According to the rules defined by the Australian Taxation Office in relation to fringe benefits provided by employers, if the employer makes payment for any expense either on behalf of employee or for the benefit of the employee, then it would be regarded an expense payment fringe benefit provided by the employer and employer shall be required to pay FBT o same. The value of an expense payment fringe benefit is the amount of expense that is borne by the employer (ATO, n.d. a). In this case, as Mason’s employer has paid his course fees of $ 12000, which can be rightly considered as a fringe benefit and Mason’s employer would be required to pay FBT on the same.
Grossed up value of expense payment fringe benefit
= 12000*1.8868= $22641.6
Further, these rules say that if an employer provides a rent-free accommodation to their employee or provides accommodation at a rent which is below the market rent for that premises/accommodation, then the same shall be considered to be housing fringe benefits paid by the employer and the employer would be required to pay fringe benefit tax on the taxable value of those housing fringe benefits (ATO, n.d. b). In this case, as Mason’s employer has provided him a unit apartment at a reduced rent of $ 100 per week while market rental value is $500 per week, this is a housing fringe benefit and FBT shall be payable on same.
Grossed up value of housing fringe benefit = ($500-$100)* 52*1.8868= 39245.44
Total FBT payable = (22641.6+39245.44)*47% = $29087
(It is assumed that Mason’s employer is not entitled to claim GST credits, hence a lower gross up rate has been used)
Net Capital Gain using discount method
Sale Value $1400000
Less: Cost Base (Note 1) $210000
Total Capital Gain (Before Discount) $1190000
Less: 50% discount $595000
Net capital gain after discount $595000
Cost of land $110000
Construction Cost $100000
Total Cost Base $210000
Net Capital Gain using Indexation Method
Sale value $1400000
Less: Indexed Cost Base (Note 2) $554652
Net Capital Gain $845348
Cost of land
Total Indexed Cost Base $554652
b) As per the Capital gains rules of the Australian Taxation Office, the discount method of capital gains is only available to an individual, trust and complying super fund. The benefit of discount is not available to an assessee that is registered as a company. Therefore, if the owner of the property is a company, then the discount method of capital gains would not be available to them, so the owner would have to use the indexation method only for calculating their capital gains. Hence, they would not have the choice to choose between the 2 methods and their capital gain would be $ 845348 as per indexation method.
According to the GST rules, every business entity that is carrying on its operations in Australia is required to be registered for Goods and Services Tax if its GST Turnover is above the threshold of $75000 (ATO, n.d. d). Further, every business entity that is registered for Goods and Services Tax is required to charge GST on every taxable sale made by it and is entitled to claim the input tax credit on the GST paid by them on their purchases. The said rules also provide that when a customer returns the goods purchased by them to the seller, this should be regarded as a cancellation of previous sale, and both the seller and the buyer would have to record an adjustment in their next activity statements to be filed with the Australian taxation Office (ATO, n.d. c). As the seller would have paid the GST of sale made by them, they will be required to make a decreasing adjustment in their next activity statement to claim the credit of GST that was paid by them on the sale that was cancelled later. On the other hand, the buyer would have to make a increasing adjustment in their next activity statement to reverse the input tax credit that was claimed by them in relation to the purchase which was cancelled later.
In the given case of Bowens Pty Limited and Builders Choice Pty Ltd both the companies are required to be registered for GST as their annual turnover is greater than the threshold of $75000 and lodge monthly activity statements with the ATO. Both these companies are required to charge GST on sales made by them and are also authorized to claim input tax credits on purchases made by them. Hence, in view of this Builders Choice Pty Ltd must charge GST on each sale of concrete mixers that was made by it to Bowens Pty Ltd. Bowens Pty Ltd would be able to claim the input tax credits on GST paid by them on the purchases from Builders Choice. Further, Bowens Pty Ltd will also be require to charge GST on sale price (which would be at 200% mark up of purchase price) of its sale of mixers to its customers.
When the 12 mixers are returned to Builders Choice Pty Ltd, it will record a decreasing GST adjustment in its next BAS, while Bowens Pty Limited will have to record an increasing adjustment in its next BAS to reverse the input tax credit that was previously claimed by them on the purchase of these 12 concrete mixers.
The section 47 of the Income tax Assessment Act provides rules in relation to distributions by liquidators. As per this section, any distributions made by the liquidators of the company at the time of winding up or liquidation of the company, out of income earned by the company, whether before liquidation or during the course of liquidation, shall be regarded as dividend paid by the company to its shareholders, to the extent such payments are not meant towards repayment of capital (Wolters Kluwer, n.d.). This means that those distributions which are made towards repayment of capital shall not be included as dividends received by shareholders but would be subject to capital gains as per the capital gains rules of the Australian Taxation Office. In this case, Paul has received a total distribution of $ 7200 from Watson Co which is into liquidation, and $ 3000 included in these distribution represents unfranked dividends paid by the Company to Paul while the remaining $ 4200 ($7200- $3000) represents payment made towards replacement of loss of paid up share capital. Section 47 of ITAA is applicable on Paul’s situation, and hence the amount of $3000 received by Paul shall be taxable in his hands as dividends as it has been specially provided that the said amount of $ 3000 is unfranked dividend as provided by section 47 (1) of ITAA 1936.
The remaining amount of $4200 that was received by Paul towards repayment shall be subject to capital gains as it would be regarded as a CGT event under the CGT rules. As per the CGT rules, any net capital gain made on these shares would be included in assessable income, however, a assessee is not entitled to claim a capital loss on these shares (ATO, n.d.e). Paul would be required to include net capital gain of $ 100 in his assessable income (as computed below)
Calculation of Capital Gain
Capital Payment received $4200
Less: Cost base (indexation not available) $4000
Capital Gain ($4200-$4000) $ 200
Less: CGT discount: ($100)
Net Capital Gain ($100)
The total income derived by a partnership firm is not taxed in the hands of the firm but is distributed to the partners in the agreed ratio (as provided in the partnership agreement). The partners are required to pay tax on their total taxable income (including the share of profits from partnership) as per the rates that are applicable to their total taxable income as per the tax slab. It has been provided by section 92 of Income Tax Assessment Act 1936 that share of income that is earned by a partner from their partnership firm would consists of that proportion of the income of the firm that pertains to the period when the partner was an Australian resident. The section 92 further says that, the share of partner’s income would also include that proportion of the income of the firm that pertains to the period when the partner was a non resident of Australia but the income was earned from Australian Sources (Wolters Kluwer, n.d.b). This was also clarified by the tax determination TD 2015/D2 that was issued by the ATO (The Tax Institute, 2015).
In this case, the total income of the partnership firm of $300000 would be divided equally among both the partners. The fact that 40% of income was derived from sale of sanitizers to retailers in New Zealand would not render the said income to be not assessed in Australia. It would still be included in total income of partnership and both partners would be required to report this in their tax return and pay tax as per the tax rates applicable to them.
Ato. (n.D. A). Expense Payment Fringe Benefits. Retrieved from Https://www.Ato.Gov.Au/general/fringe-Benefits-Tax-(fbt)/types-Of-Fringe-Benefits/expense-Payment-Fringe-Benefits/
ATO. (n.d. b). Housing fringe benefits. . Retrieved from https://www.ato.gov.au/general/fringe-benefits-tax-(fbt)/types-of-fringe-benefits/housing-fringe-benefits/
ATO. (n.d. c). GST and product recalls. Retrieved from https://www.ato.gov.au/Business/GST/In-detail/Rules-for-specific-transactions/GST-and-product-recalls/
ATO.(n.d. d). Registering for GST. Retrieved from https://www.ato.gov.au/Business/GST/Registering-for-GST/
ATO.(n.d. e). Types of CGT events. Retrieved from https://www.ato.gov.au/General/Capital-gains-tax/Selling-an-asset-and-other-CGT-events/Types-of-CGT-events/
ATO.(n.d. f). The discount method of calculating your capital gain. Retrieved from https://www.ato.gov.au/General/Capital-gains-tax/Working-out-your-capital-gain-or-loss/Working-out-your-capital-gain/The-discount-method-of-calculating-your-capital-gain/#:~:text=Discount%20percentage&text=You%20can%20reduce%20the%20capital,and%20eligible%20life%20insurance%20companies.
The Tax Institute. (2015). Receipt of individual interest in net income of partnership – draft TD 2015/D2. Retrieved from https://www.taxinstitute.com.au/news/receipt-of-individual-interest-in-net-income-of-partnership-draft-td-2015/d2
Wolters Kluwer. (n.d.a). Income Tax Assessment Act 1936. Retrieved from https://iknow.cch.com.au/360document/atagUio700196sl24430314/income-tax-assessment-act-1936-section-47-distributions-by-liquidator/overview
Wolters Kluwer. (n.d.b). Income Tax Assessment Act 1936: Section 92 Income and deductions of a Partner. Retrieved from https://iknow.cch.com.au/360document/atagUio700683sl24441150/income-tax-assessment-act-1936-section-92-income-and-deductions-of-partner/overview
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