Tax Law Scenarios - Coursework Example

Tax Law By Key Words: Tax Introduction Taxation is the assessment by the government of a given country on the transactions, property value, licenses giving the right to perform a given task, estates of the deceased, duties imported from other countries and the income of the employed. Taxation includes all of the contributions that the government imposes upon the people for offering services in the countries. Taxes are divided into an indirect tax and direct tax. Direct taxes are those that are imposed on income, personal property, and real property and are paid directly. Indirect taxes are imposed on goods that are consumed which may include services or products that are distributed by intermediaries like a retailer. This paper will look at four different examples of taxes and explain these examples using scenarios (Amatucci, González, Trzaskalik and Amatucci 2006). Capital Gain Tax The tax imposed on Brain’s family home and shop is classified as a capital gain tax. This is because the price at which he sold it was higher than the price in which he bought it plus all the commissions and the improvement cost. There is also the net rate of appreciation. He bought the empty premises ten years ago at 750 thousand dollars and started his business. He sold it at 1,880,000 dollars. The tax imposed here will be nominal based which implies that it will not change with inflation rates. Brain’s property will be taxed as a long-term capital gain since he has owned the property and business for over one year. The shop and land will be taxed at 15% to 20%. The trading stock, goodwill, and fittings may be exempted from taxation since they are long term gains acquired and are below the 20 percent mark of the total amount. Since Brain is married, and his wife has a 5% ownership in the company where Brain 45% and is worth 5.4 million dollars, the couple will be excluded a tax of up to 540 thousand dollars. The 20 thousand dollars, he received for signing an agreement of not establishing a business in a 10 kilometer radius of the property he sold, will not also be taxed. However, he has to stick to the agreement for five years to avoid a penalty on him. Income from Property The tax imposed on income from property is either capital on general principles or income. In George’s case, the sale of trees at a cost of 20 dollars for each tree is classified as farm income since the trees are farm produce and are taxable under the farm income statement. This implies George will be taxed on a rate stipulated in the country that changes with time. In the second year, George will also be taxed on the 9 thousand trees he sold at a price of 90 thousand dollars as a farm income statement tax. In these two years, George will also be taxed on the self-employment tax because he acquires his income from his farm. The trees will be calculated on the accounting profit which is the returns acquired from the sale of the trees to his buyer. In the third year, George will be taxed on the sale of his land to Mr. Brown. This represents the tax on capital gain on general principle because will receive an amount of 200 thousand dollars for sale of his land. This will be taxed according to the income on capital gain stipulations. The 10 dollars, he receives after the sale, will be taxed minimally as the land does not belong to him anymore (Amatucci, González, Trzaskalik and Amatucci 2006). Fringe Benefit Tax This is the tax paid by the employer to the government for the non-cash benefits that the employer provides for their employees. These benefits may include car, loans and payment of external expenses. The rates of tax imposed here directly goes to the employer. This is because the benefits offered to the employee are purely for employment basis, that is, the benefits are given to the employees for being employee and help them carry on their duties. In Australia, the fringe benefits tax levied on cars, loans and payment on external expenses exceeding 300 dollars are at a rate of 47 percent. For company XYZ, the amount of 32 thousand dollars provided for cars and input tax credits on goods and services are available will be levied a tax of 15 thousand dollars for a year. It will also include a 12.5 percent on the goods and services. The 6 thousand dollars provided for loans with no goods and services paid will be levied a fringe benefits tax of 47 percent. The amount would be 2800 dollars. For the payment of external expenses worth 4,000 including GST, the FBT will be 45 percent plus the 12.5 percent on the GST. Capital Allowance This is the reduction in the tax payable amount by corporates that is normally offered to these corporates as incentives for large-scale investments of projects. A percentage cost on capital asset is reduced as a capital allowance in the period that the asset is purchased. The capital allowance affects the four groups stated below. Pool of assets is where a record is made of a merger of liabilities and assets of two firms that have come together. These assets are added and netted together as a single entity. The taxation of this pool of assets is tax as a single entity as opposed to two different ones. Low-value pool assets have an opening value that is adjustable for the current season with a value less than a thousand dollars. It also has a diminishing value method is used to calculate the subtractions of the value in the previous year. Software development pool The software has to be used purely for business income that is taxable. The pooled amount includes all the expenditure incurred during the development and commissioning of the software. The deductions take effects after the year in which development of the software took place and the expenses were incurred. The small business can, therefore, claim deductions way before the developed software is in use. Small business concession applies to business that makes a turnover of 2 million dollars or less annually. For a small business to legible to this concession, the business has to meet this condition a taxing scheme is chosen depending on the business. References Amatucci, A., González, E., Trzaskalik, C. and Amatucci, A. (2006). International tax law. The Hague: Kluwer Law International. Read More