CGT and FBT — Model Answers

A business asset is destroyed in a fire and the insurer later pays compensation. Explain the CGT event that should be tested first, the timing issue and why insurance proceeds matter.

C1 should be tested first because the asset was lost or destroyed. The timing is tied to the loss/destruction event, while compensation or insurance proceeds are relevant to the capital-proceeds calculation. The student should also check whether another statutory rule modifies the treatment of compensation. The key reasoning is that there was no negotiated sale: the asset ceased to exist.

State the identified event or FBT step, then explain any further calculation, exemption, rollover or evidence that must be checked.

A company receives consideration for surrendering a valuable contractual right. Identify the CGT event and explain why this is not automatically an A1 disposal analysis.

CGT event C2 is the natural starting point where an existing intangible right is cancelled, surrendered, discharged, satisfied, abandoned or expires. The reason not to jump to A1 is that the legal event is the ending of the right rather than an ordinary transfer of the asset to a purchaser.

State the identified event or FBT step, then explain any further calculation, exemption, rollover or evidence that must be checked.

A business owner receives $80,000 for promising not to compete in a defined area for three years. Identify the CGT event that must be considered and explain the key issue.

CGT event D1 should be tested because the taxpayer is creating contractual rights in another entity rather than disposing of a pre-existing asset. The $80,000 is consideration for the creation of the restraint. The student must identify the time of creation, any incidental costs and the statutory consequences, including the fact that discount treatment may not operate in the same way as a long-held asset disposal.

State the identified event or FBT step, then explain any further calculation, exemption, rollover or evidence that must be checked.

A landowner grants a purchaser an option to acquire commercial land. Explain how the grant and later exercise of the option should be analysed.

The grant of the option is analysed under CGT event D2. If the option is later exercised, the option rules interact with the CGT treatment of the underlying land, including the statutory rules that integrate option consideration with the later acquisition/disposal. Treat the grant and exercise as connected stages, not as one undifferentiated sale.

State the identified event or FBT step, then explain any further calculation, exemption, rollover or evidence that must be checked.

A lessor pays a lessee to accept a change to an existing commercial lease. Which lease CGT event is potentially relevant and why does the identity of the payer matter?

The course materials direct attention to CGT event F3 where the lessor pays the lessee for changing the lease. The identity of the payer matters because F3, F4 and F5 divide lease variations according to who pays and who receives the payment. Always identify the direction of the payment before naming the event.

State the identified event or FBT step, then explain any further calculation, exemption, rollover or evidence that must be checked.

A purchaser defaults under a commercial property contract and the vendor retains the deposit. Which CGT event should be tested?

CGT event H1 should be tested for a forfeited deposit in a property/commercial transaction. The analysis asks when the forfeiture occurs and how the retained deposit is treated. GST may raise a separate issue for a security deposit; do not merge the CGT and GST analyses.

State the identified event or FBT step, then explain any further calculation, exemption, rollover or evidence that must be checked.

An individual wants to transfer a business asset to a newly incorporated company that the individual will wholly own. Set out the statutory questions that must be checked before assuming rollover relief.

The adviser should check: the identity of the transferor; whether the transferee is a wholly owned company in the statutory sense; whether the relevant residency conditions are satisfied; whether the asset is eligible or excluded; whether the consideration received satisfies the required share/consideration rules; and the resulting cost bases for the shares and transferred asset. Roll-over is a statutory concession and should never be assumed merely because economic ownership remains with the same person.

State the identified event or FBT step, then explain any further calculation, exemption, rollover or evidence that must be checked.

An employer pays an employee's private health insurance premium. Work through the threshold questions before calculating FBT.

The employer payment is potentially an expense-payment fringe benefit. First identify a benefit, the provider, the employee/associate recipient and the necessary connection with employment under s 136(1). Then classify it under the expense-payment provisions, test any exemption, work out taxable value, employee contribution and otherwise-deductible reduction, and only then gross up and calculate FBT.

State the identified event or FBT step, then explain any further calculation, exemption, rollover or evidence that must be checked.

An employer provides an employee with an infrequent benefit worth $220. Is the fact that it is under $300 enough to conclude the benefit is exempt? Explain.

No. Section 58P is not a mechanical '$299 = exempt' rule. The notional taxable value threshold is part of the test, but frequency, regularity, total circumstances and whether it would be unreasonable to treat the benefit as a minor benefit must also be considered. The statutory criteria must be applied, not replaced by the dollar threshold.

State the identified event or FBT step, then explain any further calculation, exemption, rollover or evidence that must be checked.

Explain why GST input tax credit entitlement matters when determining whether a fringe benefit is Type 1 or Type 2.

Type 1 treatment generally reflects a benefit connected with an acquisition for which the employer is entitled to a GST input tax credit. Type 2 applies where that entitlement does not exist. Because the gross-up is designed to reconstruct a tax-inclusive salary-equivalent value, the GST credit position changes the gross-up factor.

State the identified event or FBT step, then explain any further calculation, exemption, rollover or evidence that must be checked.

Explain the otherwise-deductible rule and why income-tax deductibility under s 8-1 may decide the FBT result.

The rule asks whether the employee would have obtained an income-tax deduction if the employee had personally incurred the unreimbursed expense. If the hypothetical deduction would be available, the taxable value of specified benefits can be reduced. That is why s 8-1 reasoning and the authorities on the character of the expense become part of the FBT analysis.

State the identified event or FBT step, then explain any further calculation, exemption, rollover or evidence that must be checked.

Explain what students should learn from the different outcomes in John Holland and Bechtel rather than memorising a simple rule about FIFO travel.

In John Holland, the particular employment arrangements supported the conclusion that the relevant travel occurred in the course of the employees' income-producing activities. In Bechtel, the Court found that duties commenced at the work site and the travel was not deductible. The legal lesson is factual characterisation: determine when duties begin, what the employment requires during travel and whether the journey is itself part of the income-producing activity.

State the identified event or FBT step, then explain any further calculation, exemption, rollover or evidence that must be checked.