” will be required to include the net sum of capital gains in their taxable income.
Under subdivision 108-B collectable definition has been provided. Under section 108-10 (2) a collectable is anything that is mainly used by the taxpayer and their associate for their personal enjoyment and use (Becker, Reimer and Rust 2015). “Section 118-10 (1), ITAA 1997” defines that collectables with the purchase value of $500 or less will be exempted from the provision of CGT.
Present instances from the case derived suggest that the antique bed was stolen from the premises of the taxpayer. It was later found that antique bed was not the part of the taxpayer’s list of specified matters in the policy of insurance.
Sale of Antique Bed
Additionally, under “section 104-25 (1)” when the asset is destroyed or damage a CGT event C1 takes place (Auerbach and Hassett 2015). The receipt of compensation in the current case for the stolen bed give rise to CGT event C1 since the compensation received was for the lost asset.
Usually the functions of CGT operates prospectively and it is applicable if the CGT event takes place for the assets that are purchased on after the 20-9-1985. For majority of the CGT events, there are exceptions given the CGT asset is acquired before 20/09/2018 (Godber, Thornton and Stewart 2017). Therefore, an asset that is purchased before the CGT event is introduced are usually held as the exempted CGT asset.
As evident in the current situation it is noticed that the painting was acquired by the taxpayer on 2nd May 1985. The taxpayer sold the painting in the current tax year for $125,000. As the asset was acquired before the introduction of CGT or before 20/09/1985 therefore, the asset will be considered as the pre-CGT asset that is exempted from the CGT event.
For an individual taxpayer or investors CGT is applicable to the gains that is made from the shares or units when the CGT event takes place particular when the asset is sold (Bronfenbrenner 2017). It is worth mentioning that the shares in the company or the units trust together with the managed funds are considered as the same way as any other asset for the purpose of capital gains tax.
Profits made by the taxpayer from the sale of shares are usually treated as the ordinary income (Fairfield and Jorratt 2016). The taxpayer in the current situation reports capital gains from shares that was held in PHB, Build Ltd and Common Ltd. In the later events the taxpayer also reported loss from the sale upon selling the shares of young kids learning. The taxpayer in the present situation can set-off the capital loss from the sale of young kids learning shares against the capital gains made from the sale of PHB, Build Ltd and Common Ltd.
The personal use assets are dealt under “subdivision 108-C”. The definition of personal use asset is defined under “section 108-20 (2)” as the asset that are usually regarded as the non-collectable asset where the assets held by the taxpayer are for the personal enjoyment and use (Faccio and Xu 2015). These assets are boats, furniture, electrical goods or any household items. The personal use asset does not include the land and buildings. While section 108-30 explains that the cost of ownership of the personal use asset is not included.
Painting
As stated under “section 118-10 (3)” the cost base of the personal asset that is less than $10,000 or less should be ignored (Pearce and Pinto 2015). The taxpayer is only required to keep the details of the asset that is bought for more than $10,000.
Evidence obtained from the case study explains that purchased the violin at the cost of $5000. The violin constituted a personal use asset since it was used by asset for private purpose only. As understood the cost of the asset was less than the stated limit of $10,000. Therefore, the sale of violin and deriving capital gains thereon should not be ignored as it is a personal use asset and exempted from CGT.
Below stated is the computation for the net capital gains made during the year.
Will the taxpayer in the current issue be subjected to fringe benefit taxation from the events that are reported in capacity of the employee under the “FBTAA 1986”? Is the taxpayer accountable to pay the FBT for the car provided in respect of the employment? The issue also rotates on ascertaining that whether the reimbursement of the expenses give rise to the FBT with respect to the “S 39A of FBTAA 1986”? Additionally, the issue also gives explanation regarding the loan fringe benefit given to the employee under “sub division A of FBTAA 1986”.
With respect to the “subsection 1D of the FBTAA 1986” an employer’s fringe benefit represents the assessable sum for the year commencing from the 1st April 2000. The word benefit and fringe benefit possess greater meanings for the purpose of FBT (Tang and Wan 2015). The benefits comprise of the rights, privileges and the services. As defined under the FBT legislation, an employer providing fringe benefit to the employee with respect to the employment constitute benefit. The benefit provided some person is because they are the employed as employee. The employee can anyone ranging from the former employee to the future employee. An employee is that person that will be entitled to receive the salary or the wages or the benefits in lieu of the salary or wages.
An employer will be held responsible for the fringe benefit tax given the employer makes any payment to the employee or the company, or the holder of office that that are subjected to obligations of withholding or the employer provides the benefits in lieu of the payments. Being the employer, a person is required to pay the FBT irrespective of the circumstances whether the employer is the sole trader, partnership, unincorporated association or the authority of government (Hodgson and Pearce 2015). This is also irrespective of the fact that the employer pays the FBT to the employee or any other party. It is worth mentioning that the FBT is payable irrespective of the situation whether they are liable to pay the other taxes particularly the income tax.
Shares
A car fringe benefit under “section 7, FBTAA 1986” includes the benefit that arises most commonly under the circumstances where the employer makes the car that they hold available for the employee’s private use (White and Townsend 2018). For an employer the car they generally hold is the car they make available for employee’s usage. The employer generally makes the car available for the employee’s personal usage when the car is really used for the private purpose by the employer. A car fringe benefit only arises when the car is available by the employee for their private use during any day when the car is not at the premise of their employer or the car is garaged at the home of the employee.
The “FBTAA 1986” states the general rule that travel from and to the work place will be treated as the private use of the vehicle. Where the car is in the workshop for the purpose of extensive repairs it is not regarded as the private use of the employee (Pearce and Hodgson 2015). However, the car will be treated as under the private use of the employee when the car is in the workshop for the routine services or maintenance. The commissioner of taxation in “Lunney v FCT (1958)” provided an explanation that travelling from the home and to the place of work give rise to the employee personal use of car.
Referring to the “Division 5 of the FBTAA 1986” an explanation relating to the expense payment fringe benefit might originate when the employer makes any form of reimbursement for the expenses that the employee incurs (Godber, Thornton and Stewart 2017). Alternatively, the expense fringe benefit arises when the employer pays the third party in satisfaction of the expenditure that is occurred by the employee. In either of the cases the expenditure might be business outgoings or the private outgoings or may be the combination of both. The chargeable value of the expenditure fringe benefit represents the value that is reimbursed or paid by the employer. Additionally, an in house expense payment fringe benefit happens when the expenditure that is in incurred by the employee is reimbursed by the employer.
Under “division 10A of the FBTAA 1986” the car parking fringe benefit happens for each when the employer provides the employee with the space for parking car that is used by the employee (Shields and North-Samardzic 2015). “Division 10A, FBTAA 1986” explains that the car parking fringe benefit happens when all the below stated following conditions are met;
- The car is parked at the premises which the employer owns or leases
- The car is parked inside the one kilometre area where the facilities of commercial parking is available and charges fees for the entire day parking.
- The car is parked for more than four hours during the day
- The car is provided in relation to the employment of the employee
Violin
“Division 4 of the FBTAA 1986” provides explanation regarding the loan and debt waiver fringe benefit (Seymour 2017). A loan fringe benefit happens when the employer provides the employee with the loan and charges a very lower amount of interest rate all through the FBT year. It is worth mentioning that the lower rate of interest is one which is lower than the statutory rate of interest.
The case study opens up with the explanation that Jasmine is the employee of Rapid Heat Pty Ltd that sells electric heaters. As the part of the employment, Jasmine was required to travel a lot due to the work purpose. Rapid in such situation provided Jasmine with the car for the work purpose. Jasmine can use also use the car for the private purpose as well. In such a situation “section 7, FBTAA 1986” will be applied for Rapid Heat since the employer provided the car to Jasmine for the work purpose as well as for the private purpose (Barkoczy 2016). Rapid Heat made the car available for the Jasmine personal usage as well as for the work purpose during the course of the employment. With respect to the judgement made in the “Lunney v FCT (1958)” the use car by Jasmine is a fringe benefit. While Rapid Heat Pty Ltd will be liable for the fringe benefit tax for providing the car to Jasmine.
In the late part of the case it is noticed that Jasmine used the car to travel 10,000 km and also occurred expenses of $550 on the minor repairs that is reimbursed by the Rapid-Heat. It is worth mentioning that the employer reimbursed Jasmine with the sum of repair expenses that was incurred for minor repairs. In such a situation under “division 5 of the FBTAA 1986″, the expense payment fringe benefit has arisen for Rapid Heat Pty Ltd (Foster 2016). This is because the employer Rapid Heat disbursed the employee with the reimbursement for the expenses that Jasmine incurred for minor repairs on car. The chargeable value of the expenditure fringe benefit for Rapid Heat represents the value that is reimbursed or paid to Jasmine.
In the later events it is noticed that Jasmine did not used the car when she was interstate and she parked the car at the airport and another five days when the car was parked at the workstation for the purpose of scheduled repair. Referring to the “division 10A of the FBTAA 1986” no parking fringe benefit arises for Rapid Heat Pty because the car was not parked at the premises of the Rapid Heat Pty (Shields and North-Samardzic 2015). Furthermore, though the car was provided to Jasmine by Rapid Heat in respect of the employment but the car was not parked inside the one kilometre area where the facilities of commercial parking was not available. As a result, no fringe benefit tax will be applicable for Rapid Heat Pty Ltd in this situation.
Issues
The case study explains that Rapid Heat Pty Ltd provided Jasmine with the loan of $500,000 at the annual interest rate of 4.25%. Therefore, in such a situation a loan fringe benefit has arises for Rapid Heat Pty since the loan is provided in respect of the employment.
Conclusion:
As evident from the above stated discussion, Rapid heat Pty Ltd would be held accountable for the loan fringe benefit taxation during the FBT year however, Rapid Heat Pty Ltd can claim an allowable deduction for the same because the expenses were incurred during the course of the employee’s employment.
As defined under the “section 8-1 of the ITAA 1997” a taxpayer is permitted to claim for the allowable deductions under the general provision when the expenses incurred were for gaining the taxable income. Similarly, in the hypothetical situation if Jasmine used the amount of $50,000 to purchase the shares herself rather than giving loan to her husband on interest free, she might have been allowed to claim an allowable deduction for the interest on loan sum. However, she has lent the loan amount on interest basis to her husband therefore no deductions will be permitted under the general provision of “section 8-1, ITAA 1997”.
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Barkoczy, S., 2016. Core tax legislation and study guide. OUP Catalogue.
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