Posted: March 17th, 2023

Tax Payable, Fringe Benefits, and CGT Calculations

BACC3004 Tax Law — Assignment: Tax Payable, Fringe Benefits and Net Capital Gains

This Australian Institute of Higher Education assessment requires you to complete three problem-based tasks covering the calculation of an individual taxpayer’s tax payable, the application of fringe benefits tax rules to car benefits provided in different circumstances, and the calculation of the minimum net capital gain from multiple asset disposals. You must reference the Income Tax Assessment Act 1936 (Cth) and 1997 (Cth), the Fringe Benefits Tax Assessment Act 1986 (Cth), relevant case law, and ATO guidance. The assignment is worth 30% of the total unit mark and is due in Week 8.

Context and Purpose of the Assessment

This assignment forms a core component of BACC3004 Tax Law at the Australian Institute of Higher Education, Faculty of Business. The task explores practical issues in taxation law and assesses your ability to structure and present arguments, apply legislation and case law to factual scenarios, and perform income tax, CGT, and FBT liability calculations. The assignment carries 30% of the total unit mark and is due in Week 8.

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The assessment addresses four unit learning outcomes: describing the taxation framework in Australia and identifying the concepts and principles that underpin Australian tax law; explaining how the main tax laws and regulations have been applied and identifying the body of case law that informs current interpretations; recognising, describing and analysing taxation issues and concepts in commercial settings; and demonstrating an understanding of substantive areas of taxation law including income tax, goods and services tax and fringe benefits taxes. The final learning outcome concerns the role and responsibilities of accountants with regard to taxation law and the preparation of taxation documents, and the assignment develops the ethical and communication skills that underpin professional practice.

Task Description and Instructions

You are required to answer all three questions in the assignment. Each question presents a scenario or data set and requires you to apply tax law principles, show all workings, and cite relevant legislation and case law. Present your answers in a structured written format with clear headings and sub-headings. All figures should be rounded to the nearest dollar where appropriate.

Question 1 — Tax Payable / Refund (10 Marks)

During the income year ended 30 June, Nicholas, a resident, received salary and wages income of $35,000, interest income of $3,000, an exempt compensation payment of $23,000, commission income of $4,000, a Living Away from Home Allowance (LAFHA) of $20,000, an Overtime Allowance of $2,000 and a rental loss of $9,000. Assume he has PAYG (W) of $6,000. Ignore tax offsets.

Required: What is Nicholas’s tax payable or refund? Show all workings.

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Question 2 — Fringe Benefits Tax on Car Benefits (10 Marks)

The Disco Biscuit Company is a resident company that owns and operates a car dealership. During the year, the company has provided the use of a car to a number of people. The details are shown below. For each of the following transactions, explain by referencing to legislation and case law whether the provision of the vehicle represents a fringe benefit.

1. Mary, the wife of Damon who is a salesperson of the company, received a car to use.
2. Gabby operates the business of providing advertising consulting services to clients. The Disco Biscuit Company gives Gabby the use of a Mercedes for her services provided to it instead of paying a fee for her service upon their mutual agreement.
3. Nigel, a salesperson, receives the use of a Lexus, a luxury car.
4. Tristan, the managing director, is given the use of a Jaguar (car) instead of receiving a director’s fee.

Question 3 — Minimum Net Capital Gain (10 Marks)

During the 2019/20 income year, Maxwell Johnson sold various assets that realised capital gains and losses as follows:

• Loss on sale of motor vehicle: $5,600
• Gain on sale of yacht (cost base not indexed): $21,900
• Gain on sale of antique crockery (indexed cost base): $13,900
• Loss on sale of jewellery: $1,300
• Gain on sale of land held as an investment (cost base not indexed): $24,000
• Gain on sale of family home (cost base not indexed): $38,000
• Loss on sale of shares: $19,300
• Gain on sale of rental property (indexed cost base): $21,000
• Gain on sale of rare comic book collection (cost base not indexed): $7,500
• Capital loss from a previous year from the sale of shares: $6,400

In each case above, the asset has been held by Maxwell for more than 12 months and the relevant minimum cost thresholds have been exceeded.

Required: Calculate the minimum net capital gain that Maxwell is required to include as assessable income for the income year.

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Submission Requirements and Formatting

• Format: MS Word. 12-point Times New Roman or Arial, 1.5 line spacing, 2.5 cm margins.
• Referencing: Harvard or APA style. In-text citations and a reference list are required.
• Structure: Structured written response with headings for each question and sub-headings for each component. Show all calculations in tables where appropriate.
• Submission: Via the LMS portal. Plagiarism checking applies.
• Late penalties: Standard Australian Institute of Higher Education late submission penalties apply.

Marking Rubric and Grading Criteria

Criteria	High Distinction (85–100)	Distinction (75–84)	Credit (65–74)	Pass (50–64)
Identification and analysis of tax issues	Comprehensive identification and critical analysis of all relevant tax issues with precise legislative references	Thorough identification and analysis of most relevant tax issues	Sound identification and analysis of key tax issues	Basic identification of some tax issues
Application of legislation and case law	Accurate and critical application of all relevant provisions and authorities	Accurate application of most relevant provisions and authorities	Application of key provisions with some analysis	Limited application of provisions
Calculation accuracy	All calculations correct and clearly presented with legislative references	Minor calculation errors with appropriate references	Some calculation errors with limited references	Major calculation errors
Written communication and referencing	Clear, professional writing with flawless referencing	Clear writing with minor referencing errors	Generally clear writing with some referencing errors	Writing lacks clarity with frequent referencing errors

Sample Answer: Applying the Exempt Car Benefit Rules Under Section 8(2)

The provision of a car to Mary, the wife of salesperson Damon, requires analysis under s 7 of the Fringe Benefits Tax Assessment Act 1986 (Cth). A car fringe benefit arises when an employer provides a car to an employee for private use. Because Mary is not an employee of the company, the benefit is provided to an associate of an employee. Under s 7(1), a benefit provided to an associate of an employee is taken to be provided to the employee. The critical question is whether the benefit is exempt. Section 8(2) exempts a car benefit if the car is used only for business purposes and any private use is minor, infrequent and irregular. In this scenario, Mary receives the car to use, which suggests private use is contemplated. If the private use is more than minor, infrequent and irregular, the benefit is not exempt and the company has an FBT liability. The ATO’s guidance on how FBT applies to cars confirms that private use by an associate is a taxable fringe benefit unless an exemption applies. The decision in MXSN and Commissioner of Taxation [2026] ARTA 186 illustrates that any private use, including home-to-work travel, will be subject to FBT unless the exemption criteria are satisfied. For the remaining scenarios, Gabby is an independent contractor rather than an employee, so the provision of the Mercedes is not a fringe benefit but is likely ordinary income from her consulting business. Nigel and Tristan are employees, and the provision of the Lexus and Jaguar respectively constitutes car fringe benefits unless the cars are used only for business purposes and private use is minor.

The Business Use Exemption and Director’s Fees

A common issue in FBT practice is the treatment of cars provided to directors and the characterisation of director’s fees. Tristan is the managing director of the company and receives the use of a Jaguar instead of a director’s fee. The Fringe Benefits Tax Assessment Act 1986 (Cth) defines an employee broadly under s 136 to include a director of a company. This means the car benefit provided to Tristan is a fringe benefit unless an exemption applies. The fact that he receives the car instead of a director’s fee does not change the characterisation; the benefit is still provided in respect of his employment. Recent case law has examined whether the provision of luxury vehicles to directors constitutes a fringe benefit, with the Full Court in a 2026 decision ruling that the provision of luxury vehicles to three directors of a trustee company was not a fringe benefit because the directors were not employees in the relevant sense (Accounting Times, 2026). The distinction turns on whether the directors had a sufficient employment relationship with the company. Students should note that s 136(1) of the FBTAA includes a director in the definition of employee, but the application of the provision depends on the facts and the nature of the relationship. The ATO’s guidance on FBT on cars confirms that the taxable value of car fringe benefits is determined using either the statutory formula method in s 9 or the operating cost method in s 10. Getting the characterisation right is essential because it determines whether the company has an FBT liability and whether the benefit is reportable on the employee’s payment summary.

How Is a Rental Loss Treated in the Tax Payable Calculation?

A question students frequently search for is how a rental loss affects an individual’s tax payable. Nicholas has a rental loss of $9,000. Negative gearing allows a taxpayer to deduct a net rental loss from other sources of assessable income, such as salary and wages, interest, and commission. Under s 8-1 of the Income Tax Assessment Act 1997 (Cth), expenses incurred in producing rental income are deductible, and if the deductions exceed the rental income, the loss reduces the taxpayer’s overall taxable income. The ATO’s rental expenses guide explains that the net loss can be offset against other income for individual taxpayers. The exempt compensation payment of $23,000 is not included in assessable income, nor is it taken into account in calculating the rental loss. The LAFHA of $20,000 is assessable and must be included in the tax payable calculation. The overtime allowance and commission income are also assessable. Students should also consider whether the exempt compensation payment affects the taxpayer’s marginal rate or eligibility for offsets, but since the question states to ignore tax offsets, the focus is on the taxable income calculation. The ATO’s guidance on income you must declare confirms that salary, wages, interest, commission, and allowances such as LAFHA and overtime are all assessable income, while exempt compensation payments are not.

 Common Misconceptions About CGT Collectables and Personal Use Assets

A frequent misconception among students is that all capital gains are treated in the same way. Maxwell’s portfolio includes collectables, personal use assets, and investment assets, and each category has different rules. The loss on the sale of the motor vehicle is disregarded because cars are exempt from CGT under s 118-5 of the ITAA 1997. The loss on the jewellery is a collectable loss under s 108-10 of the ITAA 1997, and collectable losses can only be offset against collectable gains, not against other capital gains. The antique crockery and rare comic book collection are also collectables, and their gains are subject to the same quarantine rules. The family home gain of $38,000 may be exempt under the main residence exemption in Subdiv 118-B if it was Maxwell’s main residence for the entire ownership period. The ATO’s main residence guidance explains that a dwelling is exempt if it was the taxpayer’s main residence throughout the ownership period and was not used to produce income. For the remaining assets, Maxwell can choose between the indexation method and the discount method where eligible. The indexation method applies to assets acquired before 21 September 1999, and the discount method applies to assets held for at least 12 months. The prior year capital loss of $6,400 must be applied against the current year gains before any discount is applied. The ATO’s CGT discount page explains that the discount applies after losses are offset.

Frequently Asked Question

Can a company claim an FBT exemption when it provides a car to an employee’s spouse?

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Yes, but only if the private use of the car is minor, infrequent and irregular. Under s 7(1) of the Fringe Benefits Tax Assessment Act 1986 (Cth), a benefit provided to an associate of an employee is taken to be provided to the employee. The exemption in s 8(2) applies if the car is used only for business purposes and any private use by the employee or their associates is minor, infrequent and irregular. The ATO’s guidance on FBT on cars confirms that private use by an associate is subject to FBT unless the exemption criteria are satisfied. The employer must keep logbook records and odometer records to substantiate the business use percentage. If the car is provided to the spouse for their exclusive use, the private use is likely more than minor and the exemption will not apply. The taxable value of the car fringe benefit is then calculated using either the statutory formula method or the operating cost method, and the employer must pay FBT at the applicable rate.

Why This Matters in Practice

The issues in this assignment mirror the questions tax accountants and advisers answer for clients across Australia. An individual with multiple income sources and a rental loss needs to know how to calculate their tax payable and whether they will receive a refund. A company providing cars to employees and their associates needs to understand the FBT rules and the available exemptions. A taxpayer selling a diverse portfolio of assets needs to know which gains are exempt, which are subject to the discount, and how losses are applied. Getting these questions wrong has financial consequences for clients and professional consequences for advisers. The skills you develop in this assignment, reading legislation, applying case law, and reaching reasoned conclusions with clear calculations, are the same skills you will use in practice.

References and Learning Materials

Australian Taxation Office. (2026). Calculating your CGT. https://www.ato.gov.au/individuals-and-families/investments-and-assets/capital-gains-tax/calculating-your-cgt

Australian Taxation Office. (2026). CGT discount. https://www.ato.gov.au/individuals-and-families/investments-and-assets/capital-gains-tax/cgt-discount

Australian Taxation Office. (2026). How FBT applies to cars. https://www.ato.gov.au/businesses-and-organisations/hiring-and-paying-your-workers/fringe-benefits-tax/types-of-fringe-benefits/fbt-on-cars-other-vehicles-parking-and-tolls

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Australian Taxation Office. (2026). Income you must declare. https://www.ato.gov.au/individuals-and-families/income-deductions-offsets-and-records/income-you-must-declare

Australian Taxation Office. (2026). Your main residence. https://www.ato.gov.au/individuals-and-families/investments-and-assets/capital-gains-tax/property-and-capital-gains-tax/your-main-residence

Fringe Benefits Tax Assessment Act 1986 (Cth). https://www.legislation.gov.au/Details/C2024C00312

Income Tax Assessment Act 1936 (Cth). https://www.legislation.gov.au/Details/C2023C00373

Income Tax Assessment Act 1997 (Cth). https://www.legislation.gov.au/Details/C2024C00039

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MXSN and Commissioner of Taxation [2026] ARTA 186. https://www.austlii.edu.au/cgi-bin/viewdoc/au/cases/cth/ARTA/2026/186.html

Woellner, R., Barkoczy, S., Murphy, S., Evans, C., & Pinto, D. (2023). Australian taxation law (33rd ed.). Oxford University Press.

 

Next Assessment: Week 10 Discussion Post

Week 10 Discussion Post — BACC3004 Tax Law

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For this week’s discussion, you will analyse a recent Australian Taxation Office ruling or case that deals with the general anti-avoidance provisions in Part IVA of the Income Tax Assessment Act 1936 (Cth) or a recent FBT ruling affecting small business employers. Your initial post should be 300–500 words and must identify the key facts of the ruling or case, explain the ATO’s position, and discuss how the decision affects taxpayers or tax advisers.

In your response posts, engage with at least two classmates by comparing the outcomes of their chosen rulings with yours. Consider whether the anti-avoidance provisions or FBT rules are being applied consistently, and identify any gaps or ambiguities in the law. Support your arguments with references to legislation and case law using Harvard style. This discussion contributes to your participation mark and prepares you for the final exam’s essay section on tax administration and compliance.

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