Australian Taxation Law - Capital Gains Tax

Running head: AUSTRALIAN TAXATION LAW
Australian Taxation Law
Name of the Student
Name of the University
Author Note

AUSTRALIAN TAXATION LAW1
Table of Contents
Question 1......................................................................................................................2
Identification of Material Facts.......................................................................................2
Applicable Laws..............................................................................................................3
Application of Relevant Law...........................................................................................4
Conclusion......................................................................................................................5
Question 2......................................................................................................................5
Issue and Material Facts................................................................................................5
Relevant Law..................................................................................................................6
Application of Relevant Law...........................................................................................7
Conclusion......................................................................................................................8
References.....................................................................................................................9

AUSTRALIAN TAXATION LAW2
Question 1
Identification of Material Facts
Sophia is an Australian resident who wants to complete her income tax return for
the year 2018. However, she mostly needs advice about the taxation of the CGT
transactions entered into by her. Apart from stating whether CGT would be applicable
on the transactions entered into by her, advice also needs to be provided to her about
the exemptions that would be eligible to her on them. She has sold a block of land in
Ninety Mile Beach and received $80000. There are various costs incurred by her in
relation to this asset. While purchasing the asset in 1991, she paid $130000 to acquire
it. Other relevant costs include the $800 stamp duty and $1200 legal fees paid by her. In
order to procure the asset successfully, she also took a bank loan and the total interest
charged on this loan was $27000. Additional legislative expenditure included the water
rates, council rates and municipal taxes of $18500. Due to a dispute arising with a
neighbour, she also had to pay $8000 to continue maintaining the ownership of the
property. Prior to the sale of the property, she spent $1500 to remove a large number of
pine trees that had grown on the land. This cost was incurred to improve the saleability
of the land. Some other expenses incurred by her include the advertising, legal and
agent’s fees of $2500 paid on the sale of the land. The other assets owned by her
included shares in ABC Co, a stamp collection purchased from a private collector and a
Bob Marley Guitar. The sale of these shares took place for $32.20 per share. They were
acquired for $1.50 per share in 1983. She also paid 1% brokerage fees on the sale of
the shares. The stamp collection was purchased for $3300 and sold for $23000. The

AUSTRALIAN TAXATION LAW3
auction fees paid by her was totalled $3000. The Bob Marley guitar was acquired in
2003 for $70000 and sold for $45000.
Applicable Laws
According to s102-5 ITAA 1997, the net capital gains earned by an individual are
the statutory income earned by an individual and hence also form a part of the
assessable income on which tax is to be levied for a given income tax year
(Legislation.gov.au. 2020). However, CGT is applicable only in case of a selected group
of assets. Most of the CGT assets purchased on or after 20 September 1985 are
taxable under CGT. A majority of the assets acquired prior to this date are not charged
under the capital gains tax (Ato.gov.au. 2020). As per s104-10(1) ITAA 1997, an
occurrence of a CGT event is considered only from the time of the disposal of the asset.
An excess of the sale proceeds over the cost base of the asset results in capital gains
for the seller whereas a higher cost base of the asset results in the seller incurring
capital losses as defined by s104-10(2). According to FCT v Hubert’s Island Pty Ltd., tax
on the income from the sale of land would be charged as ordinary income under s6-5(1)
ITAA 1997 if it is the business of the taxpayer (Ato.gov.au. 2020). However, in case of
sellers selling the product under other situations, tax would be levied under CGT. The
capital gains or losses on the sale of land are to be determined after calculating the total
cost base of the asset. As per Subdivision 110-A of ITAA 1997, there are five elements
involved in the cost of the asset (Ato.gov.au. 2020). All of them need to be added to
calculate the accurate cost base of the asset. S110-25(2) ITAA 1997 states that costs
paid for acquiring the asset are a part of the cost base of the asset. Others include
incidental costs under s110-35, and costs incurred to retain ownership under s110-