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Taxation Law For Business

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Taxation Law For Business

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Taxation Law For Business

 

 

 

QUESTION 1

 

 

 

The business involves different and various financial transactions and that also take in many gains and losses. These losses and profits must be found out for the better risk management. The tax must be paid and applicable to all sales and purchase of the assets, gains and income from other sources. The proper calculation of the taxation must be made. There are different taxation laws that are applied to the different transaction so proper knowledge is must of all rules to successfully run a business. In this assignment, all capital gains of the company will be considered according to the Australian act instead of set up of assets in different locations. There is the need of the tax calculation on such kind of the income as per the tax rate that is applicable to that. The tax paid on the capital gains are considered as the additional tax (Cooper, 2018).

 

As per the Federal Commissioner of Taxation, the decisions were made by the government that gain that is identified on the sale of the land as per the section (25) will come under the assessable income. Under this income, capital gain needs to be applicable.

Calculation of the taxable amount will be done on the base of two approaches which are discounting method and indexation method. Indexation methods eligibility depends on the acquiring of the assets before 21st September 1999. Any assets which are acquired after this date will not come under this scope (Givati, 2015).

 

The tax must also be paid on the incomes which are gain from the interest and dividends because this all comes under the capital gains and that's why it will be included under the taxable amount. There are different laws and rules that are made in respect to this and this reflects the rule of either carry forward the amount or set off that if the gain will become under the taxable amount in the current year or it will be set off (Gale, et al. 2015).


 

 Working notes:

 

1.The transfers of the company are considered in respect to those assets which are the nature of long-term assets as they have acquired before 1 year. Thus as per the laws, all loss and gain will come under the capital gains (Woellner. et al. 2016).

2. Calculation of the capital gain on land:

 

The land is purchased in January 2001 and so the taxable amount will be considered as per the discount method and in that case, 50% will be the discount allowed. The calculation is as follows:

The selling price of the vacant land = $ 320,000

Purchase price = $ 120,000

Capital gain on the land = $ (320000-120000)*50% = $ 100000

3. Calculation on Capital gains on the antique bed:

 

The bed was purchased in July 1986 and has been transferred in the current year. The purchase date is the effective date so there will be applying the indexation rule of the asset value. The assets current value will be found on the basis of the indexation so that he gains can calculate by comparing the selling value and cost of the assets (Johnson, 2016). CPI will be used for the indexation and that is related to various years. Formulas that will be applicable are as follows:

Indexation factor = CPI for the quarter ending Sept 1999/CPI for the quarter in which there is the expenditure has been made or the assets have acquired.

Antique bed Indexed cost= (3500*68.7)/43.2 = 5565.97

CII adjusted value of alternation expenses = (1500*68.7)44.4 = 2320.95

Total indexed base value= $(5556.97+2320.95) =$7886.92

Capital gains on antique bed transfer = $(11000-7886.92) = $3113.08

Capital gain calculation as per the discount method:

Capital gain = (11000-50000)*50% = $3000

As the capital gain is less by the discount method so this will be considered as the final capital gain of the client.

4. Calculation of capital gain on painting:

 

S.P. of painting = $ 125000

CII that is adjusted indexed painting sale = (2000*68.7)/38.8 = $3541.24

Capital gain from the sale of painting (indexation method) = $ (125000 – 3541.24) = $ 121458076.

Capital gain by applying the discount method = (125000-2000)*50% = $61500

The capital gain is calculated according to the discount rate will be considered as this is beneficial for the client.

5. The client, in this case, is dealing with the shares and any kind of gain that arose on the sale of shares will be considered as the capital gain. Thus it will be considered as the income of the business and this will not include in the existing calculation of capital gain tax.

6. Calculation of the gain on sale of the violin:

 

The selling price of violin = $ 12000

Indexed cost of violin (5500*68.7/68.1) = $ 5548.46

Capital gain according to the indexation method = $5548.46

Capital gain according to the discount method = (12000-5500)*50% = $3250

The capital gain of 3250 will be considered in calculating total taxable capital gain.

 

 QUESTION 2

a) Calculation of FBT liability for the year ending 31 March 2018.

The employees play a vital role in the success of the business so on the basis of their performance they are rewarded with various benefits and incentives. On this amount, the tax liability will be on the employer and they will need to make the calculations for this in an efficient way. All of the profits and benefits which are offered come under the scope of fringe benefits and tax amount will be calculated on same. This will include all benefits either they are earned directly or indirectly or all be summed up for the calculation of the total benefits. The way in which the calculation of tax labiality is done will be determined with the application of the various and different dimensions. It is needed one must have proper knowledge about the laws. The payments will also be considered that are related with the GST (Agapovaand Volkov, 2015).

All amounts must be included in the calculation part and it is also important to identify the event that does not come under this scope. Some amounts that are excluded are related to the food and beverages. The payments that are made for the conference activities will also not included in the calculation of the fringe benefits total amount. The amount that will be deducted should be related to the income directly (San Juan, 2017).

The process that is used for the calculation of the fringe benefits involves the following steps:

1. Firstly the benefit amount that is provided by the business to their employees will be included.

2. This will be followed by the calculation of the values on which the no credit is available in respect to GST.

3. The amount will be identified on which the credit of GST is available.

4. The total amount will be included as the fringe benefits and calculated by summing the amount on the basis of the gross rate.

5. The tax that needs to be paid will be determined with the help of effective tax rate which is 47% in current times (Baker, 2016).

Jasmine, the employeeofRapid Heat Pty Ltd and is being offered with the certain benefits that will be included in the fringe benefits and the calculation for the same is as follows:

Car and its related expenses:

 

Jasmine has provided a car for her travelling related to the business purpose and she can also use the car for another purpose also. The total distance covered by care is 10000 km and the amount will be calculated accordingly. The tax rate applicable on this is 20% and taxable value will be calculated as per that. The element of the GST that is included in the amount will be removed as GST is not applicable to a car. Additional expenses that have been incurred by Jasmine during his travelling will be reimbursed by the company. This will be included in the calculation so that fringe benefits final value can be determined (Stimmelmayr, et al. 2015).

 

The calculation for the same is as follows:

Value of fringe benefits = Benefits on car + reimbursement of expenses

 Value of car = 33000*100/110

                    =$30000

Value of Fringe benefits on car = Value of car * 20%

                                                 = 30000*20/100

                                                 =$6000

Value of benefits on expenses = 550 – (550*1/11)

                                                =   500

Total fringe benefits = 6000 + 500

 = 6500

 

Loan facility:

The loan of $500000 has been provided to Jasmine by the company and she needs to pay the interest rate of 4.25%. Thus this interest rate will be applicable on the loan amount. Jasmine has given the amount of $50,000 to her husband with no interests. He will use the amount to purchase of shares and rest of amount will be used by Jasmine for the purchase of a holiday home amounting $450,000. The interest in shares will not be deducted from the amount. Following are the calculation of the taxable amount which is as below:

Interest on $450000@4.25% = 450000*4.25/100

 =$19125

Purchase of Heater by Jasmine:

Jasmine has bought an electric heater at price of $1300 that is manufactured by the Rapid- Heat but the same electric heater is given to other parties at $2600. The total cost of the manufacturing of electric heater is $700 so the amount saved by the Jasmine will include under the fringe benefits which amounting to $1300.

The taxable amount will be calculated by summing up the amount of the fringe benefits and this will be calculated on the applicable gross rate. The amount of the GST goods is 1.8868 and for non -GST goods it is 2.0802 for non GST goods respectively.

Calculation of the taxable amount:

Total taxable value = (Value of car * 2.0802) + (Interest on loan*1.886) + (repair expenses * 2.0802) +(Value of benefit on purchase of heater * 1.886)

= (6000*2.0802) + (19125*1.8868) + (500*2.0802) + (1300* 1.8868)

= (12481.2 + 1.40.1 + 36085.05 = 2452.84)

=$52059.19

Fringe benefit tax = 52059.19*47/100

=24467.82

Net fringe benefit tax liability= Tax on fringe benefits – GST credit

= 24467.82-3050

= $21417.82

B) Tax liability of the shares is bough for 50000.

If the Jasmine has utilised the amount for buying the shares then the taxable will change and the amount will not be considered as taxable and will be eliminated.

Taxable value of interest = (400000*4.25/100)*1.8868

= 32075.6

Total taxable value = 32075.6 + 12481.2+ 1040.1 + 2452.84

=$22583.38

Net fringe benefit tax liability = Tax on fringe benefits = Tax on fringe benefits – GST credit

= 22583.38 – 3.50

 

=$1953.38


REFERENCES

Agapova, A. and Volkov, N., 2015. Tax-Induced Trading: the Effect of Capital Gain Tax Changes. Working Paper.

Baker, D., 2016. Getting Prices Right: Debate Over the Consumer Price Index: Debate Over the Consumer Price Index. Routledge.

Cooper, R., 2018. Recent changes to fringe benefits. TAXtalk2018(71), pp.52-55.

Gale, W.G., Kearney, M.S. and Orszag, P.R., 2015. Would a significant increase in the top income tax rate substantially alter income inequality?.Economic Studies at Brookings.

Givati, Y., 2015. Googling a Free Lunch: The Taxation of Fringe Benefits. Tax L. Rev., 69, p.275.

Johnson, C.H., 2016. A Conceptual Framework for Capital Gain. Fla. Tax Rev., 20, p.664.

San Juan, E.A., 2017. From Tax Collector to Fiscal Panopticon: A Social History of a Century of Federal Income Taxation. Rutgers JL& Pub.Pol'y, 15, p.128.

Stimmelmayr, M., Liberini, F. and Russo, A., 2015.The Role of Toeholds and Capital Gain Taxes for Corporate Acquisition Strategies.

Woellner, R., Barkoczy, S., Murphy, S., Evans, C. and Pinto, D., 2016.Australian Taxation Law 2016.OUP Catalogue.


 



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