Calculations of Net Capital Gain or Loss

Discuss about the Investment Taxation and Portfolio Performance.

As per the case study, it can be said that Fred is a inhabitant of Australia. It has been found that Fred does not control any trading business venture; rather the holiday home that was sold in the recent year was his property. It has also been implicated that Fred did not develop any revenue from the particular property previously.

The calculation of the net capital gain or loss for the individual name Fred has been calculated in the following table for the present fiscal period under both “Discounted Methodology” and “Indexation Methodology” (Wiseman 2016).

Name of Taxpayer : Fred
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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 :
Consideration of sales		800000		800000
Less : Cost Base of the Asset	100000		148043
Legal Fees on Total sales (Exclusive of GST)	1000		1000
Commission regarding Real Estate Agent	9000		9000
Purchase Stamp Duty	2000		2961
Legal Fees for Purchasing	1000		1480
Construction Cost fo developing Garage	20000	133000	23853	186338
Capital Gain on Sale		667000		613662.3
Less : 50% exclusion on Capital Gain		333500
Capital Gain that is taxable (A)		333500		613662
Less : Capital Loss of Prior Year		10000		10000
Total Capital Gain that is taxable		323500		603662

• It has been found from the case study that Fred occupied the property after September 20 in the year 1985, thus, it is counted as CGT assets and falls under taxable capital gain or loss calculation (Kaldor 2014).
• The particular property was attained prior to the period September 21^st in the year 1999 (Davidson and Evans 2015). Thus, the various costs along with cost base that occurred during the time period in order to buy the property can be estimated under the methodology of indexation.
• Fred also constructed garage on the particular asset and thus it is counted as an extensive development. Thus, the cost for constructing the garage should also be occupied within the removable costs (Bryan 2012). The garage was constructed ahead of September 21^st in the year 1999 and this can be assessed under the procedure of indexation.
• Opined to the regulations of Australian taxation, Fred can pertain any of the two procedures i.e. the methodology of indexation and the discounted procedure for the calculation of capital loss or gain (Sikes 2014). The reason behind this is that the particular property was attained prior to September 21^st in the year 1999.
• The costs that took place for selling the assets should be exempted from the total sales deliberation in order to identify the net capital loss or gain.
• As per the discounted methodology, the tax provider gets an exemption of 50% on the total capital gain only if the property was purchased by the tax provider himself or herself only, for over 12 months (Yinger, Bloom and Boersch-Supan 2016). Here Fred attained the particular holiday home for long 19 years, thus, Fred can claim an exemption of 50% under the process of discounted methodology.
• The stocks are considered as other properties (for instance, real estate property). Thus, the total capital loss on sale of stocks in earlier period is adjustable in the present year with the total capital gain by selling the house property.

It can be said from the above calculation that Fred’s total capital gain for the recent year would be $323500 as per discounted methodology and it would be $603662 as per the indexation methodology. Fred has to pay relatively lesser amount of tax on capital gain under discounted methodology, thus, he should consider this particular process for calculating the net capital gain.

As per the regulations of Australian Taxation, total capital loss by selling any collectables is eligible for adjustment with the amount of capital gain from the collectables (Woellner et al. 2016). As per the case study, the antique vase is the collectable.

Therefore, if the total capital loss of prior year might arise by selling the particular vase, then the amount is in adjustable to the total capital gain by selling the house property (Hines 2015). In this particular situation, the total capital gain of Fred is $333500.

As per the case study, the organization Periwinkle Pty. Ltd is considered as a company of Australia. Thus, this firm will not be permitted for tax benefits, given to smaller businesses. The specified firm has given various benefits to its staff named Emma, who is also supposed to be a resident of Australia. Therefore, the firm is permitted to provide benefits of Fringe tax. The consequences of FBT for such different benefits are as follows:

Emma utilizes the car for both private and official purpose, thus, the car benefit should be involved as benefit of car fringe (Ato.gov.au 2016).

Additionally, at the period of visiting foreign, Emma had parked her car at the airport instead of parking it in the location of the company. For annual maintenance, the particular car was kept in garage and not for unprepared repairing. Thus, the total numbers of days for which the car was kept unused should be involved for the calculation of FBT (Yagan 2015).

Significant Observations

The fringe benefit of the car for the firm has been calculated for Emma as per the statutory method.

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
Annualized Kilometers	(A x B/C)	10892.857
Statutory Rate as per Annualized Km.	E	20.00%
Cost Base	F	$33,000
No. of Days obtainable for Private Use	C	336
No. of days in FBT Year	B	366
Total  Taxable Value	(FxExC)/B	$6,059.02

The interest that is provided on loan to the staff by the employer should be counted as the benefit for fringe tax (Dowd, McClelland and Muthitacharoen 2012). The loan interest is 4.45% that is lower than 5.95%, the benchmark interest of loan. Thus, FBT should be measured based on actual rate of interest (Ato.gov.au. 2016).

The FBT for loan interest that is given to the staffs has been calculated as follows:

Calculation of Interest on Loan for FBT:-
Particulars		Details
Loan for Staff	A	$500,000
Benchmark Interest Rate	B	5.95%
Actual Rate of Interest	C	4.45%
Taxable Value Interest on Loan	D = (AXC)	$22,250

The company is eligible for claiming for FBT for rate of special discount that is given to its staffs on its own goods. On the basis of 75% of the selling price (normal), the FBT should be measured (Bergstresser and Pontiff 2013). The calculations are as follows: 

Calculation of Special Discount for FBT:-
Particulars		Amount
Market Price of Bathtub	A	2600
Special Price for Staff	B	1300
Taxable Value of Bathtub	C=A x 75%	1950
Taxable Value of the Benefit	C – B	650

The car costs are comprehensive of GST, thus, all FBTs have been equalized by multiplying the value of FBT with gross increased rates (Engström et al. 2015). The rate of fringe tax benefit is 49% for general organizations. The FBT liability of the said firm is calculated as follows:

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
	$	$
Benefit on car	6059.02
Loan Interest		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 amount of Taxable Fringe Benefit	57906.79
	G = E + F
Rate of Fringe Benefit Tax	49%
	J
Fringe Benefit Tax Liability	28374.33
	K = G x J

Emma should purchase the stocks herself and should earn dividend from these. Then this would be permitted to pay tax on this income. Here, the total value of FBT and the liability of the staff would be comparatively lower based on the income amount that is earned by the staff from the loan amount (Slemrod 2013).

Reference

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].

Bergstresser, D. and Pontiff, J., 2013. Investment taxation and portfolio performance. Journal of Public Economics, 97, pp.245-257.

Bryan, J., 2012. Individual Income Tax Returns, 2010. Statistics of Income Bulletin, 32, pp.5-78.

Davidson, P. and Evans, R., 2015. Fuel on the fire: Negative gearing, capital gains tax & housing affordability. ACOSS Papers, p.29.

Dowd, T., McClelland, R. and Muthitacharoen, A., 2012. New evidence on the tax elasticity of capital gains. Unpublished Paper. June.

Engström, P., Nordblom, K., Ohlsson, H. and Persson, A., 2015. Loss evasion and tax aversion. American Economic Journal: Economic Policy, 7, pp.132-164.

Hines Jr, J.R., 2015. Taxing Sales of Depreciable Assets. Mich. Bus. & Entrepreneurial L. Rev., 5, p.161.

Kaldor, N., 2014. Expenditure tax. Routledge.

Sikes, S.A., 2014. The turn-of-the-year effect and tax-loss-selling by institutional investors. Journal of Accounting and Economics, 57(1), pp.22-42.

Slemrod, J., 2013. Buenas notches: lines and notches in tax system design.eJournal of Tax Research, 11(3), p.259.

Wiseman, S.A., 2016. Property or Currency: The Tax Dilemma behind Bitcoin. Utah L. Rev., p.417.

Woellner, R., Barkoczy, S., Murphy, S., Evans, C. and Pinto, D., 2016.Australian Taxation Law 2016. Oxford University Press.

Yagan, D., 2015. Capital tax reform and the real economy: The effects of the 2003 dividend tax cut. The American Economic Review, 105(12), pp.3531-3563.

Yinger, J., Bloom, H.S. and Boersch-Supan, A., 2016. Property taxes and house values: The theory and estimation of intrajurisdictional property tax capitalization. Elsevier.