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# TAXATION LAW

## iBased on the given information, determining Arashdeep net capital gain or loss for the year ended

In order to calculate the net capital gain or loss, the value of the property and the additional cost paid needs to be added first. After that, the amount can be subtracted from the sales amount of the property which will help to determine the actual capital gain or capital loss at the end of the year. In respect to the current case study of Arashdeep, it can be identified that he has brought a land for \$120,000. In addition, he had paid \$80,000 regarding the construction of the building. In this regards the total cost of Arashdeep was (120,000 + 80,000) = \$200,000. In addition to that, in the year 2020, Arashdeep was capable of selling that land for \$950,000 based on an auction. In this regard, it can be stated that the capital gain for Arashdeep is (950,000 – 200,000) = \$750,000.

Based on the current case study and calculation of Arashdeep capital gain, it can be clearly understood that Arashdeep has collected a high amount of profit from the sales of the property. Arashdeep has purchased the property in the year 1983 when the amount of the property was low. However, as time passed and the population of Australia expanded, the demand and price of that property have expanded in a constant manner. In this regard, in an auction, the property was sold by Arashdeep by a huge profit of \$750,000. Based on the high profit amount, the financial stability of Arashdeep can be developed constantly.

### ii) How the answer of question a will be if Arashdeep sold the property to his son for \$200,000

in regards to the change in the property amount, the potential capital gain or loss for Arashdeep will also change. In case Arashdeep sold the property to his son, no capital gain or loss for Arashdeep will be recognised. In regards to the Australian property law, it is clearly understood that selling the property to own family cannot be included in the capital gain related calculation (ATO, 2020). As the potential property will still be a part of the family of Arashdeep, no capital gain or loss can be recognised for him. However, as the property will remain among the family of Arashdeep, he or his son is forced to pay a significant amount to the government of Australia as capital gain tax. It is absolutely essential for Arashdeep to present the capital gain tax. Otherwise, legal action can be taken against them and they may face massive financial risks.

### iii) How the answer to a question a will be if the owner of the property was a company instead of an individual

In case the property owner is a company instead of an individual, then based on the Australian property law, additional income tax which includes a tax on capital gain will be recognised for the company. It can be clearly stated that the income of the organisation is high compare to the individuals. Therefore, the potential capability of the company to pay a sufficient amount of tax is also high compare to the individuals. In respect to this factor, it is necessary for the companies to provide a significant amount of tax after selling the property and identifying a sufficient capital gain (Chau and Kanagaratnam, 2020). However, it can be identified that if the capital loss is recognised in property sales, then the company does not require to provide tax charges on the property. In addition to that, in case the company recognise any fringe benefits while conducting the property transaction, then the organisation is forced to pay fringe benefits tax of the transaction. Fringe benefits tax can be recognised in additional benefits provided by the company to its employees.

In regards to this discussion, it can be stated that tax charges of the company are high compare to tax charges on individuals. In case this property was sold by a company, then the potential profitability rate for the company can decrease compared to the profitability of individuals. This may reduce the cash inflows of the company compare to its cash outflows.

## a) Advising regarding FBT consequences include calculation regarding FBT liabilities in the company

The fringe benefit can be recognised as a nonwage payment which can be recognised for the employees. Basically, the employers provide this nonwage payment or benefits to the employees to restrain them in the organisation. It can be clearly identified that in the case of kelly few fringe benefit consequences have been recognised for holmes pty ltd.

i) Firstly, it has been identified that Kelly receives a salary of \$220,000. In this case, no fringe benefit consequences have been recognised for Kelly. Salary is a wage related payment which is provided to Kelly based on her current business related activities conducted on the organisation. Therefore, this is not considered a fringe benefit consequence.

ii) In the second case, it has been identified that mobile phone bill for Kelly has been presented. In case the phone bill for Kelly’s personal use was provided, then it could be identified as a fringe benefit consequence (O’Donnell, 2019). However, as Kelly has used the phone for only professional purpose, it can be clearly identified that this is not considered as a fringe benefit consequence. It is essential for the company to provide the mobile bill of the employees so that they can maintain proper communication per year. therefore, in this case, no fringe benefits tax for the Kelly will be recognised. It may help the management to avoid additional cost regarding fringe benefits tax.

iii) Payment for children school fees of \$35,000 has been recognised per year. this is amount is provided for the personal use of Kelly and it has no professional purpose. Therefore, a high fringe benefit consequence can be recognised in this case. It is seen in the current case study that Kelly has a 2 years contract. In addition, 35,000 dollars of school fees are provided on a yearly basis. Therefore, the total fees will be paid for Kelly's children is 35,000 * 2 = 70,000 dollars. In regards to the Australian fringe benefits tax law, the current charges of fringe benefits tax are 47 per cent in the years 2019, 2020 and 2021 (ATO, 2020). As a result, the fringe benefit liability for Holmes Pty Ltd will be 70,000 * 47% = 32,900 dollars. It is seen that the Australian fringe benefits tax charge is extremely high. Due to the high tax charge, the organisation will face massive financial risk in the upcoming times.

iv) It is seen that Holmes Pty Ltd has also provided the latest iPhone 20 to Kelly which cost 1980 dollars. This is also provided to Kelly for personal use. Therefore, the fringe benefits tax on this amount will be recognised for Holmes Pty Ltd. In regards to the current fringe benefit, the fringe benefit liability will be 1980 * 47% = 930.6 dollars or 931 dollars. This amount is also high for the management and it can increase the potential additional cost in the recent year (Butler and Calcott, 2018).