Capital Gains Computation for Property Disposal under Taxation Law

TAXATION LAW
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Question 1
(a) With regards to finding the capital gains with regards to disposal of any asset, a crucial role is
played by the asset cost base. The calculation of asset cost base is driven by s. 110-25 ITAA 1997.
Subsection 110-25(1) ITAA 1997 states that the asset cost base is comprised of the following five
elements (Sadiq et. al., 2015).
 Purchase price of underlying asset as per ss. 110-25(2) ITAA 1997
 Buying and selling related incidental costs of the asset as per ss. 110-25(3) ITAA 1997
 Ownership costs related to holding of costs which typically consist of items such as various
taxes (council, water, land) , interest expenses (loan for investment) etc. as per ss. 110-25(4)
ITAA 1997.
 Value preservation or appreciation related capital costs which the taxpayer incurs in relation
to the asset as per ss. 110-25(5) ITAA 1997.
 Title preservation related capital costs which the taxpayer incurs in relation to the asset as
per ss. 110-25(6) ITAA 1997.
The asset under consideration in the given case is a property. The cost base of this asset needs to be
computed considering the key elements contributing to cost base as have been indicated above.
Element One: Property purchase price = $ 500,000
Element Two: Buying related incidental costs for asset acquisition in the form of stamp duty = $
25,000
Element Three: Ownership costs in the form of various taxes related to property = $ 25,000
Element Four: Value appreciation related capital expenditure that investor has done = $ 250.000
Element Five: Title preservation related capital expenditure related to lawyer fees = $ 5,000
Property cost base as per s. 110-25 ITAA 1997 = 500000 + 25000 + 25000 + 250000 + 5000 = $
805,000
(b) With regards to capital asset disposal, the relevant capital event is A1 as highlighted in s. 104-5
ITAA 1997. Considering the above legislative clause, the property sale would be referred to a A1
capital event. The classification of capital event is pivotal as the capital gains computation method is