Impacts of a Cut to Company Tax in Australia

Question: Describe about the Impacts of a Cut to Company Tax in Australia. Answer: First case study Capital gain is defined as difference between capital proceeds and acquisition cost of capital gain tax asset. Capital gain is calculated by using three methods- discount method, indexation method and residual method (Dixon Nassios., 2016). The assets that are hold for more than 12 months are calculated by discount method. Indexation method applies to the assets that are held for 12 months or more that are earlier tan 12th September, 1999. The assets which are hold for less than 12 months are calculated by residual method. The items that are excluded from profit on capital assets sale are- The property which are acquired before 20th September, 1985 are excluded. It includes- vehicles, furniture and other assets. The loss occurred due to capital gain and its carrying forward On the basis of the term of the capital gain two kinds of capital loss are there- long term and short term. In long term capital loss, only long term capital loss is set off. It can be carried to many assessment years. Short term capital loss can be estimated form either long term loss or short term loss. It can also be taken forward for indefinite years. The case scenario tells that, Mr. Dave Solomon is residing in a two storied buildings since last 30 years and he bought that at a cost of $70,000. On 27th June it was sold at $8, 50,000 to someone else. The buyer gave $85, 000 in advance as the land was sold as an auction. Afterwards it was found that, the owner does not carry sufficient funds to make full payment of gain the ownership of the property. So, the money was fortified and was considered as income from other sources. Calculation from capital gain Sale proceed $8, 65,000 This amount is exempted as per the CST I.E. Family home exemption rules Long Term Capital Gain Nil He purchased painting of Pro- Hart at $15,000 on 20th September, 1985. Later it was sold at an exchange of amount $1, 25, 000. Thus, capital gain is: Sale Proceed $ 1, 25,000 Less: Indexed cost of acquisition 15, 000*123.4/71.3 = $ 25, 961 Long Term Capital Gain $ 150, 961 (c) A famous car was bought with an amount of $ 1, 10, 000 on 2004. On the same year, it was sold at an amount of $60, 000 to a boat broker on 1st June. Capital gain is follows: Sales proceeds $ 60, 000 Less: Indexed cost of acquisition $ 1, 10,000 Long Term Capital Loss $ 50, 000 (d) He bought shares with amount of $ 75, 000 on 10th January. Loan amount of $ 70,000 was borrowed from bank. $ 5, 000 was paid as interest while $ 250 was paid in stamp duty for purchasing the shares. He sold the shares to new mining company at an amount of $ 80, 000 on 5th June. He needs to pay $ 750 as brokerage fees. As per the income tax law, interest on loan cannot be included within cost of acquisition. Solution As per the tax return policy, it was found that Mr. Dave had to face financial loss of $10, 000. So, it can be said that net long term capital loss for the present year is, $1, 04, 961- $10, 000 = $94, 961. Part- B solution Net capital gain is difference between total gain achieved by selling of capital assets and total loss achieved by selling of assets. Here lower rate of tax rate is applicable. Capital tax is part of assessable income. So, on gaining profit he should have paid the tax on the profit achieved by selling of capital assets. The profit he got is directly added to his personal superannuation fund. Records should be kept for whole ongoing transactions, purchasing receipts and other profits and losses. Brokerage and repair fees should be also tracked and recorded. Part- C solution Net capital loss is total loss achieved by selling of capital assets including loss of previous year. For assesse it seems impossible to set off te capital loss so it is brought forward for next year. But for uncertain times capital loss can be carried forward. In other way, it can be said that the assesse own the right of deducting the losses he faced according to her choice but they dont have the right of choosing set off capital losses with respect to capital gain. If Dave was found to be receiving less profits then he can sell more of his assets and get profit which will be considered as for is personal superannuation fund. Case study- 2 Periwinkle Pty. Ltd. sells bathtub and is manufacturer of bathtubs. Emma one of the office employee got a car on 1st May, 2015 from office for her working purpose. In between 1st may, 2015 to 31st march 2016, se travelled 10, 000 kilometers distance. She gave amount of $ 550 for repairing. She did not use it for 10 days and was found to be parked at airport. On 1st September, company gave her an amount of $ 5, 00,000 as loan at an interest rate of 4.45 %. She purchased holiday home for about $ 4, 50,000 and remaining balance she gave to her husband. She bought bathtub which cost her around $ 13, 00. Part- A solution Fringe benefit tax is the tax employers had to pay for the benefit they are getting from the company (Emery., 2016). Benefits like loans, employees relocation expense are exempted from this tax. FBT can be calculated by using methods like cost basis and statutory formula. As per the question, Base value of the car $ 33, 000 Period that the car provided as FBT =335-5=3 The rate was observed at about 20%. Calculation of tax fringe benefit: Benchmark rate of interest = 5.95% The interest rate at which the company offered the loan = 4 .45% Therefore the fringe benefit tax = 5,00,000* 1.50% = $7,500 Part B solution Emma bought the bathtub at a big amount which was sold to general public at less amount. i.e. ($2600-$1300=$1300) is her fringe benefit liability. Reference Dixon, J. M., Nassios, J. (2016).Modelling the Impacts of a Cut to Company Tax in Australia(No. g-260). Victoria University, Centre of Policy Studies/IMPACT Centre. Emery, J. (2016). Decoding the Regulatory Enigma: How Australian Regulators Should Respond to the Tax Challenges Presented by Bitcoin.Tax and Transfer Policy Institute Working Paper-1/2016.