ACC3005/304 Australian Taxation Law
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Australian Institute of Higher Education
ACC3005 - Taxation law (ACC3005)
Added on 2020-02-23
ACC3005/304 Australian Taxation Law
Australian Institute of Higher Education
ACC3005 - Taxation law (ACC3005)
Added on 2020-02-23
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Running head: AUSTRALIAN TAXATION LAWAustralian Taxation LawName of the Student:Name of the University:Author’s Note:
2AUSTRALIAN TAXATION LAWTable of ContentsAnswer to Question 1:.....................................................................................................................3Introduction:................................................................................................................................3Tax Consequences for Normal Condition:..................................................................................3Tax Consequences for Pre-CGT Assets:.....................................................................................4Tax Consequences for Building the Home on 20th May 2003:....................................................6Tax Consequences for Building the Home on 20th May 2017:....................................................7Conclusion:..................................................................................................................................8Answer to Question 2:.....................................................................................................................8Introduction:................................................................................................................................8Income tax legislations applicable for dwellings built on pre-CGT assets:................................8Conclusion:..................................................................................................................................9References:....................................................................................................................................10
3AUSTRALIAN TAXATION LAWAnswer to Question 1:Introduction:Rosemary had bought a vacant land, worth $50,000, on 20th October 1997 and build ahouse on that land on 20th May, 1999. She intends to sell the property for $300000 on 1stJune,2017. She likes to know the tax consequences for selling the property.The report is prepared to provide advice to Rosemary on the capital gain taxconsequences under the said scenario and, also, for some alternative situation. Tax Consequences for Normal Condition:Rosemary had acquired the land and build the house after 20th September, 1985. Hence, itcannot be considered as pre-CGT asset. She is liable to pay tax on sale of the property. However,as Rosemary is an individual taxpayer and the acquisition dates of both the assets are before 21stSeptember, 1999, both the reduction method and indexation method can be applicable forcomputing the capital gain for taxation purpose. It is advised to Rosemary that she should selectthe method, which would cause lower capital gain tax, between the two methods for tax returnpurpose (Barkoczy 2017).To measure the outcomes of the two methods, the capital gains under the two methodsare calculated below:ParticularsCost BaseDiscount MethodIndexationMethodProceeding from Sale$300,000 $300,000 $300,000 Cost of Land$50,000$50,000$51,422
4AUSTRALIAN TAXATION LAWCost of Building$100,000$100,000$100,881Total Cost of Property$150,000 $150,000 $152,303 Capital Gain from Sale of Property$150,000 $147,697 Less: 50% Discount$75,000$0 Net Capital Gain on Sale$75,000 $147,697 As per the reduction method, the accumulated value of original purchase price of the landand building cost of the building is considered as the cost base of the property. Moreover, theindividual taxpayer can apply for 50% discount on the total capital gain if the individualpossessed the capital assets for more than 12 months. Rosemary has held the ownership of boththe land and building for more than 12 months and hence, she is eligible to get 50% discount onthe total capital gain. The table exhibits that the net capital gain of Rosemary under reductionmethod would be $75,000 (Miller. and Oats 2016). Under Income Tax Assessment Act 1997,Division 115, Subdivision 115-A, and Section 115-15, directly mentions about using thediscounted capital gains method, which could only be used for capital gains conducted after CGT(Ato.gov.au 2017).In indexation method, the original costs of the assets are indexed in accordance to theconsumer price index. It causes increase in the cost base of the property and helps to reduce thecapital gain. However, if the costs are indexed then the taxpayer cannot apply for 50% discount.In accordance to the above table, the net capital gain of Rosemary under indexation methodwould be $147,697. Under Income Tax Assessment Act 1997, Division 960-General,Subdivision 960-M, and Section 960-275, directly mentions about using the indexation method,which could only be used for capital gains conducted before the augmentation of CGT(Ato.gov.au 2017).
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