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The capital gains or capital losses resulted from asset disposal would be considered for the Capital Gains Tax (CGT) consequences for the taxpayer for the respective assessment year.

The assets which belong to the category of pre-CGT asset (before the period September 20, 1985) are not subjected to any CGT liability on the received capital gains or capital losses. The relevant provisions for this aspect are in line with s. 149(10), ITAA 1997. One of the imperative aspects for the transaction of sale is to define the event and the relevant sub category (Barkoczy, 2017).  The CGT event corresponding to asset disposal is A1 category as defined in the provisions of s. 104 (5) ITAA 1997 (Krever, 2017). The formula for computation of gains requires two main aspects which are listed below (Sadiq et. al., 2015).

• The capital receipts which are resulted from the selling of a capital asset by the taxpayer plays an imperative role while calculating the net capital gains/losses from the disposal of the asset.
• Another crucial variable in same regards is termed as cost base which concludes five main costs or expenses which are discussed in s. 110 (25) Income Tax Assessment Act 1997.    

The difference between the time of procurement of the asset and the disposal period is termed as holding period of the asset. When this difference is more than 1 year, then the capital gains are named as long term capital gains and 50% discount method would be used to find the net capital gains or losses as indicated in s. 115-25 ITAA 1997. Furthermore, when this difference is less than 1 year then, capital gains are short term capital gains and 50% discount method will not be applicable. According to this method, only 50% of the computed capital gains or losses would be used for computing CGT liability on the taxpayer as evident from the clauses of s. 115(25) ITAA 1997 (Gilders et. al., 2016).

The previous capital losses which have remained unadjusted would also be considered and hence, would be balanced with the present capital gains as shown in s. 102(5) ITAA 1997. Further, if taxpayer has previous capital losses but has not received and capital gains then the capital losses will again shift to next year (Deutsch et. al., 2015).

Acquisition period: 2001 (After September 20, 1985)

This is visibly not a pre-CGT asset and CGT implication will be imposed on the capital gains/losses which would be derived in the process of asset disposal. Further, the sale of asset is CGT event and points to A1 category as defined in the provisions of s. 104 (5) ITAA 1997 (Woellner et. al., 2017). The relevant aspect defined in TR 94/29 indicates that realisation of tax implications related to asset sale will be performed in the same income year in which the respective taxpayer has signed the contract of sale while the payment as per the contract may take place in next year (Nethercott, Richardson and Devos, 2016). The capital losses of last year will also be balanced with the capital gains resulting in the given year. Further, the difference between the time of procurement and disposal is more than a year and thereby, capital gains will be named as long term capital gains and 50% discount method is enforceable. According to this method, only 50% of the computed capital gains or losses would be considered for CGT consequences as evident from s. 115(25) ITAA 1997 (Barkoczy, 2017).

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Acquisition period: 1986 (After September 20, 1985)

This is visibly not a pre-CGT asset and CGT implication will be levied on the capital gains/losses which would be derived in the process of asset disposal. Further, the sale of asset is CGT event and belongs to A1 category as defined in the provisions of s. 104 (5) ITAA 1997. Further, the implication of CGT will be valid when the procurement cost of collectable is greater than $500 as stated in s. 118-10 ITAA 1997 (Reuters, 2017). Here, the procurement cost is $3500 and the antique bed is collectable. It is visibly more than $500 and hence, CGT is applicable on any capital gains arising from asset sale.  Taxpayer does not conduct the sale of antique bed but still the antique bed would be termed as disposed because the bed has been stolen. The insurance claim payment will be held considered as capital receipts from the disposal of asset. The various costs payment of taxpayer will be considered as incremental costs and the cumulative effect of these costs would contribute to the cost base. The capital losses of last year will also be balanced with the capital gains resulting in the given year. Further, the difference between the time of procurement and disposal is more than a year and thereby, capital gains will be named as long term capital gains and 50% discount method is enforceable. According to this method, only 50% of the computed capital gains or losses would be considered for CGT consequences as evident from s. 115(25) ITAA 1997 (Gilders et. al., 2016).

Acquisition period: May, 1985 (Before September 20, 1985)

This is visibly a pre-CGT asset and CGT implication will not be levied on the capital gains/losses which would be derived in the process of asset disposal (Sadiq et. al., 2015).

Acquisition period: After September 20, 1985

The shares are visibly not a pre-CGT asset and CGT implication will be levied on the capital gains/losses which would be derived in the process of asset disposal. Further, the sale of asset is CGT event and belongs to A1 category as defined in the provisions of s. 104 (5) ITAA 1997. The 50% discount would be applicable on the initial three shares which have a holding period that exceeds one year. The discount would not be imposed on the last share as the holding period fails of exceed one year (Deutsch et. al., 2015).

Computation of gains for CGT implications and balancing with previous capital losses

Acquisition period: After September 20, 1985

This is visibly not a pre-CGT asset and CGT implication will be levied on the capital gains/losses which would be derived in the process of asset disposal. Further, the sale of asset is CGT event and belongs to A1 category as defined in the provisions of s. 104 (5) ITAA 1997 (Nethercott, Richardson and Devos, 2016). Further, the implication of CGT will be valid when the procurement cost of personal use asset is greater than $10,000 in accordance with s. 108-20(1) ITAA 1997 (Woellner et. al., 2017). Here, the procurement cost is $5,500 and the violin is personal use asset (As she used to play it regularly and for her own entertainment). It is visibly less than $10,000 and hence, CGT would not be applied on the capital gains or loss received from violin.

The aim of the analysis is to find the Fringe Benefit Tax (FBT) payable on the extended fringe benefits to employee “Jasmine” by employer “Rapid Heat Pty Ltd.”

Use of car for personal work is the main aspect of car fringe benefit. According to s. 7, Fringe Benefit Assessment Act 1986, the employer must extend an authority to employee to use the car for personal work. It constitutes the enforceability of car fringe benefit by employer and the associated FBT liability on employer (Barkoczy, 2017). However, the employee who is the concerned recipient of the benefit would not be liable for any fringe benefit tax payable. The key variables of the procedure to determine the FBT payable includes capital value of car, duration of car availability to employee and incurred minor repairing expenses which are reimbursed by employer (Wilmot, 2014).

Rapid Heat has provided the right to employee Jasmine to use the car for her personal work. It indicates that offered car for personal use is extension of car fringe benefit. Therefore, the FBT payable will be applicable on Rapid Heat. The procurement value of car is $33,000 which is paid by Rapid Heat. Moreover, the car has been subjected to some minor repairing which involves an additional expense of $550 that has been paid by Rapid Heat. The car has been offered on May 1, 2017 and therefore, the total duration will be the whole FY 2018 except the 30 days of April 2017. This is because the car has issued on 1 May not on 1 April. Thus, total duration will be 335 days. Days which have been spent in minor repairing (five days) and when the car was parked at airport (ten days) would also not be deducted from total duration (Deutsch et. al., 2015).

Analysis of CGT implications for assets including vacant land, antique bed, painting, shares, and violin

The FBT implication imposed on Rapid Heat which would be computed based on the total capital value of car and total duration of availability of car for personal use of Jasmine (Nethercott, Richardson and Devos, 2016).

Interest rate is considered a key decision variable indeciding whether the employer has doled out loan fringe benefit or not. It is because the loan should be issued @ statutory interest rate which is announced by Reserve Bank of Australia (RBA) for every financial year. The loan which has been provided to employee lower than this statutory interest rate will be categorised as extension of loan fringe benefit to employee. It implies that FBT would be payable by employer based on the loan interest saving and period of utilization of loan by employee (Woellner et. al., 2017).

Rapid Heat has doled a loan ($500,000) to Jasmine. No FBT would be payable when this has been issued at statutory interest rate because in that case no loan fringe benefit has been provided to Jasmine. Further, if loan has issued at lower rate as per the comparison of statutory interest rate then FBT would be payable.

The set interest rate by Rapid Heat = 4.25% pa

Statutory interest rate set by RBA = 5.25% pa (TD 2017/3)

The loan has been provided to Jasmine at lower than statutory interest rate and hence, it has been categorised as extension of loan fringe benefit to Jasmine. It implies that FBT would be payable by Rapid Heat based on the loan interest saving and period of utilization of loan by employee (Wilmot, 2014).

The expenses which are of personal nature of employee must be paid by the concerned employee only. However, there is a case on which the employer provides benefits to their employee so that the employee can easily pay their personal nature expenses. The help of the employer is non-cash type and is known as expenses fringe benefit as discussed in detail in s. 20, FBTAA 1986 (Reuters, 2017).

Rapid Heat manufactures electric heater and supplies to customer for a fixed price of $2,600 per electric heater. However, the price has been reduced to $1,300 when the customer of electric heater is Jasmine. This seems more obvious that Rapid Heat has provided less price of heater to Jasmine so that the personal nature expenses can be decreased. This benefit to employee by

employer would be expenses fringe benefit. The FBT implication is raised on Rapid Heat which would be computed based on the total saving of the personal nature of Jasmine.

(b) It is apparent that Jasmine now uses the total loan amount. She has now invested the lent amount $50,000 to buy the shares of Telstra which earlier was utilised by her husband. The dividend income that may be received from shares will contribute to the assessable income of Jasmine as highlighted in s. 6(5) ITAA 1997. Therefore, the s.20 FBTAA will be enforceable and the increment deduction will be issued to the Rapid Heat on the account of $50,000 utilization for investment purposes by Jasmine (Krever, 2017).

References

Barkoczy, S. (2017) Foundation of Taxation Law 2017. 9^th ed. Sydney: Oxford University Press.

Deutsch, R., Freizer, M., Fullerton, I., Hanley, P., and Snape, T. (2015) Australian tax handbook.  8th ed. Pymont: Thomson Reuters.

Gilders, F., Taylor, J., Walpole, M., Burton, M. and Ciro, T. (2016) Understanding taxation law 2016. 9^th ed.  Sydney: LexisNexis/Butterworths.

Hodgson, H., Mortimer, C. and Butler, J. (2016) Tax Questions and Answers 2016. 6^th ed. Sydney: Thomson Reuters.

Krever, R. (2017) Australian Taxation Law Cases 2017. 2^nd ed. Brisbane: THOMSON LAWBOOK Company.

Nethercott, L., Richardson, G., & Devos, K. (2016)  Australian Taxation Study Manual 2016. 8^th ed. Sydney: Oxford University Press.

Reuters, T. (2017) Australian Tax Legislation (2017). 4^th ed. Sydney. THOMSON REUTERS.

Sadiq, K., Coleman, C., Hanegbi, R., Jogarajan, S., Krever, R., Obst, W., and Ting, A. (2015) Principles of Taxation Law 2015. 7th ed. Pymont: Thomson Reuters.

Wilmot, C. (2014) FBT Compliance guide. 6^th  ed. North Ryde: CCH Australia Limited.

Woellner, R., Barkoczy, S., Murphy, S. and Pinto, D. (2017). Australian Taxation Law Select Legislation and Commentary Curtin 2017. 2^nd ed. Sydney: Oxford University Press Australia.