Capital Gain Tax and Income Tax

This document provides an overview of capital gain tax and income tax in Australia. It discusses the taxation consequences of selling rural property, including exemptions and concessions that may apply. It also explains the definition of residency for income tax purposes and the tax obligations of residents. The document includes case studies and relevant provisions of the income tax act.

Capital Gain tax and
Income tax

Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
QUESTION 1...................................................................................................................................3
QUESTION 2...................................................................................................................................6
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................12

INTRODUCTION
In the present Tax on capital gains is really a tax on the beneficial disparity among the
asset's sales price as well as the initial buying price. The long-term taxation on capital gains
seems to be the charge on the earnings from much more than one year's sale price of properties
owned. Obviously it depends on the tax format as the rates would be 0, 15 or 20 %. For
investments retained in a year or shorter, short-term capital gains tax shall apply and is paid as
regular income. The tax applicable to a capital gain produced on the disposition of any resource
is in the sense of the Australian taxation scheme, with some different allowances and the most
important of which being the household of the family. Such turnovers, among the most relevant
of them are the transition to demise beneficiaries, refer to roll-over rules to make it not a quasi-
fund charge for the CGT (Auerbach and Hassett, 2015). In Australia income tax is levied on the
personal income of private individuals and businesses by the national government. The earnings
of partnerships and trusts are not specifically taxable but are levied on their disbursement to
members and recipients. Income tax is the biggest revenue source in the Australian tax system
for governments. The Australian Taxing Office raises the rate of income tax whenever
requires on behalf of the government. There have been specific income tax rate which are
applicable to applicant above the age of 18 and mainly depending upon its earning capacity or
total income generated per year.
MAIN BODY
QUESTION 1
Taxation consequences of selling the rural property including whether any taxation exemptions
or concessions may apply:
Typically, individual create capital gains or loss of value whether individual sell a capital
asset, including real estate or bond. this is difference in the cost of acquiring asset and what
individual receive when disposing of it. In the income tax statement one ought to record capital
gain and loss and charge capital gains tax. Although that's considered a capital-gain levy, that
simply does not require a different fee. That's part of the income tax. If one makes any capital
gain, it is introduced to his taxable income and tax one has to pay can rise substantially.
As capital gains tax is not deferred, you might want to find out tax one owes and assign enough
funds to pay the cost. Both securities gained before the capital gain tax began on 20 Sep 1985 are

liable to CGT except explicitly exempt. Except explicitly exempted. Most financial belongings,
including appliances, are excluded from CGT, including the house, cars and personal products.
CGT does not apply to the assets that depreciate, like commercial equipment or fixtures in the
rental property are using exclusively for taxable reasons. When one enters into a settlement deal,
the level at which one render financial profits or damages is typically not where you pay.
Therefore, if you conclude a selling deal in Jun 2017 and settlement of investment property in
Aug 2017, in one's 2016/17 tax return one has to disclose capital gain or loss. CGT refers to
one property everywhere in world whether one is an Australian national. CGT refers to assets
obtained on 23 Oct 2015 for residents of Norfolk Island. International investors benefit or lose
the money when a CGT case happens on an asset named Australian taxable land. It is
considered Capital Gains Tax (CGT) case when one sale or otherwise disposal of an estate. This
is where one make a benefit or loss of capital. Many CGT incidents occur, such as failure,
damage, or the acquisition of statutory or other privileges of CGT estate. For case, one will know
what sort of CGT occurrence is appropriate. It has an effect on how one measure the benefit or
loss of investments and utilize this in the net gain of investments or net losses of capital (Bryan,
2017).
As given in case study of Luke and Sarah resided in Albury home where they had permanent
employment. They bought 30-acres rural-block for $160,000 in Jul. 2012 with the plan to
build house and move out of the town. They listed house in Albury for selling in Sep 2012 at
$570,000 but, following a decline in the economy, house remained unsold till Mar 2014 then
they ultimately approved a $460,000 proposal. Settlement emerged in April month of 2014,
and work began on new house in the May 2014. Both Luke and Sarah had rented Albury
house back from new owners for $480 a week while house was being constructed.
Here in this scenario both they have only one rental residential house at as they have started
construction after the sale of Albury house. Now for temporary residence they have rented
back this house form new owner. Thus, they sold their main residence here. As per IT act
'Main residence' is exempted from capital gains tax (CGT). The house needs to
have dwelling on it to receive the privilege and individual must have resided in it.
Individual are not entitled to one empty block exemption. If individual weren't a resident of
the Australia for the tax purposes when residing in the house, you're unlikely to meet main
residence exemption criteria. Unless individual is a foreign citizen when CGT incident arises

in Australian residential property individual may no doubt be able to claim an exception
from main residence. Usually, the main residence is deemed to be dwelling if:
Individual live in it, with his family, there are individual personal possessions in it, it's
address individual’s mail is generally delivered to, address on electoral roll and services of
power and gas are connected. In given case their house was in Albury and they lived in this
house so they are considered as resident (assuming that all other conditions are satisfied) and
eligible for exemption.
Further given in case study that Their new house has been finally finished/ready in the
Nov 2014 at cost of $410,000 thereafter Luke and Sarah switched in. Extra costs that they
incurred included building a path for $15,000, plunging a dam of $30,000 and connecting
electric power for $40,000. They funded new property by home loan of $450,000 at rate of
4.20 percent payable within 30 years. If individual move in as quickly as possible after
settlement date, a residence is regarded to be individual's principal residence from time
individual acquire it. As per relevant provisions of income tax act, interest payment on
housing loan is deductible and deduction can be taken by individual from total taxable
income.
Also, In Jan 2015, Luke and Sarah started a horse agistment company, in which they allotted
20 acres of theirs farm. They constructed fences to build smaller paddocks, designed shade
shelters as well as built water troughs combined cost of $ 80,000. They take out small
business loan of $80,000 payable across 10 years at rate of 5.30 per cent to fund expense of
the upgrades. Here another loan is for business purpose so no deduction as per income tax
here available to them. Also, this is not regarded as residence property to the extent business
has been carried out. However as per provision of income tax act for a span of time,
businesses may usually take a tax loss for capital expenditures. Registered firms can be
entitled to use immediate write-off of profits. Which enables them to demand a reduction of
the purchasing cost of equipment to the company component – below the applicable amount
– in year of asset became acquired and first utilized or built ready to be used. A capital
investment is either: cost of depreciating asset – which involves both the price you pay
for asset and the shipping and maintenance costs, or the expenditures involved with starting
up, repairing, increasing or developing the business. Depreciating assets are asset

with limited life-expectancy (efficacious life) and a reduction in value (depreciation) will
fairly be predicted over time it is being used.
Moreover, Luke was granted a promotion job in Oct 2019 which forced them to move to
Queensland. Then their rural property was listed for selling and negotiated for $850,000 in
Dec 2019 with settlement following in Jan 2020, when Luke and Sarah shifted to
Queensland. Here notable aspect is that now rural land had been used by them as residence
and as business place for a significant period of time. Thus, here the entire property should
be classified into residential property, rural property and business area and would be taxable
accordingly. Here, on the sale of residential property again consider that now this is the main
residence of Luke and Sarah thus it will be treated as main residence while thus on sale of
residence if the part of profit related to residence would be exempt. Also, as per the
provisions of If individual sell (and/or ceases to own) working farm, individual will
probably make capital gain or loss. The Revenue Tax Assessment Act (1936) (Cth) and the
Revenue Tax Assessment Act 1997 (Cth). Income tax liabilities have been largely regulated.
The Acts work in tandem with external transfers, involving foreign residents through
Australian income from their origins, Australian citizens with international markets from
their own origins and also tax avoidance and anti-avoidance cost of capital strategies.
Capital gains here are subject to the capital gains tax, which includes discount for
the individuals and trusts, as well as small business concessionary. If home of person is a
part of working estate, the person may qualify for such partial main residence exception
(Faccio and Xu, 2015). Farmland individual sell (or provide on long-term lease) is GST-free
if any of following are applicable: land was utilized for farming business for even at least
five years directly before sale and the owner plans to utilize it for an agricultural business.
Thus, here taxability in hand on Luke and Sarah will be assesses based on discussed
provision, as here they started business which comes under the business of farming and they
have carried out business for more than 5 years thus it will be GST free.
QUESTION 2
According to the Income Tax Australia the law consist definition of resident of Australia.
As per the rule every resident if they certify the condition and criterion Australian residency then
they will be libel to pay income tax at every year. According to the law an individual must be
born in Australia’s or he satisfies the ordinary means of resident. Which means dwell

permanently or for considerable time to have a settled, or usual aboard and to live in a particular
place. Some of the factors that can be used to determine residency status include physical
present’s intention and purpose, family and employment maintainers and location of assets. The
person lives in Australia and have permanent place in Australia.
An individual should be known as residence of Australia when she leaves more than 183 days in
Australia. The last condition is when a person is a part of government agency of Australia who is
eligible to contribute to the public sector superannuation scheme of Australia.
In this case Melissa is liable to pay income tax and she is not able to claim for any tax
deduction amount. As per the Income tax Act of Australia any resident of Australia will be able
to take food and drink accommodation from their organization to leave outside Australia for
maximum 12 months (Gale and Samwick, 2014). In this case Melissa travelled from Chicago to
New York for stay there for 2 weeks for employment purpose, their organization provides her
house, food accommodation even Dr Harris paid for Melissa’s conference registration fees,
return airfares from Sydney to the United States. Melissa not liable to ask for tax exemption
because she will be treated as resident of Australia as per the law and act of income tax of
Australia she fulfil all the criteria of being a citizen and resident of Australia and she have local
house and employment and she born in Australia. On the other side as per the rules of Income
tax every person is liable to pay tax on foreign income they earn from outside Australia if he is
resident of Australia. Most of income not taxable if person is temporary citizen of Australia .In
this case Merissa is not included in temporary citizen ship category this she will be liable to pay
her foreign income tax as well as income she earn in this year from local public hospital of
Australia as she will be provides her contains service to theirs hospital they she will be label to
pay her residency as well as foreign income tax. She already gains the benefits of
accommodation which is provided by DR. Harass to her as thy give her facilities of the
accommodations. She needs to fulfil her tax liability whenever she comers in Australia again and
she will be liable to show her overall income statement as well as her foreign income activities in
order to accurate abet o pay tax . If she is a worker for employment of Australia development
fund or fund which contributes to public leaf then she will be able to pay for exempting of tax
liability she is working in hospital then she will be liable to pay tax because being an employee
of Australia their income will be subjects to the income tax at source. Employers of their
organization have to withhold tax from their salary ad remit the amount to local income tax

office. As per the Australian law tax payer will be exempted for their foreign income in some
special cases. Although, under the worldwide income of those taxpayer will be liable to pay. It
does not provide taxpayer with exemption then A Australia will be allowed to give credit against
Australian law on the same income. The credit allowed on the Australian income is computed by
multiplying the ratio of foreign income for the assessment period (Heider and Ljungqvist, 2015).
But these types of exemption are proved only those cases when employers are recognized as
temporary resident of Australia or a part of government contribution organization. Merissa’s a
government nurse but she go USA for her private organization or to increase her skills which
will not beneficial for or contributed to Australia government thus she will be not consider in the
criteria of tax exemption and she will be liable to pay her resident as well as foreign income tax
liability without any exemption.
It is stated that an individual (Advise Melissa) global income, as an Australian citizen, is
taxable. This implies that in the income tax return she should report all the taxes earned from
abroad. As an Australian citizen, international earnings from Australia as well as the country
where Advise Melissa earned it through are paid in both Australia. She may well have obligated
to Australian foreign income tax compensation if Melissa have paid foreign tax in some other
nation on overseas earnings you have obtained. Melissa have pay income tax here on income
from the delivery of Australian Official Development Assistance (ODA), whether she work in an
Australian government department (not a controlled force). ODA participants are also eligible
for qualification as a controlled force (Tiley and Loutzenhiser, 2012).
The following describes the key types of international taxable income as well as the tax
arrangements of Australian residents (Jacob, 2013).
Appreciable tax:
Certain overseas benefits and annuities
Available revenue Exclude income:
Other World War II pensions
Amount-able income from employment
Certain public service jobs
Exempt Income

Military, security, humanitarian agencies and assistance programs. In according, to conditions as
per the exempt foreign job sales Applicant program, subject to requirements, in view to accept
offshore projects.
Qualified tasks, according to circumstances, of the representatives of Australian Defense Force
in the specified area
Here's an example of how specific products are taxed based on whether or not Melissa are
an Australian citizen. Please notice that any Double Tax Arrangement in effect typically prevails
over Australian rules.
Job benefit – Taxes on money received from overseas jobs are usually charged by Australian
citizens. A citizen may request a FITO when the salary is taxable in the foreign country
concerned. In limited cases, additional exemptions and subsidies may apply. (e.g. schemes
accepted abroad)
Company taxes – In Australia, half the world's company profits for people are taxable.
When the investor invests borrowed funds in order to gain a dividend, other costs like interest on
the portfolio of shares are subject to deduction. In Australia, rental money is taxed for property in
all parts of the country (Mertens and Ravn, 2013.
CGT: A capital gain is extracted from the sum that is paid for this asset and certain
acquisition expenses by way of way to dispose of an asset. CGT: Money owned for even more
than 12 months are subject to a reduced price, meaning that just 50% of the income is taxable.
Medicare levy – Medicare tax is levied by people on their wages by 2 %. There may also be
an extra service charge if residents outweigh all other income requirements (if private insurance
is administered).
In general, Australia's Tax treaties operate: reduction or removal of dual taxes triggered by
the conflicting tax jurisdiction, by: transfer of tax rights between territories for the classes of
income that set out guidelines for the settlement of dual claims associated with residential status
Taxation treaties. Protecting and preventing the taxation of various forms of income transfers
between contracting parties by: maintaining, on a required length basis, the sharing of revenues
between associated parties usually safeguards enforcement of domestic legislation that tackles
transfer pricing as well as other multinational avoidance activities that share information among
the two parties. The regulations prescribe rules to address concurrent arguments relating to the
taxpayer's residential status and the income source including the mechanism by which the tax

authorities involved may request a petition for judgment where the taxpayer suspect’s taxation is
being handled according to the terms of a tax treaty.
The most famous form of international tax agreements (DTAs) Dual tax arrangements.
These agreements are often recognized as bilateral agreements, tax arrangements or tax
arrangements between two or more nations. In this Section, such agreements are referred to as
double taxation schemes or DTAs in order to ensure coherence and to avoid ambiguity (Piketty
and Saez, 2013).
Other bilateral agreements involve: treaty among two or more nations that only cover
specific forms of funds, for example freight and passenger transport; treaty that only includes a
type of tax like social security; and treaty that provides for exchange of information and
reciprocal administration support in tax collection. Dual taxation takes place where an individual
in even more than one country receives a similar benefit or expense tax, which essentially taxes
income twice.
Double tax agreements (DTAs) seek to deter tax avoidance and prevent double taxes of
income by assigning in between agreement member nations taxation privileges on this money
earned. Taxation rights can be shared and exclusive to one of the mutual parties. DTAs are
generally bilateral, but may also include multi-country multilateral treaties (for example a Nordic
DTA) or under the false pretence of international organizations. Therefore Australian DTAs and
TIEAs are dual in nature and function on two occasions at the same time. First and foremost,
they represent contractual commitments performed by Australians on which only the other
government can depend. They also constitute national obligations, that individual tax payers are
entitled to rely on that before Australian court system when they are introduced by Australian
law. The key consideration in terms of corporate income taxes is the existence of a 'permanent
government.' This means a fixed location where the taxpayer conducts their company in whole or
in part. According to the document on the corporate income in many other tax treaties, income of
a corporation in one jurisdiction cannot be taxable in the following two conditions: if the
corporation undertakes corporate with a permanent organization under that other territory and in
so far as profits are due to the temporary settlement (Slemrod and Bakija, 2017).
CONCLUSION
In the conclusion it has been founded that CGT functions in the fiscal year when the asset is
acquired or disposes of by counting net capital gains as annual income. If such an asset is owned

for a minimum of 1 year, any profit is initially reduced by 50% for tax filers or by 33.3% for
pension schemes. The reduction of capital can be compensated for the loss of capital. During the
tax year, net capital gains may not, nor could be rolled on forever, account for regular profits.
Financial income tax is a wealth generation system in Australia. The thresholds for specific
resident contributors are different from those for non-resident contributors. The new tax-free
limit is $18,200 for homeowners and the lowest limit is 45% for people. Moreover, most
Australians are eligible to compensate the Payroll tax of 2% of annual income.

REFERENCES
Books and Journals
Auerbach, A.J. and Hassett, K., 2015. Capital taxation in the twenty-first century. American
Economic Review, 105(5), pp.38-42.
Bryan, J., 2017. Individual income tax returns, 2008. Statistics of Income. SOI Bulletin, 37(1),
pp.5A-5A.
Faccio, M. and Xu, J., 2015. Taxes and capital structure. Journal of Financial and Quantitative
Analysis, 50(3), pp.277-300.
Gale, W.G. and Samwick, A.A., 2014. Effects of income tax changes on economic
growth. Economic Studies, https://www. brookings.
edu/wpcontent/uploads/2016/06/09_Effects_Income_Tax_Changes_Economic_Growth_
Gale_Sa mwick. pdf.
Heider, F. and Ljungqvist, A., 2015. As certain as debt and taxes: Estimating the tax sensitivity
of leverage from state tax changes. Journal of financial economics, 118(3), pp.684-712.
Jacob, M., 2013. Capital Gains Taxes and the Realization of Capital Gains and Losses—
Evidence from German Income Tax Data. FinanzArchiv/Public Finance Analysis, pp.30-
56.
Mertens, K. and Ravn, M.O., 2013. The dynamic effects of personal and corporate income tax
changes in the United States. American economic review, 103(4), pp.1212-47.
Piketty, T. and Saez, E., 2013. Optimal labor income taxation. In Handbook of public
economics (Vol. 5, pp. 391-474). Elsevier.
Slemrod, J. and Bakija, J., 2017. Taxing ourselves: a citizen's guide to the debate over taxes.
MIT press.
Tiley, J. and Loutzenhiser, G., 2012. Revenue Law: Introduction to UK tax law; Income tax;
Capital gains tax; Inheritance tax. Bloomsbury Publishing.