Over the last 12 months, Eric acquired the following assets: an antique vase (for $2,000), an...

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Over the last 12 months, Eric acquired the following assets: an antique vase (for $2,000), an antique chair (for $3,000), a 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.
	
Document Preview: Taxation Theory, Practice & LawMaximum marks: (20%)QUESTION 1Over the last 12 months, Eric acquired the following assets: an antique vase (for $2,000), an antique chair (for $3,000), a 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. 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 instalments). The loan was provided on 1 April 2016. Brian used 40% of the borrowed funds for income-producing purposes and met all his obligations in relation to 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 instalments? What would happen if the bank released Brian from repaying the interest on the loan? 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? Question 4What principle was established in IRC v Duke of Westminster [1936] AC 1? How relevant is that principle today in Australia?Question 5Bill owns a large parcel of land on which...

David · Accepted Answer

QUESTION 1 
As per the Australian taxation all assets are liable to the capital gain tax unless they are 
specifically excluded by the taxation law. According to the exemption list the following assets 
are excluded from the capital gain taxation: 
- Main Residence and Car or Motorcycle 
- Depreciating assets 
- Any asset acquired before 20 sept 1985. 
- Personal use items acquired for less than $ 10,000 
- Collectables acquired for $ 500 or less 
In this case Eric has acquired the asset and sold in the 12 months so they are liable to capital gain 
tax.  Eric acquired an antique vase and antique chair for $2,000 and $ 3000 which is considered 
as an asset for the purpose of CGT (capital gain tax) as according to the above mentioned 
provision the collectables if acquired for more than $500 then it is liable to CGT. So the capital 
gain from the sale would be $3000-$2000 = $1000 gain, from the antique chair $ 1000- $3000= 
$2000 is the capital loss, so from the collectables the net loss will be $ 1000. The painting will 
not be an asset for the purpose of CGT as it is acquired for $9000 only. The capital gain from the 
home sound system will be $ 11000- $ 12000 = $1000 capital loss. From the listed shares the 
capital gain or loss will be $ 20,000- $ 5000= $ 15,000 gain. 
There is more provision in the Capital gain tax is the loss or gain from the collectables and the 
personal use assets can be set off from their respective heads only not from any other gain or 
loss. The loss shall be carried forward to the future years also.
Question 2 
This case is a fringe benefit tax, as in Australian taxation law if any employer provides an 
interest free loan or loan at a lower rate of interest than it amounts to fringe benefit tax. A lower 
tax rate will be defined as the rate which is less than the rate prevailing in the market. From the 
taxation perspective the taxable value of a loan fringe benefits is the difference between the 
statutory interest that is prevailing in the market and the interest at which loan is offered to the 
employee.

Over the last 12 months, Eric acquired the following assets: an antique vase (for $2,000), an antique chair (for $3,000), a painting (for $9,000), a home sound system (for $12,000), and shares in a...

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