BACC318: Taxation Law and Compliance - Assessment Answer

Taxation Law Assignment

Assignment Task

Part A

Employers normally provide a number of benefits to their employees in order to recognise their contributions to the firm as well as reward their efforts in meeting the goals and objectives of the company. Some of the benefits which are provided by their employers are subject to the Fringe Benefit Tax (FBT). FBT involves tax which employers pay on certain benefits which they provide to their employees. Mary Jackson is employed as a marketing consultant by Elite Retail which relocated her to Brisbane on 10 February 2016. There are a number of benefits which Elite Retail provides to Mary some of which are to facilitate her over. For instance, Elite Retail provided $ 4,000 for the furniture transfer. In addition to her salary of $120,000, Mary was given an allowance of $5,000, laptop at $2,400, mobile phone valued at $800, home telephone bill of $330 with $165 for work and the rest personal, company car with on road cost of $30,000, $1,500 allowance for professional subscriptions and a low interest loan of $500,000 at 4%. The following is the resulting FBT for the benefits provided to Mary.

One of the benefits offered to Mary is a car benefits whereby the company provides a car. The car is made available in respect of the employer in the course of her employment and the on road cost of the car provided is $30,000 which is a car expense and is subjected to FBT. Further, Mary also acquires a loan by the firm and this is subject to a loan fringe benefit. The low interests’ loan provided is $ 500,000 and provided at 4% which is lower than the benchmark interests and is as such subject to FBT. Thirdly, there are entrainment expenses of $5000 whereby she uses it to cover the cost of entertaining client. This is provided in respect to the employment and as such should be provided for FBT. Portable electronic devices have FBT exemptions and as laptop and mobile phone provided are as such exempt. In regards to the telephone bill, theFringe Benefits Tax Assessment Act 1986calls for employer to obtain an Expense Payment Benefit Declaration in reducing the taxable value for the benefit which is related to work. In Mary’s case, 50% of the telephone bill is utilised for work proposes and as such $165 is the one subject to FBT. Others benefit includes the transfer of furniture in facilitation of the move and the $1500 allowance for professional subscriptions. When calculating the benefits, there is need in calculating taxable value the firm can claim GST credit and this included the phone bill benefits, entertainments, and the handsets. As such the type one benefits includes while the type two benefits includes as illustrated below.

As provided in ATO (2016), the grossed up value in the benefits which employees are provided for by employers exceeds $2000 in an FBT financial year, the taxable value of the benefits need to be included within the payment summary in the specific financial year. Further, ATO (2016) provides that fringe benefits which are not reported in the payment summaries for the firm and only those with lower gross up rate which are utilised in the reporting in the payment summaries of the employees. In conclusion, FBT payable by the firm is $65348.

Part B

Section One

Scott bought land in 1980 and in 1986 built a house. In 1986 the land was valued at $90,000 with the building the house costing $60,000. The house was rented since the construction. In 2016, the property was sold for $800,000. In 2005, he purchased a painting for $16,500 which was stolen in 2015 and had not been insured. Capital gain involves the difference between the capital proceeds and the cost base for the asset. ATO (2016) provides that cost base involves what the cost of the asset has. It involves five major elements (money pad for asset, incidental costs for acquiring it or selling it, cost of working on it, cost associated with the assets, and cost of preserving it. Capital gain involves selling the asset. In the painting which is collectable, it is more than $500 and as such needs to be considered as a capital loss. Further, on the sale of property, the costs for the land were $90,000 for the land and $60,000 for the construction. The property sale was $800,000. As such, the sale of the property had to take into consideration the costs of the land and the cost of construction. Fallow (2009) argues that for individuals, there is an exemption for the family home. That is sale of personal residential property is exempt from capital gain tax except for the gains which are realised when the property was not used for personal residence or when sued for business use. Black (2011) provides that capital gains or losses are disregarded for CGT when the asset was acquired before 20th September 1985 in the pre-CGT.

In calculating the capital gain, it is important to consider some assets which are exempt from CGT and these include main residence, collectible and personal use assets among others. For the collectibles, they are exempt when they are less than $500.In this case the painting cost more than $500 dollars and as such is not exempt. It was stole and as such needs to be calculated as capital loss. With regards to the property, the land was bought before 1985 and as such needs not be included for capital gain calculation. However, the construction was after 1985 and as such should be included in the capital gain calculation. The following is a summary of the calculation.

Section Two

In the event that the property was sold to the daughter for $200,000, t he capital gain calculation would remain the same. This is because as illustrated by ATO (2016), when property is sold to family, the property value needs to be calculated as per the market value. This is when the property is sold to the relative or to a family friend. Data should be sourced from professional valuers on the market valuation of the property. This should be considered every time a property is not sold when dealing at an arm’s length. This is when the parties involved acts an independent party with either party exercising influence or control over the transactions. When a transaction occurs between family members as in Scott’s case is influence of the relations between the parties over the transaction. Assuming the property was sold at market value, the capital gain calculation would still be considered at $800,000. As such, the calculation would remain the same.