Australian Taxation Law Intangible Investment

Question: Describe about the Australian Taxation Law for Intangible Investment. Answer: Case Study 1 Calculation of Net Capital Gain or Loss of an Individual It is important to calculate net capital gain or loss of an individual for bringing solutions whereby Fred is an Australian Resident. In other words, Fred is not responsible in conducting any other kind of trading business (Ato.gov.au. (2016). In the present year, Fred had sold his holiday home and it was his direct assets rather any other types of trading stock. Addition to that, Fred had never generated revenues earlier from its present assets. Calculation of Net Capital or Loss Discounted as well as Indexation method are used for making the calculation of net income or gain in the current financial year. Name of Taxpayer : Fred Type : Individual Calculation of Net Capital Gain/Loss for the period ending on 30th June,2016 Discounted Method Indexation Method Particulars Amount Amount Amount Amount $ $ $ $ a) Sale of Holiday Home : Sales Consideration 800000 800000 Less : Cost Base of the Property 100000 148043 Legal Fees on Sales (Exclusive of GST) 1000 1000 Commission of Real Estate Agent 9000 9000 Stamp Duty on Purchase 2000 2961 Legal Fees on Purchase 1000 1480 Construction Cost of Garage 20000 133000 23853 186338 Capital Gain on Sale 667000 613662.3 Less : 50% Exemption on Capital Gain 333500 Taxable Capital Gain (A) 333500 613662 Less : Capital Loss of Previous Year 10000 10000 Net Taxable Capital Gain 323500 603662 Table: Calculation of Net Capital Gain or Loss (Source: Created by Author) Major key Assumptions It has been noticed that Fred has acquired related asset after 20th of September in the year 1985 (gov.au. 2016). This means the figure will be considered as CGT assets. It should be further eligible for taxable capital gain or loss for computation purpose Acquisition of asset was done before 21st of September 1999. This means the cost base as well as other expenses incurs for given period for asset purchasing. It can be easily evaluated using the indexation method for calculation purpose. Additionally, Fred has made garage on that particular property. This can be even be taken for as substantial improvement. Therefore, garage construction cost includes from the deductible expenses (gov.au. 2016). It was conducted before 21st of September 2999 as well as calculated using indexation method. In accordance with Australian Taxation rules, acquisition of assets before 21st of September 1999 means individuals applying for any types of method for calculation (Pearce and Pinto 2015). This can be either discounted method or indexation method especially for capital gain or loss calculation purpose In case of discounted method, taxpayer are liable to get exemption of capital gains of any of the given assets as it is owned by certain taxpayers for given period of 12 months. Holiday home was acquired by Fred for a period of 19 years. Fred can even claim exemption of 50% using discounted method (Chan 2014). As far as shares are concerned, it can be easily treated as assets such as real estate property. Net capital loss on sale of shares figures are taken from the previous year (Conesa and Domnguez 2013). This can be even adjusted using current year net capital gain especially from property sale at the same time. Summarized analysis The above analysis can be concluded that net capital gain has been calculated for Fred using discounted method amounting to $323500. In case of using indexation method it amounted to $603662. As far as discounted method is concerned, Fred needed to pay less tax especially on capital gains and should consider discounted method. It requires making the computation on net capital gain amounting to $323500 (Eccleston 2013). Net Capital Gain Consequences It is viewed that Antique vase was under collectable status. In accordance with Australian Taxation rules, calculation was made for net capital loss especially from sale of collectables that requires to be adjusted with capital gains (Jones 2016). In that case, net capital loss undertaken from previous years arises from antique vase sales that cannot be adjusted in accordance with net capital gains. It involves sale of house property. In other words, Net capital gain of Fred arrives at $333500. Case Study 2 Part A Calculation of Fringe Tax benefit of Periwinkle Pty Limited as per the consequences In this particular case study, it is assumed that Periwinkle Pty Limited is an employer company. This is an Australian Company entitled to gain tax benefits as provided by small business entities. This particular company aims at providing few benefits to Emma considers as an Employer. It is assumed to be an Australian Resident. Addition to that, this company entitles in gaining fringe benefits for various additional benefits (Woellner et al. 2012). It is required to check on the FBT consequences in relation with such benefits need discussion with proper justification. Car Fringe Benefit In the particular case study, Emma was found using car for private as well as office purposes. Benefits from car need to be included in the car fringe benefits. At the time of foreign visit, Emma parked the car at airport rather parking on the office premises (Evans, Minas and Lim 2015). This car was kept in the garage and requires annual maintenance. This does not require unscheduled repairing. Therefore, car remained unused for number of days involved in the calculation of FBT. It requires using statutory method whereby car benefit of the company provided by Emma. The calculation shown as under: Calculation Of Car Fringe Benefit:- Particulars Details Total Kms. Travelled during the FBT year A 10000 No. of Days in the FBT year B 366 No. of Days of Travel C 336 Annualised Kilometers (A x B/C) 10892.857 Statutory Rate as per Annualised Km. E 20.00% Cost Base F $33,000 No. of Days available for Private Use C 336 No. of days in FBT Year B 366 Taxable Value (FxExC)/B $6,059.02 Table: Calculation of Car Fringe Benefits (Source: Created by Author) FBT for Interest on Loan In case of any kind of loan interest, it is needed by an employee with employee for considering required fringe tax benefits. Rate of interest on loan arrived to be 4.45% that is considered lower in comparison with the benchmark of loan interest such as 5.95% (Faccio and Xu 2015). FBT calculation based upon the actual rate of interest. FBT of company for loan interest are rendered by an employee as well as calculated as under: Calculation of Interest on Loan for FBT:- Particulars Details Loan to Employee A $500,000 Benchmark Interest Rate B 5.95% Actual Interest Rate C 4.45% Taxable Value Interest on Loan D = (AXC) $22,250 Table: Calculation of Interest on Loan for FBT (Source: Created by Author) FBT for Special Discount Rate In this case, employee can easily claim for any FBT for gaining special discount. It is provided to employee based upon own product. FBT calculation is conducted at 75% that is on normal selling price (Harding 2013). Calculation is shown as under: Calculation of Special Discount for FBT:- Particulars Amount $ Market Price of the Bathtub A 2600 Special Price for the Employee B 1300 Taxable Value of the Bathtub C=A x 75% 1950 Taxable Value of Benefit C - B 650 Table: Calculation of Special Discount for FBT (Source: Created by Author) FBT Calculation In this case, car expenses are inclusive with GST and equalizes by multiplication of FBT values in relation with gross up rates. As far as fringe tax benefits are concerned, it considers general companies as 49% (Hodgson and Pearce 2015). For the purpose of FBT calculation, liability of Periwinkle Pty Limited calculation is discussed below: Name of Taxpayer : Periwinkle Pty. Ltd. Type : Company Calculation of Fringe Benefit Tax for the period ending on 31st March,2016 GST Inclusive GST Free Particulars Amount Amount $ $ Car Benefit 6059.02 Interest on Loan 22250 Sale at Special Rate 650 Total of GST Inclusive/Free Benefits 6059.02 22900 A B Gross-up Rate 2.1463 1.9608 C D Gross-up Value 13004.47 44902.32 E = A x C F=B X D Total Taxable Fringe Benefit 57906.79 G = E + F Fringe Benefit Tax Rate 49% J Fringe Benefit Tax Liability 28374.33 K = G x J Table: Calculation of Fringe Benefit Tax (Source: Created by Author) Part B Alternative Consequences In case Emma would have purchased shares herself as well as earned dividend from these shares then she need to pay tax on such income (Jacob and Jacob 2013). Total FBT value as well as FBT liability of the employer considered to be lesser based upon the income amount by an employee from loan amount at the same time (Stilwell 2016). Reference List Ato.gov.au. (2016).How to calculate your FBT | Australian Taxation Office. [online] Available at:https://www.ato.gov.au/General/fringe-benefits-tax-(fbt)/how-to-calculate-your-fbt/ [Accessed 30 Aug. 2016]. Ato.gov.au. (2016).Loan and debt waiver fringe benefits | Australian Taxation Office. [online] Available at: https://www.ato.gov.au/General/Fringe-benefits-tax-(fbt)/In-detail/Employers-guide/Loan-and-debt-waiver-fringe-benefits/?page=8#8_8_Reduction_in_taxable_value_where_interest_would_have_been_deductible_to_employee [Accessed 30 Aug. 2016]. Ato.gov.au. (2016).Property fringe benefits | Australian Taxation Office. [online] Available at: https://www.ato.gov.au/General/Fringe-benefits-tax-(fbt)/In-detail/Employers-guide/Property-fringe-benefits/?page=4#Goods_manufactured_or_produced_by_the_provider [Accessed 30 Aug. 2016]. Chan, C., 2014. Earnouts and CGT: Fine-tuning the.Tax Specialist,18(1), p.27 Conesa, J.C. and Domnguez, B., 2013. Intangible investment and Ramsey capital taxation.Journal of Monetary Economics,60(8), pp.983-995 Eccleston, R., 2013. The Tax Reform Agenda in Australia.Australian Journal of Public Administration,72(2), pp.103-113 Evans, C., Minas, J. and Lim, Y., 2015, September. Taxing personal capital gains in Australia: an alternative way forward. InAustralian Tax Forum(Vol. 30) Faccio, M. and Xu, J., 2015. Taxes and capital structure.Journal of Financial and Quantitative Analysis,50(03), pp.277-300 Harding, M., 2013. Taxation of dividend, interest, and capital gain income Hodgson, H. and Pearce, P., 2015. TravelSmart or travel tax breaks: is the fringe benefits tax a barrier to active commuting in Australia? 1.eJournal of Tax Research,13(3), p.819 Jacob, M. and Jacob, M., 2013. Taxation, dividends, and share repurchases: Taking evidence global.Journal of Financial and Quantitative Analysis,48(04), pp.1241-1269 Jones, D., 2016. Capital gains tax: The rise of market value?.Taxation in Australia,51(2), p.67 Pearce, P. and Pinto, D., 2015. An evaluation of the case for a congestion tax in Australia Stilwell, F., 2016. Taxing times in Australian capitalism.Australian Socialist,22(1), p.2 Woellner, R., Barkoczy, S., Murphy, S., Evans, C. and Pinto, D., 2012.Australian taxation law. CCH Australia