Taxation Net Capital Loss or Gain

Question: Discuss about the Taxation for Net Capital Loss or Gain. Answer: Computation of net capital loss or gain for an individual: The following case study deals with the tax consequences of Fred who is the resident of Australia. Fred did not had any business activities neither did he had stock for trading however he had one holiday house which was considered as current assets and sold by Fred (Braverman et al. 2014). Computation of Net capital Gain or Loss: Under Discounted Method: In the books of Fred For the year ending 30 June 2013 Particulars Amount Amount $ $ a) Sale of Holiday Home : Sales Consideration 800000 Less : Cost of Property 100000 Legal Fees on Sales (Including GST) 1000 Commission for Agent of Real Estate 9000 Stamp Duty on Purchase 2000 Legal Fees on Purchase 1000 Garage Construction Cost 20000 133000 Capital Gain on Sale Proceeds 667000 Less : 50% Exemption on Capital Gain 333500 Capital Gain Tax (A) 333500 Less : Capital Loss from Previous Year 10000 Net Capital Gain Tax 323500 Computation of Net Capital gain and Loss Under Indexation Method: Particulars Amount Amount $ $ a) Sale of Holiday Home : Sales Consideration 800000 Less : Cost of Property 151656 Legal Fees on Sales (Including GST) 1000 Commission for Agent of Real Estate 9000 Stamp Duty on Purchase 3033 Legal Fees on Purchase 1517 Garage Construction Cost 24448 190654 Capital Gain on Sale Proceeds 609346.30 Less : 50% Exemption on Capital Gain Capital Gain Tax (A) 609346 Less : Capital Loss from Previous Year 10000 Net Capital Gain Tax 599346 From the above calculations Fred net capital gains under the discounted method for the current year is 323,500 and the net capital gains under the Indexation method is $599,346. Thus, Fred has the liability to pay less amount of tax under the discounted method and he should opt for this method as he can claim for exemption of up to 50% (Jacob 2012). Notes: The assets acquired by Fred on or after 20 September 1985 will be considered as capital gains tax assets and will be undertaken for calculating capital gains and losses. The expenses inured for improvement of garage forms the part of capital expense falling under the deductible expenses. The monetary value spend on purchasing the assets falls under the indexation method for calculating the assets acquired before 21 September 1999. As per the rules of ITAA 1997 any assets acquired before 21 September 1997 will fall under the discounted method for calculating capital loss or gains (Conesa et al. 2013). Under the discounted method the taxpayer gets benefit of exemption on sale of capital assets for up to 50%. However, one can only claim such exemption unless that assets has been held for at least a minimum period of 12 months. Share are of capital in nature and such loss arising from the sale of shares should be adjusted with the capital gains from sale of house property under the current financial year (Evans et al. 2015). Expenses occurred from sale of property are deducted from sales in the determination of net capital loss or gains. Consequences of net capital gains: Antique vase is considered as collectibles and any such losses on disposal should be adjusted under the heads of collectible as stated under the Australian taxation rules. Hence, sale of vase resulted in capital loss so it cannot set off from gains of house property. Computation of Fringe benefit tax of Periwinkle: The following case study depicts that Periwinkle is an Australian company and the gains derived does not falls under the business entities. Emma, an Australian, who is employee in this case study is provided with additional benefits which falls under the tax consequences for FBT. The tax consequences of FBT are stated below; Car Fringe Benefit: Emma uses car for her private and official use as stated under the case study such benefits is known as car fringe benefits. She opted for airport parking instead of parking in her own premises (Buchan et al. 2014). The car did not had any unscheduled repairing and it should be noted that the number of days car remained idle is taken for FBT considerations. Computation 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 Kilo meters (A x B/C) 10892.85714 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 Fringe benefit on Interest on loans: The interest on loan provided by employer to employee has tax consequences falling under the FBT with the interest rate of 4.45% as mentioned the case study. However, the benchmark interest rate is 5.95% (Kaplan and Price 2014). 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 Fringe benefit on special discount: Employee can further claim for special discount under the FBT and it calculated on 75% of the usual selling price on special discount rate. 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 Computation of Fringe Benefit: FBT is equalised on multiplying the gross value of tax with FBT value and the expenses incurred are considered under GST calculations with FBT rate of 49% considered by companies (Woellner et al. 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 Alternative tax consequences: Emma under the case study is liable to be taxed for the income earned from dividend after procuring shares. However, the amount of FBT will be less since the employer earned the loan amount. Reference List: Braverman, D., Marsden, S.J. and Sadiq, K., 2015. Assessing taxpayer response to legislative changes: A case study of in-housefringe benefits rules.Journal of Australian Taxation,17(1), pp.1-52. Buchan, H., Olesen, K. and Carberry, H., 2013. Fringe benefit tax on motor vehicles: Complexity and compliance cost.New Zealand Journal of Applied Business Research,11(2), p.59. Conesa, J.C. and Domnguez, B., 2013. Intangible investment and Ramsey capital taxation.Journal of Monetary Economics,60(8), pp.983-995 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. Jacob, M., 2012. Tax regimes and capital gains realizations. Jones, D., 2016. 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