QUESTION 1
Over the last 12 months, Eric acquired the following assets: an antique vase (for $2,000), an antique chair (for $3,000), painting (for $9,000), a home sound system (for $12,000), and shares in a listed company (for $5,000). Last week he sold these assets as follows: antique vase (for $3,000), antique chair (for $1,000), painting (for $1,000), sound system (for $11,000) and shares (for $20,000). Calculate his net capital gain or net capital loss for the year.
| Item | Acquiring Price in Dollars | Sale Price in Dollars | Type of assets |
| antique vase | 2000 | 3000 | Collectable |
| antique chair | 3000 | 1000 | Collectable |
| painting | 9000 | 1000 | Collectable |
| home sound system | 12000 | 11000 | Personal Use |
| shares in a listed company | 5000 | 20000 | Other Assets |
Total Acquiring Price of all the assets = Price of (antique vase + antique chair + painting + home sound system + shares in a listed company).
Total Acquiring Price of all the assets = 2000 + 3000 + 9000 + 12000 + 5000 = $22,000
Total Sold Price of all the assets = Sold Price of (antique vase + antique chair + painting + home sound system + shares in a listed company).
Total Sold Price of all the assets = 3000 + 1000 + 1000 + 11000 + 20000 = $35,000
Net capital gain = $35,000 – $22,000 = $13000.
Collectable capital gain = 1000 – 1000 – 8000 = – 8000
Section 108-10 (Collectable losses can only be carry forward using amount)
Personal user assets capital 1000 = 1000 (Disregral)
Section 108-20(1)
Share other assets capital gain =$15000
Capital gain = 15000 / 2 = 7500
Question 2
Brian is a bank executive. As part of his remuneration package, his employer provided him with a three-year loan of $1m at a special interest rate of 1% pa (payable in monthly installments). The loan was provided on 1 April 2016. Brian used 40% of the borrowed funds for income-producing purposes and met all his obligations about the interest payments. Calculate the taxable value of this fringe benefit for the 2016/17 FBT year. Would your answer be different if the interest was only payable at the end of the loan rather than in monthly installments? What would happen if the bank released Brian from repaying the interest on the loan?
Total Loan taken by Brian = $1,000,000
Total Interest Rate in % = 1% per annum
Total Interest Rate = $10,000 per year
Total interest rate per year = 10,000 / 12 = $833.3
Total Amount Brian used from the borrowed fund = $400,000
Total Income from the borrowed fund = 10,000
Between 1 April 2016 and 31 March 2017 (the 2017 FBT year), Brian total income = $10,000
FBT Benchmark Interest Rate
| FBT Year Ending | Benchmark Interest Rate | Reference |
| 31-Mar-18 | 5.25% per annum | TD 2017/3 |
| 31-Mar-17 | 5.65% per annum | TD 2016/5 |
| 31-Mar-16 | 5.65% per annum | TD 2015/8 |
| 31-Mar-15 | 5.95% per annum | TD 2014/5 |
| 31-Mar-14 | 6.45% per annum | TD 2013/8 |
| 31-Mar-13 | 7.40% per annum | TD 2012/7 |
| 31-Mar-12 | 7.80% per annum | TD 2011/6 |
| 31-Mar-11 | 6.65% per annum | TD 2010/6 |
| FBT year | FBT rate |
| Ending 31 March 2018 | 47% |
| Ending 31 March 2016 and 31 March 2017 | 49% |
The rate of FBT for the year ended 31 March 2017 is 49%1.
Total Taxable value = 10,000(1-0.49)
Total Taxable value = 10,000(0.51)
Total Taxable value = $5100
There will be no effect whether the interest is paid per year or by month wise.
If the bank released Brian from repaying the interest on the loan, Brian has to pay the total taxable value because Brian has earned a profit of $10,000 from that loan and this profit is taxable. So Brian has to pay the taxes.
Question 3
Jack (an architect) and his wife Jill (a housewife) borrowed money to purchase a rental property as joint tenants. They entered into a written agreement which provided that Jack is entitled to 10% of the profits from the property and Jill is entitled to 90% of the profits from the property. The agreement also provided that if the property generates a loss, Jack is entitled to 100% of the loss. Last year a loss of $10,000 arose. How is this loss allocated for tax purposes? If Jack and Jill decide to sell the property, how would they be required to account for any capital gain or capital loss?
If the loss is allocated to the tax purposes, then all of the taxes should be paid to be Jack (Accounting for a Partnership law) because Jack is entitled to all the loss according to the agreement and Jack has to bear the losses and allocation of tax purposes.
If Jack and Jill decide to sell the property, the total capital should be distributed between jack and his housewife Jill with the proportion of 10% and 90%.
But if the property is the sale on the loss then Jill will get her all investment and Jack has to bear all the losses in the sale of the property.
Below are the few rules related to the Accounting for a Partnership
The input of funds. When a companion capitalizes assets in a partnership, the business contains a withdrawal to the cash account and a credit to a separate investment account. An investment account accounts the stability of the funds from and division to a partner according to the contract. To evade the commingling of info, it is usual to have a distinct wealth account for each spouse.
Withdrawal of funds: When a companion excerpts funds from a commercial, it includes a credit to the cash explanation and a withdrawal to the partner’s wealth account.
Withdrawal of assets. When a companion excerpts possessions other than money from commerce, it includes a credit to the account in which the asset was documented, and a deduction to the partner’s capital account2
Question 4
What principle was established in IRC v Duke of Westminster [1936] AC 1? How relevant is that principle today in Australia?
In IRC v. Duke of Westminster [1936] AC 1, Duke of Westminster implemented an action of covalent with his associated employers comprising of local collaborators, gardeners, etc. In the precise action of covalent, the Duke assured to recompense the employer’s money for their facilities. A note was inscribed and directed to the employers averring that the Duke would recompense them payments on topmost of added sums, if any, as a sum for their facilities as local assistants. The Duke strained to entitlement such reimbursement for a tax presumption as a procedure for tax evading3
A deed is an agreement alike lawful text necessitating a joint contract of further more than one individual which is usually castoff to give a right, for example, the transmission of property or assets. The key modification amongst a deed and an agreement is that a deed is an inscribed contract that must be engaged and closed under observer of a 3rd party, frequently an acquitted party such as a advocates, separately from the contract must be in inscription, a deed is different from a contract a deliberation is not obligatory to be en-force able and a 3rd party recipient can vigor the deed to be implemented. In some circumstances, a deed has a twofold as long en-force-able retro as a simple agreement.
The Duke of Westminster case recommended that tax evasion can be allowable as long as it tracks the decree law recognized; the straightforward norm of the setup of the action of covalent can decrease the Duke’s tax obligation if it is permitted and only building right for one year of yearly reimbursement complete3.
Question 5
Bill owns a large parcel of land of which there are many tall pine trees. Bill intends to use the land for grazing sheep and therefore wants to have it cleared. He discovers that a logging company is prepared to pay him $1,000 for every 100 meters of timber they can take from his land. Leaving aside any capital gains tax issues, advice Bill as to whether he would be assessed on the receipts from this arrangement. Would your answer be different if he was simply paid a lump sum of $50,000 for granting the logging company a right to remove as much timber as required from his land?
Price for every 100 meter of timber = $1000
Price of 100 * 50 meter of timber = 1000 * 50
Price of 5000 meter of timber = $50,000
It depends upon how much tall pine trees are there in his large parcel of land. If Bill has more than 5000 meters of tall pine trees on his land, then Bill should get paid for every $1,000 of every 100 meters of timber, as this will pay him more than $50,000. Bill has to first estimate by consulting an expert who can correctly measure how many meters of tall pine trees are there and if the estimation increases the 5,000 meters of pine trees, then the bill should sell them for $1000 for every 100 meters of the tall pines. If the estimation is less than 5,000 meter, then the bill should sale all the pines for $50,000.
References
- Office AT. Reportable fringe benefits – facts for employees. https://www.ato.gov.au/General/Fringe-benefits-tax-(FBT)/In-detail/Employees/Reportable-fringe-benefits—facts-for-employees/?default. Accessed September 16, 2017.
- Partnership accounting. AccountingTools. https://www.accountingtools.com/articles/2017/5/5/partnership-accounting. Accessed September 16, 2017.
- The United Kingdom taxation system. https://www.lawteacher.net/free-law-essays/equity-law/united-kingdom-taxation-system-equity-law-essay.php. Accessed September 16, 2017.
