Taxation Law For Capital Market Integration

Net Capital Gain and Net Capital Loss

There are different financial concepts that are affecting to capital gain and performance of an organization. Tax consultants have proper understanding about these financial concepts and transactions to provide better advice to their clients about the financial decisions. In this concern, the report is describing different financial transactions and concepts that are needed by a tax consultant while advising the organizations to take business decisions. This report aims to gain understanding about these financial transactions and process of measuring the net capital gain during a specific financial period. The report is determining several financial transactions of an organization that can influence to net capital gain or net capital loss of the organization. The scenario of this report is that a client is not carrying on a business. The client is providing information about different financial transactions such as purchasing, selling and other financial transactions that have influenced to its net capital gain during a specific financial period. The tax consultant will use entire information about the financial transactions of the client to calculate net capital gain or net capital loss to advise the client for further decision. Along with this, the report is also describing a legislative concept of FBT (Fringe Benefits Taxation), which is imposed to companies while operating the business operations in Australia. In this report, the concept of FBT is accomplished within a specific organization of Rapid-Heat, with considering the influence of different financial transactions on FBT.

Net capital gain or net capital loss are major element of determining the impact of different financial transactions on organizational profitability. Net capital gain or net capital loss is a measurement of entire financial transactions made by an organization during a specific financial period. These terms are used to determine the changes in the capital position of an individual or an organization (Gitman et al., 2015). In this concern, it is essential for the management to have proper understanding about these terms and process of measuring these terms in reliable manner. These terms are measured by identifying difference between the total sales and total expenses of a product with including purchasing price. The difference between the sales and total cost is known as gained capital from different financial transactions or change in the wealth of the organization. The negative value of gained capital will determine loss and positive value of gained capital will determine profit or gain during the financial transaction (Ogawa et al., 2016). Below formula can be used to identify the gained amount from different financial transactions:

Scenario and Calculation of net capital gain/loss

Capital gain/loss = Total amount collected by sale of a specific product – Price of purchasing – Other expenses during the transaction

Based on the above formula it is analyzed that net capital gain or net capital loss can be calculated by subtracting total purchasing value and other expenditures during the entire transaction from total of selling price of a specific product. This formula can be used as a standard way of calculating net capital gain and net capital loss during a specific financial year. Therefore, a consultant must have information about entire financial transactions during the financial year to advice the clients in more professional manner.

For the given scenario the net capital gain or net capital loss from different transactions is calculated as below:

(a). Vacant Land: From the given scenario, it is analyze that the client signed a contract to sale vacant land for $320,000. At the time of making contract, the client get an amount of $20,000 and other amount will be paid by the purchaser in next tax year. The client purchased the vacant land for $100,000. The client also paid amount of $20,000 on sewerage, water and council during the ownership of the land.

With implication of entire transactions in the formula of net capital gain/loss:

Thus, capital Gain/ Loss = $320,000 – $100,000 – $20,000 = $200,000

Note: As per the scenario, the client received amount of $20,000 while signed and made contract of selling the land. The rest amount will be paid by the purchaser in next tax year. In this concern, the contribution of financial transaction in the current year will be $20,000. Therefore, only$20,000 amount is used to calculate capital gain during the transaction of vacant land. Remaining amount $300,000 will be used in next financial year when the purchaser will pay this amount to the client.

(b). Antique Bed: From the given scenario, it is analyzed that the client purchased the antique bad for $3,500 and paid $1,500 on alteration of the bad. The client collected an amount of $11,000 from the insurance company against the stolen of the bad.

Therefore, capital gain / loss during the transaction = $11,000 – $3,500 – $1,500 = $6,000

(c). Painting: The given scenario is presenting that the client had purchased a painting for $2,000 and sold it for $125,000.

Thus, net capital gain / loss during the transaction = $125,000 – $2,000 = $123,000

Transaction of Shares

(d). Shares: During the financial year, the client also made several transactions related to securities of different companies. In other words, the client purchased and sold shares of different companies during the current financial years. It is essential to measure these transactions in proper manner to calculate net capital gain or net capital loss from different financial transactions. Purchasing and selling of shares contains different other financial transactions. The following formula can be used to calculate the gained capital from the transaction of specific shares:

Net capital gained from transaction of shares = Total amount of selling shares – Purchasing price of the shares – total brokerage on entire transaction – stamp duty during the transaction

(i ). Shares of Common Bank Ltd:

From the given scenario, it is analyzed that the client sold total 1000 shares of Common Bank Ltd for $47 per share, which was purchased for $15 per share. The client paid $550 for entire transaction and $750 for stamp duty.

Gained capital from sale of shares = Selling price of the shares – Purchasing price of shares – stamp duty – brokerage on transactions

Total sales price of shares = Sales price per share * Total quantity of Shares

Therefore, total amount collected from sale of shares = $47 * 1000 = $47,000

Total paid amount for purchasing of shares = Purchasing price of one share * Total quantity of shares

Total paid amount for purchasing of shares = $15 * 1000 = $15,000

Net capital gained = 47,000 – 15000 – 550 – 750 = $30,700

(ii). Shares of PHB Iron Ore Ltd:

The client purchased the 2,500 shares of PHB Iron Ore Ltd for $12 per share and sold entire shares for $25 per share. The client also paid $1,000 for brokerage charges and $1,500 for stamp duty.

Total price of purchasing shares = Purchasing price of one share * Total quantity of share

Therefore, paid amount for purchasing for entire shares = $12 * 2500 = $30,000

Sales value of entire shares = Selling price each share * Quantity of shares

Total amount collected from selling of shares = $25 * 2500 = $62,500

Formula of gained capital = Total price of sales – total price of purchasing – stamp duty- brokerage Cost

Net capital gained during the transaction = 62,500 – 30,000 – 1,000 – 1,500 = $30,000

(iii). Shares of Young Kids Learning Ltd:

Summary

The client was purchased 1200 shares of Young Kids Learning Ltd for $5 per share and sold these shares for $0.50 per share. The client paid an amount of $100 for brokerage and $500 for stamp duty.

Formula to calculate total value of purchasing shares = Price per share * Total number of purchased shares

Thus, total value of purchased shares = $5 * 1200 = $6,000

Total sales price of shares = Sale per share * Total number of shares

Total amount collected by sell of shares = $0.50 * 1200 = $600

Capital gain during the transaction = 600 – 6000 – 100 – 500 = –$6000

(iv). Share of Share Build Ltd:

The client purchased 10,000 shares of Share Build Ltd for $1 per share and sold these shares for $2.50 per share. Stamp duty is paid for $1,100 and brokerage for $900 during the entire transaction.

Total price of purchasing = Price per share * Total number of purchased shares

Therefore, total price of purchasing shares = $1 * 10,000 = $10,000

Total amount collected by selling of shares = Selling price for each share * Total quantity of share sold

Total amount of selling shares = $2.50 * 10,000 = $25,000

Formula to calculate total gained capital = Total amount collected by selling of shares – total price of purchased shares – Stamp Duty – Brokerage cost

Total gained capital = 25,000 – 10,000 – 1,100 – 900 = $13,000

(e) Transaction of Violin: From the scenario, it is analyzed that he client also has interest in purchasing of musical instruments. The client a violin for $5,500 and sold for $12,000.

Thus, capital gained during the entire transaction = Selling price of Violin – Purchasing price of Violin

Capital gained during the entire transaction = 12,000 – 5,500 = $6,500

Calculation of Net Capital Gain or Net Capital Loss for the client during entire financial transaction:

Net Capital Gain or Net Capital Loss
Capital gained from different transactions	In depth Values ($)	Total Value ($)
Sale of Vacant land	20,000
Insurance amount for the antique bad	6,000
Amount gained from sale of painting	123,000
Amount gained from sale of Common Bank shares	30,700
Amount gained from PHB Iron Ore Ltd shares	30,000
Amount gained from sale of Young Kids shares	(6,000)
Amount gained from Share Build Ltd shares	13,000
Amount gained from sale of Violin	6,500
Total	$223,200	$223,200
Less: Net Capital Loss from previous year		-$8,500
Less: Capital Loss from sculpture		-1,500
Net Capital Gain		$213,200

Fringe Benefits Tax (FBT) is a type of tax, which is paid by the employer towards the additional benefits paid the employees. This tax is separate from income tax and calculated on value of taxable amount of the provided fringe benefits. In Australia, it is essential for each of the organizations to follow the legislation of FBT, while providing the fringe benefits (Lowe, 2014). The fringe benefits are considered as additional benefits provided by the employers to their employees other than salary. The fringe benefits can be provided in different forms such as special membership, foreign tours, personal car, facility of living room and other financial benefits to the employees. In Australia, the regulatory authority imposes additional taxes on these benefits on employers that are known as Fringe Benefits Tax. It is analyzed that there are some exceptional fringe benefits such as amount received during the termination process, allotted shares to the employees and benefits offered by well known welfare organization on which the authority does not impose FBT (Eccleston, 2013).

(a) FBT consequences for Rapid-Heat

FBT Consequence to personal car offered to Jasmine:

From the case study, it is analyzed that Rapid-Heat Company offered as personal car to Jasmine as a fringe benefit so that the company is liable to pay fringe benefit tax on amount of car. From analysis of different tax slabs, it is analyzed that the 47% tax rate will be charged from the company as FBT. Following formula can be used to calculate the FBT:

Taxable Value ($) = Type 1 * 2.0802

Total fringe benefits = Purchased value of the car + the amount received by jasmine as loan + fringe benefit on purchasing of electric heater + additional benefits provided by the company (i.e. expenses of repair and maintenance)

Total fringe benefits = 33,000 + 450,000 + 1,300 + 550 = $484,850

Therefore, taxable value = $484,850 x 2.0802 = $1008584.97

The FBT consequence can be ascertained through by use of below formula:

FBT consequence = Total Taxable Amount * FBT Tax Rate

FBT consequence = 1008584.97 * 47% = $474,034.94

(b) FBT consequences if $50,000 is also used by Jasmine

Valuation of FBT Tax, if the Remaining Loan of $50,000 is used by Jasmine for Investment in Securities not by Her Husband:

As per the scenario, Jasmine gets total amount $5, 000, 00 and used $4, 500, 00 and used $50,000 to invest in securities. But the company is liable to pay FBT on provided fringe benefit. Therefore, the remaining amount $50,000 will be added while calculating total amount for fringe benefit. Following formula can be used to calculate total taxable amount of fringe benefits:

Total taxable amount for Rapid Heat = Purchased price of the car + amount used by Jasmine + additional expenses (i.e. repair and maintenance) + Fringe benefits received with purchase of heater + invested amount in shares

= 33,000 + 450,000 + 550 + 1,300 + 50,000 = $534,850

Formula to calculate taxable amount = Type 1 x 2.0802

Taxable amount = 534,850 x 2.0802 = $1,112,594.9

Therefore, FBT = Total Taxable Amount x FBT Rate

Thus, FBT = $1,112,594.9 x 47% = $522,919.603

From the entire transactions, it s analyzed that the fringe is benefit is payable on entire amount of provided fringe benefits. It is not essential that how much amount is used by the employees. The company will be responsible to pay tax on entire amount of fringe benefit, which is paid to the employee. In this concern, it is essential for the tax consultant to know entire transactions from the client to calculate actual value of FBT and provide better advice about the financial transactions.

Conclusion

From the above discussion, it is analyzed that the tax consultants must have proper understanding about each of the financial transaction while advising the clients. It is essential to have proper understanding of entire financial transactions to provide better advice and calculate net capital gain or net capital loss during the financial year. It is also analyzed that the FBT is an essential legislative for the Australian companies to consider FBT in their taxation policies to provide the fringe benefits without any legal concerns. In addition, the tax should demand entire financial transactions during the specific financial years to calculate net capital gain in reliable manner and provide better advice for further expansion.

References

Eccleston, R. (2013). The tax reform agenda in Australia. Australian Journal of Public Administration, 72(2), 103-113.

Gitman, L. J., Juchau, R., & Flanagan, J. (2015). Principles of managerial finance. Australia: Pearson.

Lowe, M. (2014). Obesity and climate change mitigation in Australia: overview and analysis of policies with co?benefits. Australian and New Zealand journal of public health, 38(1), 19-24.

Ogawa, H., Sato, Y., & Tamai, T. (2016). Who gains from capital market integration? Tax competition between unionized and non?unionized countries. Canadian Journal of Economics/Revue canadienne d’économique, 49(1), 76-110.