Sales of Various Assets and Taxation Implications
One should note that the vacant land that is purchased by the person is by nature viewed carrying the character of asset of capital type. The taxpayer should understand that the rules relating to the capital gains that are applied on the other properties is also applied in the similar manner on the vacant land (Mangioni 2015). An important fact that the ATO describes to the taxpayer that they must preserve the records of the outgoings when the taxpayer occurred during time of procuring the land.
The ATO educates the taxpayer that the land procurement cost are capital expenses therefore a taxpayer in such a situation is not allowed to any tax relief or deductions for income tax purpose. But as an alternative the taxpayer is permitted by the ATO to claim add up the capital expenses incurred in procurement of land for calculating any of capital gains or loss when the vacant land is disposed.
Similarly the taxpayer reported the procurement cost while acquiring the land. The procurement cost stood $100,000 accompanied by the outgoings on the land taxes, water, rates payment to council and rates for sewerage. The sales stipulated required the taxpayer to deposit $20,000. These costs in the current case should be classified as the land procurement cost of capital in nature (McCluskey and Franzsen 2017). This is not permitted for deductions under income tax rules but they can be added up to the cost of land. The sales revenue yielded from the land is capital gains under the CGT event A1 because the land was treated here as the capital asset. A reference to the section 104-10 (1) can be made here to levy capital gains tax on the sale of the vacant land.
Antique Bed:
The taxpayer should denote that when they report regarding the loss of the asset they must refer to the provision stated under the CGT event C1. The noteworthy explanation of “ITA Act 1997, in section 104-20” requires the taxpayer to apply the CGT event C1 when the owner of the asset reports the loss or destruction of the asset. The provision of section 104-20 further clarifies the taxpayer regarding the time of the CGT event C1.
This includes that the taxpayer should be aware when they receive the compensation for the asset that they owned was lost or destroyed (Long, Campbell and Kelshaw 2016). The relevant provision of section 104-20 elaborates the owners of the assets that they make capital gains on the event of reporting greater amount of capital proceeds from the loss asset costs base. While the taxpayer generally making capital loss from the asset that is lost or destroyed if the proceeds that they received was lower than the cost base of the lost asset.
Vacant Land
Here the taxpayer owned the antique bed which was stolen. The market value of the lost antique bed stands $25,000 but only received the compensation of 11,000 from the insurance company. An applicable position of CGT event C1 should be applied in dealing with the position of stolen antique bed (Kouparitsas, Prihardini and Beames 2016). The provision of “section 104-20” is relevant since the compensation that is received is lower than the market value of the lost asset. Therefore a capital loss occurred in this section.
Painting:
An elaborative discussion has been provided to the taxpayer regarding the concepts of pre and post-cgt assets. The taxpayers are guided under the provision of the “section 149-10, ITAA 1997” regarding the assets that are having the characteristics of Pre-CGT. A pre-cgt assets includes the assets that is last purchased by a person before the date of 20 September 1985 (Rappaport 2016). The entity was not immediately following the start date of 20 September 1985 considered under previous “subsection of 160ZZ (1) of the ITAA 1936”.
The taxpayers should remain aware that the assets that are procured or purchased following the start date of 20th September 1985 are taken as the CGT asset provided that there are any specific exclusion for the assets.
The circumstances confirms that the paintings here is purchased by the taxpayer from the most famous Australian artist on 2nd May. The cost of the painting was $2000 but was eventually sold for greater price at $125,000. The date of the acquisition of the paintings confirms that the asset is a pre-CGT (Cui 2014). This implies that the gains which is yielded from the sale will be ignored and no liability for the capital gains tax arise here for the taxpayer.
Shares:
An explanation is provided by the ATO regarding the gains that a taxpayer makes from the shares. The taxpayer are made aware by the ATO that whenever they hold any kind of shares of the corporate firms, the shares will be treated by the ATO just as the treatment is made for the rest of the assets for determining the CGT (Manolakas 2015). The guidelines that has been handed out to the taxpayer includes that the CGT events are similarly applicable for the shares that are held by the investors. The investors when sells the shares are treated for taxation purpose because it give rise to the CGT event A1.
Antique Bed
There is an instance that is gained from the case is that the taxpayer had good number of share portfolio in most of the corporate firms (Higgins 2017). The taxpayer eventually sold the shares that was held by him. But on the contrary where majority shares yielded capital gains for the taxpayer but the share that was held in the Young Kids learning at the end of the day yielded loss. The corresponding capital loss from such share portfolio can however be treated as offset since the other share portfolios has yielded capital gains.
Violin:
A noteworthy information has been provided by the ITAA 1997 under the “section 118-10” regarding the assets that the taxpayers usually owns for their personal usage. These assets are generally classified under this section as the personal use assets or the collectables. “Section 118-10 (2)” contributes further to the treatment of capital gains and tax for the personal use assets (Bandle 2016). The section states that the capital gains or capital loss when the taxpayer generates from the person use assets is disregarded from the first element of the cost base of the assets it is noted that the depreciating asset is $10,000 or less. A further elaboration that is provided in the “subsection 108-20 (1)” that when the taxpayer makes any kind of capital loss from the assets that they own personally is usually not regarded for the capital gains tax purpose.
Here, the case study provides that a violin was kept by the taxpayer for his personal usage and enjoyment. However the cost of that violin stood relatively below the prescribed threshold of $10,000 under the “section 118-10 (2)” (Jian 2015). The violin in the beginning costs $5,500 but later was sold for the $12,000 which is greater than the cost base. This eventually resulted in gains for the taxpayer. But under the provision of “section 118-10 (2)” the capital gains will be simply ignored in this relation.
Issues:
The question introduces the taxability of the fringe benefit tax position for the benefit provider under the legislation of “FBTAA 1986”. The issue here will be addressing the numerous benefits that the provider or the employer has provided to its employee. The central focus of the issue will be the car benefit, expense payment benefit, car parking benefit and loan benefit under provision of “FBTAA 1986”.
Rule:
There is an important definition has been provided under the “FBTAA 1986” regarding the fringe benefit for the employers. The definition includes that benefits in the nature of additional payment given to an employee apart from giving wages and salaries. According to “subsection 995-1 (1)” there is a meaning of the car. The car benefit represents the benefit that is referred under the “subsection 7 (1)” (Braverman, Marsden and Sadiq 2015).
Painting
The car benefit explanation denotes that the benefit at any point of the day as the part of the employment of the worker when the car is held by the employee. The subsection refers that the car fringe benefit is applied when the employee is using the car for personal work given by the associate of the employer or the car is perceived as being available for the private usage of the employee or the assistant of the worker.
The employers are provided guidelines by the “section 9 of the FBTAA 1986” so that they calculate the amount of tax that is payable for the car fringe benefit by using the statutory formula (Soled and Thomas 2016). The taxable value of the fringe benefit refers to the aggregate of the assessable values of those benefits provided to the employee by the employer in relation to the year of taxation.
Under the “division 28 of the FBTAA 1986”, explanation relating to the car expense payment benefit has been provided. As per the “division 28 of the FBTAA 1986” car expense payment benefit is defined as the expense payment fringe benefit where the recipient’s expenses constitutes the car expense. Under the “S-20 of the FBTAA 1986” where the employer reimburses the payment as the discharge of obligation to another person is regarded as the expense payment fringe benefit occurred by the recipient (Barrett and Veal 2016). Under “section 20 (b) of the FBTAA 1986” when the reimbursement is made in whole or in parts by the provider then such making of payment will be taken to have resulted a benefit to the recipient by the provider.
Under the “section 39A of the FBTAA 1986” reference to the car parking benefit has been made. As per the “section 39A of the FBTAA 1986” car parking fringe benefit means benefit relating to the parking of car during any day on which the employer arranges for the space of car parking (Givati 2015). During the year of fringe benefit the car parking fringe benefit happens when the below given conditions are met.
- The provider or the employer gives the recipient or employee to use the car for personal purpose.
- The parking of the car is made at the provider’s premises which is under the lease or under the ownership of the employer
- The recipient is solely keeping the car under his control
- The recipient makes the car parking at the primary employment place during that day.
- There recipient has made car parking at the premises which is inside the one kilometre radius with the facilities of commercial parking station charges the recipient with the fees for throughout the day.
Under “subsection 16 (1) of the FBTAA 1986” the loan fringe benefit has been referred. Denoting the “subsection 16 (1) of the FBTAA 1986” the loan fringe benefit means a benefit given to the employee by the provider as the loan (Mulligan 2015). As per this section giving such loan to the employee intends to be a benefit given by the employer to those that receives it. The receiver will be taken as the recipient of the benefit in relation to each taxation year where they are necessarily under the compulsion of paying the loan.
Shares
According to the “section 18 (1) of the FBTAA 1986” in relation to the year of FBT the loan benefit given during the taxation year establish the sum by which the rate of interest will be applied for the loan made surpasses the sum of interest that is accumulated in respect of the loan.
Application:
The application of the above stated rule will be made in the instances reported by the Rapid Heat who has provided car to Jasmine being the employer. The car that is provided to Jasmine is within the meaning of the car given under “subsection 995-1”. Rapid Heat being the provider of the car to the employee has eventually gave rise to the car benefit that is referred under the “subsection 7 (1)” because the car was given to Jasmine as the part of the work (Ebrahimi and Vaillancourt 2016). Rapid Heat can use the guidelines given under “section 9 of the FBTAA 1986” so that it can calculate the amount of tax that is payable for the car fringe benefit by using the statutory formula.
Rapid Heat later reimburses the employee with the car expenses incurred in repair of the car. Payment of such expenses for Rapid Heat have resulted in car expense payment benefit under the “division 28 of the FBTAA 1986” (Brueckner and Franco 2018). Rapid heat will be liable for fringe expense payment fringe benefit tax under “section 20 (b) of the FBTAA 1986” since the reimbursement is made in whole by Rapid Heat.
Later it is found that the car was parked by Jasmine when she was required to go out of state due to the work purpose. As denoted from the explanation that is made in the “section 39A of the FBTAA 1986” there can only be fringe car parking fringe benefits when the criteria of the “section 39A” are met (Pasztor and Valent 2016.). As per the current situation it can be stated that car was not parked by Jasmine at the Rapid Heat premises. The car was parked at the airport which is not the commercial parking station and also not under the control of employer. No fringe benefit arises in this situation.
A loan was made by Rapid Heat to Jasmine for the purchasing house. Under the making of loan is referred under “subsection 16 (1) of the FBTAA 1986” as the loan fringe benefit for Rapid Heat. Jasmine being the receiver will be taken as the recipient of the benefit in relation to each taxation year where they are necessarily under the compulsion of paying the loan (Barry and Caron 2015). The taxable value under “section 18 (1) of the FBTAA 1986” for Rapid Heat will be the sum by which the rate of interest will be applied for the loan made surpasses the sum of interest that is accumulated in respect of the loan.
Violin
Answer B:
Rather than using the loan amount to give her husband, Jasmine if used it in the procurement of the shares then the interest on the loan can be deducted for taxation purpose. The tax liability for Jasmine would have been reduced because the ATO provides the deductions to the taxpayer on the borrowing amounts when they are used in producing revenues.
References
Bandle, A.L., 2016. The Sale of Misattributed Artworks and Antiques at Auction. Edward Elgar Publishing.
Barrett, J.M. and Veal, J.A., 2016. Tax Rationality, Politics, and Media Spin: A Case Study of the Failed ‘Car Park Tax’Proposal.
Barry, J.M. and Caron, P.L., 2015. Tax regulation, transportation innovation, and the sharing economy. U. Chi. L. Rev. Dialogue, 82, p.69.
Braverman, D., Marsden, S. and Sadiq, K., 2015. Assessing Taxpayer Response to Legislative Changes: A Case Study of In-House Fringe Benefits Rules. J. Austl. Tax’n, 17, p.1.
Brinkley, C., 2018. Fringe benefits: adding rugosity to the urban interface in theory and practice. Journal of Planning Literature, 33(2), pp.143-154.
Brueckner, J.K. and Franco, S.F., 2018. Employer-paid parking, mode choice, and suburbanization. Journal of Urban Economics, 104, pp.35-46.
Cui, W., 2014. Taxation of Capital Gains. Papers on Selected Topics in Protecting the Tax Base of Developing Countries.
Ebrahimi, P. and Vaillancourt, F., 2016. The effect of corporate income and payroll taxes on the wages of Australian workers. Fraser Institute.
Givati, Y., 2015. Googling a Free Lunch: The Taxation of Fringe Benefits. Tax L. Rev., 69, p.275.
Higgins, H.S., 2017. A Tale of Tulips: A Counterpoint to Courts Codifying Collectibles. J. Bus. Entrepreneurship & L., 10, p.223.
Jian, W.A.N.G., 2015. Study on Risk Pattern of Antique Collection. International Journal of Simulation–Systems, Science & Technology, 16.
Kouparitsas, M., Prihardini, D. and Beames, A., 2016. Analysis of the long term effects of a company tax cut (No. 2016-02). The Treasury, Australian Government.
Long, B., Campbell, J. and Kelshaw, C., 2016. The justice lens on taxation policy in Australia. St Mark’s Review, (235), p.94.
Mangioni, V., 2015. Land Tax in Australia: Fiscal reform of sub-national government. Routledge.
Manolakas, C., 2015. The Taxation of Artists of the Acquirers of Art: The Many Shades of Grey. AIPLA QJ, 43, p.69.
McCluskey, W.J. and Franzsen, R.C., 2017. Land value taxation: An applied analysis. Routledge.
Mulligan, C.B., 2015. The new employment and income taxes. Journal of Policy Analysis and Management, 34(2), pp.466-473.
Pasztor, J. and Valent, S., 2016. Fringe Benefit-still a Motivation?. In Proceedings of FIKUSZ Symposium for Young Researchers (p. 127). Óbuda University Keleti Károly Faculty of Economics.
Rappaport, M.E., 2016. The Unique Income Tax Issues of Collectibles. Journal of Taxation of Investments, 33(2).
Soled, J.A. and Thomas, K.D., 2016. Revisiting the Taxation of Fringe Benefits. Wash. L. Rev., 91, p.761.
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