Dwelling Adjacent Land and Associated Structures

Question: Describe about the Dwelling Adjacent Land and Associated Structures . Answer: 1. Two years ago Peta purchased a house in Kew. This house has 2 tennis court down the back in poor condition. The reason she purchased the property was: So that she and her family could live in the house So that she could build three units in the tennis court and sell them off She later sold the tennis court for $ 600000 by spending $ 100000 for restoring it in good condition. The above income of Peta is Receipt under ordinary Income, explanation is given below The above case is of Land adjacent to dwelling, a dwelling is a home or cottage, an apartment or flat, a strata title unit, a unit in a retirement village, a caravan, houseboat or other mobile homes. Land adjacent to dwelling is land near the dwelling, a person is allowed an exemption on the sale of both land and house if the following two conditions is fulfilled: The whole property was used for domestic and personal purpose, and The land including the dwelling and the adjacent land is not more than 2 hectors. A person will not have to pay capital gain tax: If the land adjacent to dwelling has been accidently destroyed and is not being used by the owner, or The land adjacent to dwelling is compulsorily acquired. When a property is sold, the intention in occupying it is also relevant, since Peta Purchased the tennis court with the intention to sell it in future makes it clear that the tennis court part of the property was not meant for living. Other structure associated with a dwelling when sold is considered for capital gain tax, tennis court is other structure associated with a dwelling. Since Income includes net capital gain from selling any capital asset, sale of tennis court is receipt in ordinary course of business. Capital Gain on Property will be taxed by reducing 50% for individual and trust, and 33 % for complying super funds, if the property is held for more than 1 year. Capital Gain will be 50%, as Peta is an individual and the capital asset was held for than 1 year. Therefore Capital Gain will be: $ (600000-100000)*50% = $ 250000 (Capital Gain, 2016) 2.a) Fringe Benefit Tax is paid by the employers on the benefit provided by them to the employee, including the associate of the employee, it can be a part of the salary or wages in additional or a part of it. Fringe benefits tax is separate to income tax and is calculated on the taxable value of the fringe benefits provided. (Fringe Benefit Tax, 2016) ABCs Fringe Benefit Tax consequences Particulars Amount ($) Remarks Mobile phone bills paid by Alan at a fixed amount every month 220 Not to be included, since this is a work related item. It has been exempted from any payment of FBT As per the law, some of the item are exempted from Fringe Benefit, these are, Portable electronic Devices; computer software; protective clothing; briefcase; tools of trade. Exemption is available : If the portable device is used during the employment, or One item per Fringe Benefit Year for items that have same function. (Fringe Benefit Tax, 2016) School Fees 20000 It is exempted from FBT, any reimbursement of any expenses paid by the employee such as school fees is exempted. (Fringe Benefit Tax, 2015) Mobile Phone Purchase 2000 Not to be included, since this is a work related item. It has been exempted from any payment of FBT Dinner Party held 6600 Dinner Party held outside the premises of business for employees and partners and their associate and where the meal is not a light meal, it is considered for Fringe benefit Tax. Dinner party held for 20 employees, which means that per head expense is 330 i.e. (6600/20). Minor benefit exemption is provided only when the amount is less $ 300 per person. Since the amount is greater than 300 and since it is for entertainment purpose. It is taxable. No GST credit will be allowed as credit. FBT Liability Calculation: Total of Fringe benefit Taxable: School Fees: 20000 Dinner Party Held: 6600 Total Amount: 26600 Gross up rate is 1.8868 (Type 2 considering the year ending to be 31st March 2015) Since GST credit is not allowed, type 2 gross up rate is to be taken Grossing up of FBT amount: 26600 * 1.8868 = $ 50188.88 FBT tax rate is: 47% Therefore Taxable amount is = $ 50188.88 * 47% = $ 23588 b) ABCs Fringe Benefit Tax consequences if ABC had only 5 employees Particulars Amount ($) Remarks Mobile phone bills paid by Alan at a fixed amount every month 220 Not to be included, since this is a work related item. It has been exempted from any payment of FBT. As per the law, some of the item are exempted from Fringe Benefit, these are, Portable electronic Devices; computer software; protective clothing; briefcase; tools of trade. Exemption is available : If the portable device is used during the employment, or One item per Fringe Benefit Year for items that have same function. (Fringe Benefit Tax, 2016) School Fees 20000 It is exempted from FBT, any reimbursement of any expenses paid by the employee such as school fees is exempted. (Fringe Benefit Tax, 2015) Mobile Phone Purchase 2000 Not to be included, since this is a work related item. It has been exempted from any payment of FBT Dinner Party held 6600 Dinner Party held outside the premises of business for employees and partners and their associate and where the meal is not a light meal, it is considered for Fringe benefit Tax. Dinner party held for 20 employees, which means that per head expense is 1320 i.e. (6600/5). Minor benefit exemption is provided only when the amount is less $ 300 per person. Since the amount is greater than 300 and since it is for entertainment purpose. It is taxable. No GST credit will be allowed as credit. FBT Liability Calculation: Total of Fringe benefit Taxable: School Fees: 20000 Dinner Party Held: 6600 Total Amount: 26600 Gross up rate is 1.8868 (Type 2 considering the year ending to be 31st March 2015) Since GST credit is not allowed, type 2 gross up rate is to be taken Grossing up of FBT amount: 26600 * 1.8868 = $ 50188.88 FBT tax rate is: 47% Therefore Taxable amount is = $ 50188.88 * 47% = $ 23588 c) ABCs Fringe Benefit Tax consequences if ABC had arranged the dinner party for both the employees and its clients Particulars Amount ($) Remarks Mobile phone bills paid by Alan at a fixed amount every month 220 Not to be included, since this is a work related item. It has been exempted from any payment of FBT. As per the law, some of the item are exempted from Fringe Benefit, these are, Portable electronic Devices; computer software; protective clothing; briefcase; tools of trade. Exemption is available : If the portable device is used during the employment, or One item per Fringe Benefit Year for items that have same function. (Fringe Benefit Tax, 2016) School Fees 20000 It is exempted from FBT, any reimbursement of any expenses paid by the employee such as school fees is exempted. (Fringe Benefit Tax, 2015) Mobile Phone Purchase 2000 Not to be included, since this is a work related item. It has been exempted from any payment of FBT Dinner Party held 6600 Not to be included. Since the Dinner party is for client of the employer as well, when such party is held it is not considered as entertainment and is allowed as exemption. FBT Liability Calculation: Total of Fringe benefit Taxable: School Fees: 20000 Total Amount: 20000 Gross up rate is 1.8868 (Type 2 considering the year ending to be 31st March 2015) Since GST credit is not allowed, type 2 gross up rate is to be taken Grossing up of FBT amount: $ 20000 * 1.8868 = $ 37736 FBT tax rate is: 47% Therefore Taxable amount is = $ 37736 * 47% = $ 17735.92 Reference List Capital Gain (2015). Dwelling Adjacent Land and associated structures [online] Australian Taxation Office. Available at: https://www.ato.gov.au/General/capital-gains-tax/your-home-and-other-real-estate/dwellings,-adjacent-land-and-associated-structures/ [Accessed 17 Sept. 2016] Capital Gain (2016). Working Out your Capital Gain [online] Australian Taxation Office. Available at: https://www.ato.gov.au/General/capital-gains-tax/working-out-your-capital-gain-or-loss/working-out-your-capital-gain/#methods [Accessed 17 Sept. 2016] Fringe Benefit Tax (2016). Work Related Item exempt from FBT [online] Australian Taxation Office. Available at: https://www.ato.gov.au/General/fringe-benefits-tax-(fbt)/do-you-need-to-pay-fbt-/work-related-items-exempt-from-fbt/ [Accessed 17 Sept. 2016] Fringe Benefit Tax (2015). Do you need to pay FBT? [online] Australian Taxation Office. Available at: https://www.ato.gov.au/General/fringe-benefits-tax-(fbt)/do-you-need-to-pay-fbt-/. [Accessed 17 Sept. 2015]