Australian Taxation Law And Its Regulations

This report is based on a calculation of tax, which is done by a tax consultant in Mayfield, New South Wales, Australia. In the first case, the client is an antique collector and investor who sold different assets, and in the second case, advice is provided to the company; a tax consultant is required to calculate tax liability for both cases.

TASK 1

Australian taxation laws are applied in Mayfield, New South Wales which is an Australian Community. It is the liability of a tax consultant to calculate the taxable amount and payable taxes. In this case, the client is an antique collector and an investor too. In the year 2017, many assets were bought and sold by the client, and a tax consultant was hired to calculate the tax liability. For this purpose, all the Australian taxation laws are followed, such as income tax and GST taxation (Boll, 2014). The amount received or paid while selling or purchasing assets is considered a capital gain or loss. Hence, in this particular case, the taxation will be calculated under the capital gain head. The client is not running a business; hence, the tax liability will be calculated on an individual basis. In this particular case, capital gain and insurance claim tax will be followed.

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a. Block of Vacant Land

In this case, the client is in a contract to sell a vacant land for $320,000, which was purchased in January 2001 for $100,000, and the additional expenses that are featured by the client are $20000 for water and sewerage. Selling of land is an investment activity that will be taxable under the capital gain head.

Related regulations: In this case, capital gain taxation laws are going to be followed. According to Capital gain taxation law, vacant land will be considered as an investment, which is an immovable asset which is considered as an investment after September 20, 1985 (Capital gain tax, 2018). According to the taxation authority of Australia, vacant land will be taxable under the capital gain head, and the rules are the same as for other assets. It will be calculated under sections 110-25 (2), 110-25 (4), and  115-25 (1) because the land was purchased after 20 August 1991. The calculation of the total taxable amount is as follows:

Cost base Calculation on 3/06

Calculation of Sale Proceeds

Interpretation: From the above tables, it has been analyzed that the total taxable amount for the year ending 30 June 2018 is $200000, which is calculated according to section 115-25 (1). Capital gain has occurred because the total capital gain was higher than the cost of the land.

b. Antique Bed

In this scenario, the client is demanding an insurance claim on his antique bed, which was stolen. It was purchased in 1986 for $5000 In this amount, all the expenses are included that are spent by the client. It was stolen from the house of a client; at that time, the value of this bed was $25000. The client has claimed for insurance on November 17, 2017. However, the insurance company has refused the request for an insurance claim, as such types of assets are not mentioned in insurance claim law. The client has received $1000 by compromising with the insurance company.

Related regulation: In this scenario, two different laws are implemented by the tax consultant, The first is capital gain under the Income Tax Act 1997 and another is Insurance Act 1984. It will be treated under section 104-20 (1), which is for stolen items. The antique items are recorded under section 108-10 (12) (Braithwaite, 2017). As the cost of the asset is greater than $500 and used for personal use by the client, then section 118-110 (1) is going to be applied here. Capital gain for the client is calculated as follows according to section 115-25 (1):

Calculation of index cost of bed

Index factor for the cost of acquisition and cost of improvement as per Index reference base (2011-12)

Computation of taxable insurance claim

Interpretation: From the above calculation, it has been observed that the total taxable amount for the client is $6000 ($11000-$5000) under section 115-25(1), which is received from the insurance department in full settlement by compromising for the same as the asset was stolen from the house. Tax liability for the client is $3116. $25000, which was the market value, will not be considered as it is irrelevant under this case and the received amount from the insurance company, which was $11000, will be considered as the capital gain from the bed.

c. Painting

In this scenario, the client has sold a painting for $125,000, which was purchased on May 2, 1985 for $2000 from a very famous Australian artist (Dowling, 2014). This painting was sold by the client on 3 April 2018 in an auction. This will be taxable under capital gain taxation.

Related regulation: It will be considered as a capital gain under section 104-A as it is a CGT asset.  The painting was purchased before 20 September 1985 and it will be considered a pre-CGT asset because the asset was purchased on 2 May 1985. The painting will not be considered as a collectible because it was purchased for investment purposes and not for personal use. The calculation of tax and taxable amount is as follows:

Calculation of taxable capital gain or loss of painting

Interpretation: The total capital gain for this scenario was $123000, which is calculated by subtracting the amount of purchase from the sales. ($125000 - $2000). The assets were purchased before 20 September 1985; hence, it will be treated as pre-capital gain taxation under section 104-10 (5).

d. Shares

In this scenario, the client has a portfolio of shares in which the client owns different types of shares. The shares are sold and purchased by the client in a specific time period. It has been done to acquire a capital gain. It includes stamp duty and brokerage.

Related regulation: It will be treated under section 104-10 (1). It will be calculated according to the Australian capital gain taxation laws (Gracia and Oats, 2012). The indexation cost will not be applicable in this scenario as the shares were purchased after 21 September 1999. The calculation for the taxation amount for shares is as follows:

(i) Trade of Common Bank Ltd Shares

Purchase Cost of shares

Proceeds from the sale of Shares

Net Capital gain/Loss

(ii) Trade of PHB Iron Ore Ltd

Purchase Cost of Shares

Proceeds from the Sale of Shares

Net Capital Gain/Loss

(iii) Trading of Young Kids Learning Ltd

Calculation for net capital gain/loss

There is a capital loss of $6000 for the client.

(iv) Trading of Build Ltd.

Calculation for net capital gain/loss

Interpretation: From the above tables, the calculation of taxable amount for the clients for shares is calculated. The client has received a capital gain of $30700, $30000, $6,000, and $13000. Indexed costs are not considered because the shares are purchased after 21 September 1999.

e. Violin

In this scenario, the client owns a violin, and it was sold on May 1, 2018 by the client to the neighbor (Maddison and Denniss, 2013). It was sold for $12000 and it was acquired by the client on 1 June 1999 for $5500.

Related regulation: It will be treated as a capital gain tax because the violin was purchased for personal use by the client. The client used the violin a lot and then sold it to the neighbor. It will be treated under section 108-20 (2).

Calculation for net capital gain/loss

Interpretation: Net capital gain under this scenario is $6500, which is identified from the above table. It is calculated under two sections, one is 108-20 (2) and another is 104-10 (1), as the ownership was transferred by the owner to the neighbour.

Adjustment of capital loss

Section 995-1 will be considered while calculating total taxable income from clients. Current year loss, which is not eligible for a 50% discount under section 115-25 (1). Therefore, the capital loss of $6000 will be adjusted with the capital gain earned from building shares of $13000 used to set off. Net capital gain will be $7000 (McGee, 2014).

Total taxable liability

TASK 2

Advise on FBT Consequences and Calculation of Fbt Liability on Rapid Heat

Case scenario:

According to the provided case scenario, Rapid Heat Limited is a manufacturing company that operates electric heaters. Jasmine, an employee of this company, has received a car from the company that is used for work and other purposes. Along with the car, Jasmine has also received a loan of $50000 at an interest rate of 4.25%, which is used for the purchase of a holiday home, and some of that amount is lent to her husband (Mumford, 2017).

Related regulations:

In order to ascertain the tax liability of Rapid Heat Limited, a tax that is applied to this company is the fringe benefit tax. This tax regulation is concerned with the benefits that are provided to the employees by their company, against which the company has to pay some value as tax. FBT is a tax applied within the Australian tax system but the Australian taxation office. This tax is applicable to most noncash benefits that are provided to employees against their contributions from the company. This tax implies the liability on the employer and not on the employee.

Calculation of taxable amount:

According to fringe benefit tax, a motor vehicle that is a car in this case has to fulfill various conditions, such as the car must be any sedan or station wagon. The vehicle must be a four-wheel-drive vehicle. From the information provided in the case scenario, it has been observed that the car was received by Jasmine on 1 May 2017, and tax needed to be calculated for the year of 335 days, that is, from 1 May 2017 to 31 March 2018. In this period, it is analyzed that the employee has traveled 10,000 km by car and has also incurred a few expenses on her own end amounting to 550 dollars for which the employee has received reimbursements (Pickhardt and Prinz, 2014).

As additional information, it has been informed that the car was parked at the airport for 10 days, which is not counted as days of the employee's personal use.

A number of days for which tax liability is ascertained is 335, but 5 days of repairs are deducted, which gives 330 days of tax liability to the company. The formula for calculating this tax liability is (0.2 * base value of car * number of days during that year of tax on which the car fringe benefits were provided by the provider/number of days in that year of tax) - Amount if any paid by the recipient.

= [(0.2 * 33000 * (330/365)]

Along with the car, the loan was also provided to the same employee named Jasmine. The loan was valued at 500000 dollars at a rate of 4.5%. The amount of the loan was utilized as 450000 dollars was used to purchase a holiday home and 50000 was lent to Jasmine's husband for the purchase of shares in Telstra. According to the rule of fringe benefit tax, if the amount of the loan is used for the purchase of securities, then the taxable amount would be nil.

Along with a loan, an electric heater of 1300 dollars was purchased, of which the manufacturing cost was 700 dollars and its selling price in the market was 2600 dollars. Calculation of fringe benefit tax along with consideration of car, loan amount, and electric heater is as follows:

From the above calculation., it can be said that Rapid-Heat is liable to pay input tax credit in relation to GST-inclusive acquisitions (Rose and Karran, 2018). GST credit is also claimed on the credit on the price of electric heater. A total of 282 dollars is liable to the company to pay.

Variation in FBT liability

According to the case, the tax liability is ascertained below if the amount which is received as a loan is $50,000 and is utilized as an investment in shares instead of lending money to her husband. FBT's liability to the company is ascertained below:

CONCLUSIONS

From the above project report, it has been analyzed that two types of taxation laws are followed by a tax consultant: capital gain tax and fringe benefit taxes. Capital gain taxes are for investments and other capital nature assets. Fringe benefit taxes are those taxes that are implemented on the benefits that are provided by the employer to its employees.

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REFERENCES

• Baldwin, R., Cave, M., and Lodge, M., 2012. Understanding regulation: theory, strategy, and practice. Oxford University Press on Demand.
• Boll, K., 2014. Mapping tax compliance: Assemblages, distributed action, and practices: A new way of doing tax research. Critical Perspectives on Accounting. 25(4-5). pp. 293-303.
• Braithwaite, V., 2017. Taxing democracy: Understanding tax avoidance and evasion. Routledge.
• Dowling, G. R., 2014. The curious case of corporate tax avoidance: Is it socially irresponsible? Journal of Business Ethics. 124(1). pp. 173-184.
• Gracia, L., and Oats, L., 2012. Boundary work and tax regulation: A Bourdieusian view. Accounting, Organizations, and Society. 37(5). pp. 304-321.
• Maddison, S., and Dennis, R., 2013. An introduction to Australian public policy: theory and practice. Cambridge University Press.
• McGee, R. W., 2014. The Ethics of Tax Evasion: A Case Study of Brazil. In Handbook of Research on Economic Growth and Technological Change in Latin America (pp. 374-393). IGI Global.
• Mumford, A., 2017. Taxing culture: towards a theory of tax collection law. Routledge.
• Pickhardt, M., and Prinz, A., 2014. Behavioral dynamics of tax evasion—A survey. Journal of Economic Psychology. 40. pp. 1-19.
• Rose, R., and Karran, T., 2018. Taxation by political inertia: Financing the growth of government in Britain. Routledge.
• Online:
• Capital gain tax. 2018. [Online]. Available through:
   <https://www.ato.gov.au/General/Capital-gains-tax/>

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