Calculating Capital Gains/Losses and Fringe Benefits Tax Liability for Rapid Heat

Taxation Theory, Practice & Law
Student Name
[Pick the date]

Question 1
The aim is to calculate the capital gains/ losses for the given transactions incurred by the client
during the tax year. Further, the net capital gains/losses would also be calculated based on the
given information.
Transaction 1: Block of Vacant Land
Assets which are purchased before 20 September 1985 are termed as pre-CGT assets and would
not be considered for Capital Gains Tax (CGT) implication as per s. 149(10), ITAA 1997. It can
be said that client has acquired the block of vacant land on January 2001 and therefore, the land
block would not be termed as pre-CGT asset and thus, CGT implication would be taken into
account. Further, the transaction occurred for sale of land block is considered as A1 event under
s. 104 -5. In order to find the capital gains/losses from the transaction, cost base of land block
would be computed under s. 110-25, ITAA 1997 (Hodgson, Mortimer and Butler, 2017).
There are five factors that need to be computed in regards to find the cost base of the asset under
s. 110-25(1) (Gilders, et.al., 2016).
In accordance of s. 110-25(2): The total amount spent by the taxpayer in order to purchase the
asset.
In accordance of s. 110-25(3): Sum of incidental costs which are incurred in selling and buying
of the asset.
In accordance of s. 110-25(4): Various costs that are incurred in relation to the ownership which
includes land tax, interest on loan amount, sewerage tax and so forth.
In accordance of s. 110-25(4): Capital expense for the betterment of asset or/and preservation of
the asset would be taken into account.
In accordance of s. 110-25(5): Capital expense for the reservation of the ownership of land
would also be the part of cost base.
Amount spent by the taxpayer in order to purchase land block = $100,000
Capital expense in relation to ownership of land =$20,000
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Cost base of land block = Amount spent by the taxpayer in order to purchase land block+ Capital
expense in relation to ownership of land = $100,000 + $20,000 = $ 120,000
It is noteworthy to determine whether the capital gains would be taken into account in the current
tax year in which the contract of sale of land has been signed or in the next tax year in which the
contractual amount would be received (Gilders, et.al., 2016). In accordance of Tax Ruling TR
94/29, the capital gains would be considered in the same tax year in which the contract has been
enacted irrespective of the fact that whether the payment of contract has been received in the
same tax year or not (Wilmot, 2014).
Income received from the sale of land block = $320,000
Capital gains/losses = Income received from the sale of land block- Cost base of land block =
$320,000 – $120,000 = $ 200,000
Capital gains from the sale of land block = $ 200,000
The client has last year’s capital loss that would be balanced from the current year’s capital
gains. Thereby,
Capital gains after balancing the capital loss = $200,000-$7000 = $ 193,000
The holding period of land is more than one year and hence, 50% discount method would be
used to find the capital gains under s. 115-25(1).
Capital gains = 50% *$193,000 = $96,500
Transaction 2: Antique Bed
Antique items are classified as collectibles and therefore, termed as capital asset under TD
1999/40. In accordance of s. 118-10(1), proceeds derived from the sale of collectables which
were purchased for $500 or lower than $500 would not be considered for CGT. Further, the
transaction occurred for the sale of antique bed is considered as A1 event under s. 104 -5 and
therefore, cost base of antique base would be computed to find capital gains/losses for the
transaction (Coleman, 2016).
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It can be said that client has purchased the antique bed on 21 July 1986 means after 20
September, 1985 and hence, it would not be termed as pre-CGT asset (Hodgson, Mortimer and
Butler, 2017). Further, the antique bed is a collectable and CGT liability would be applied as the
bed is purchased for $3500 which is higher than $500 (Woellner, 2016).
Total amount spent by taxpayer in order to purchase antique bed under s. 118 -25(1) = $3,500
Capital expense for the increasing the value of antique bed under s. 118 -25(5) = $1,500
Cost base of antique bed = Total amount spent by taxpayer in order to purchase antique bed+
Capital expense for the increasing the value of antique bed = $3500 + $1500 = $5,000
It is apparent that antique bed was stolen from her house which means the disposal of antique
bed and therefore, the insurance amount of $11,000 would be taken as proceeds from disposal of
bed. Hence,
Capital gains/losses = Income received from the disposal of antique bed- Cost base of antique
bed = $11,000 - $5,000 = $6,000
Client has received capital gains of $6,000 from disposal of antique bed.
The client has last year’s capital loss from sale of sculpture (Antique item) that would be
balanced from the current year’s capital gains. Thereby,
Capital gains after balancing the capital loss = $6,000-$1,500 = $ 4,500
The holding period of antique bed is more than one year and hence, 50% discount method
would be used to find the capital gains under s. 115-25(1).
Capital gains = 50% *$4,500 = $2,250.
Transaction 3: Painting
Assets which are purchased before 20 September 1985 are termed as pre-CGT assets and would
not be considered for Capital Gains Tax (CGT) implication under s. 149(10), ITAA 1997
(Barkcozy, 2017). It can be said that client has acquired painting on 2 May 1985 and therefore,
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