Capital Gain Tax | Taxation Law | Assignment

Running head: TAXATION LAW
Taxation Law
Name of the Student
Name of the University
Authors Note
Course ID

1TAXATION LAW
Table of Contents
Answer to Part 1:........................................................................................................................2
Answer to Part 2:........................................................................................................................3
References:.................................................................................................................................6

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Answer to Part 1:
A capital gain tax can be defined as the set of rules which is mainly designed to
compute the gains which will would be taxed under the laws of income tax because of one of
53 CGT events. A capital gain happens when the proceeds following the disposal of asset
exceeds the costs of purchasing the asset (Lam and Whitney 2016). A capital gains or loss
happens under “sec 100-20 (1)” when the CGT events happens. A “CGT event A1” takes
place when the disposal of CGT asset happens under sec 104-10. The sale of CGT event
would usually happen when a contract is entered into by the taxpayer for sale.
According to the “sec 104-10(3) ITAA 1997” the time of CGT event upon the transfer
of CGT asset happens when the taxpayer forms an agreement or if there is no agreement, then
it involves when the change of ownership happened upon the settlement (Phan 2016).
Reference to “FCT v Sara Lee Household & Body Care P/L (2000)” can be made to
understand the time of CGT event. The factors include;
1. The applicable contract amounts to a source of obligation in performing the transfer
of assets that results in relevant sale.
2. If there is more than two contracts which forms the sources of obligation to execute
the transfer, there is need for judgement as which contracts is property to be viewed as
the source of obligation to create an impact on the disposal.
3. It is not possible to recognize the single agreement based on which the sale happened,
then the time represents when the change of ownership took place.
4. The date of purchase and sale of same CGT asset might not be same and does not
requires to be contemporaneous (Armstrong 2016).
5. The relevant time is when the contact is made and not when it became unconditional
or enforceable specifically.

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When it is noticed that the relevant contract is signed prior to 30 June, the CGT event along
with the liability of paying the CGT will be for the year ended 30 June.
Answer to Part 2:
During the year 2001 Harrison purchased an investment property for $80,000. Citing
“section 108-5 ITAA 1997” the property is a CGT asset. In the year 2018 the property was
sold by Harrison for $1.3 million. When the property was sold by Harrison a “CGT event
A1” happened under “section 104-10 (1)” happened. Citing the case of “FCT v Sara Lee
Household (2002)” a “CGT event A1” took place when Harrison arrived in the contract of
selling the investment property (Villios 2014). There was a change in ownership when
property was eventually sold by Harrison. As a result under “section 102-5 ITAA 1997” the
net amount of capital gains made by Harrison from selling the property will be included in his
taxable income.
Apart from selling the property, Harrison also sold $10,000 shares that he purchased
in October 1985 for $4 per share. On 20th June 2018 all the shares were sold for $12 per
share. Referring to “FCT v Sara Lee Household (2002)” the contract for transferring the
shares was entered into by Harrison on 20th June 2018 (Friend 2015). Referring to “sec 104-
10 (3) ITAA 1997” the timing of CGT event will be the income year 2017-18 since it
represent the year in which the agreement actually took place.
As explained by ATO when a capital loss happens on disposing the CGT asset, the
loss should be used to reduce the capital gains in the same financial year (Mark and James
2016). When it is found that no gains are reported by taxpayer, the losses is carried forward
to subsequent year. Similarly, Harrison did not reported any capital gain in 2018-19 but
reported a capital loss of $65,000. So these losses needs to be carried forward by Harrison to
subsequent years.

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Discount Method:
Indexation Method:
Computation of Net Capital Gains/Loss
In the books of Harrison Carter
For the year ended 30th June 2018
Particulars Amount ($) Amount ($)
Sale of Investment Property
CGT Event A1 (Sec 104-10 ITAA 1997)
Sales proceeds
$
13,00,000
Less: Cost of Acquisition
$
8,00,000
indexed Capital Gains
$
5,00,000
Tax payable (marginal tax rate x indexation factor x capital
gain)
$
2,29,880
Net Capital Gains
$
2,29,880
Sale of Shares

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CGT Event A1 (Sec 104-10 ITAA 1997)
Sales proceeds
$
1,20,000
Less: Cost of Acquisition
$
40,000
indexed Capital Gains
$
80,000
Tax payable (marginal tax rate x indexation factor x capital
gain)
$
15,673
Net Capital Gains
$
15,673
Total Capital gains
$
2,45,553
As evident from the above stated computation it can be stated that the taxable capital
gains under the discounted method is $290,000 while the taxable capital gains under the
indexation method is $245,553. It is advised that Harrison should make use of discounted
method as it helps in lower tax liability.

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References:
Armstrong, M., 2016. CGT withholding on real estate transactions in Australia. Mondaq
Business Briefing, pp.Mondaq Business Briefing, March 11, 2016.
Friend, R., 2015. The CGT small business concessions: issues, anomalies and opportunities.
(capital gains tax) (Australia). Australian Tax Review, 40(2), pp.108–137.
Lam, D. and Whitney, A., 2016. Practical aspects of the new foreign resident CGT
withholding tax. LSJ: Law Society of NSW Journal, (21), p.84.
Mark, K., and James, M., 2016. PM weighs higher capital gains tax. The Age (Melbourne,
Australia), p.4.
Phan, L., 2016. Australia's Foreign Resident Capital Gains Tax Withholding Regime.
Mondaq Business Briefing, pp.Mondaq Business Briefing, Sept 29, 2016.
Villios, S., et al., 2014. The capital gains tax implications of buy-sell agreements.(Australia).
Australian Tax Review, 41(2), pp.100–112.