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Calculate Fred’s net capital gain for the current year. Assume he also has a net capital loss from last year of $10,000 arising from the sale of shares.

I. Capital Gains Tax

The date of disposal is assumed to be the date the contract was signed, i.e. August 2015. Cost base elements include:

  1. Acquisition costs: $100,000 incurred in March, 1987.
  2. Incidental costs:
    • Acquisition in March 1987 included $1,000 legal fees and $2,000 stamp duty. These costs were incurred before the GST regime was established, so adjustment for GST is not required.
    •  Disposal in August, 2015 include $1,100 legal fees and $9,900 real estate agent‟s commission. The gross costs inclusive of GST are not included in the cost base as Fred cannot obtain input tax credits. [Note: Fred is not entitled to claim input tax credits for the GST as he is not (or not required to be) registered for GST. Even if he registered, the sale of residential premises will be deemed to be an input taxed supply.]
  3. Enhancement costs incurred by building a garage costing $20,000 in January, 1990. Fred may choose to calculate the cost base of the property by using either the Indexation or Discount method.

1) Frozen indexation method (S. 102-5, ITAA 97)

To calculate the cost base of the property by using the frozen indexation method, Fred must first calculate the acquisition cost, incidental costs and the enhancement cost, as set out below:

  1. Acquisition costs = $100,000 x (CPI Sept 99 quarter/ CPI Mar 87 quarter)
      = $100,000 x (68.7/ 45.3)
      = $100,000 x 1.517
    = $151,700
  2. Incidental costs: Indexation for the incidental costs at the time of sale is not available as they were incurred after 21st September 1999.
    March 1987 stamp duty = $2,000 x (CPI Sept 99 quarter/ CPI Mar 87 quarter )
       = $2,000 x 1.517
       = $3,034
    March 1987 legal fees = $1,000 x (CPI Sept 99 quarter/ CPI Mar 87 Quarter )
       = $1,000 x 1.517
       = $1,517
  3. Acquisition costs = $20,000 x (CPI Sept 99 quarter/ CPI Mar 90 quarter )
      = $20,000 x (68.7/ 56.2)
      = $20,000 x 1.222
    = $24,440

Capital gain = $800,000 – ($151,700 + 1,100 + $9,900 + $3,034 + $1,517 + $24,440)

 = $800,000 – $191,691

 = $608,309

Net Capital Gain = $608,309 less carry forward loss of $10,000

 = $598,309

2) Discount method (S. 102-5, ITAA97)

The calculation through discount method is outlined as follows:

Capital gain = $800,000 – ($100,000 + $1,100 + $ 9,900 + $2,000 + $1,000 + $20,000)

 = $800,000 – $134,000

 = $666,000

The Net Capital Gain will be calculated after the carry forward losses are deducted from the capital gain, i.e. $666,000 - $10,000 = $656,000

Net Capital Gain = 50% x $656,000

= $328,000

Certain capital gains and losses are matched against the other. The loss carried forward from the disposal of a collectable antique vase can only be offset against a collectable gain. Since, the disposal of Fred‟s house is an ordinary gain, the collectable loss cannot be offset against it. (S. 108-10, ITAA97) In such a case, the frozen indexation net capital gain would be $608,392.

II. Fringe Benefit Tax

Fringe benefit is a benefit provided by the employer to an employee in a form other than salary or wages. The taxes imposed on these benefits are termed as fringe benefit tax (FBT). This tax is levied on the taxable value of the benefits provided.

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