Understanding Capital Gains Tax and its Application in Different Assets

Running head: TAXATION LAW
Taxation Law
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1TAXATION LAW
Table of Contents
Brief Overview:..........................................................................................................................2
A jewellery Costs $5,000:..........................................................................................................3
A second hand car purchased for $3000:...................................................................................4
Shares in BHP:...........................................................................................................................5
Your Home:................................................................................................................................6
References:.................................................................................................................................9

2TAXATION LAW
Brief Overview:
A gain which is categorised as capital is not held for income tax purpose under the
ordinary concepts of income. The capital gains tax began on 20 September 1985 and brings
forward the capital receipts under the tax base. The income tax liability of the tax includes the
net capital gains (Barkoczy 2014). Under the capital gains tax, a taxpayer accrues the net
capital gains to the taxpayer in the particular income year that gains are included into the
taxpayer’s taxable income. While a capital loss is not subjected to deductions from the
taxable income instead the same can be off-set against the capital gains for that year or in the
future years to ascertain the net capital gains.
Capital gains tax cannot be regarded as the separate tax. It is a set of residual
provisions that is designed to understand the amount of the statutory income that can be
included into the taxable income of the taxpayer (Grange, Jover-Ledesma and Maydew
2014). The primary step in determining whether transaction is subjected to capital gains tax is
to ascertain whether the CGT event has happened. A capital gains or loss originates only
when the CGT event takes place involving the CGT assets.
A capital gains tax asset can be defined as the part or interest in any form of property
or the legal or equitable right which is not the property (Jover-Ledesma 2014). The CGT
assets are divided into the three categories. These are as follows;
I. Collectables
II. Personal use assets
III. Other CGT assets.
In order to determine the cost base or in other words the cost of purchase of
collectables and personal use assets, any non-capital cost of ownerships must be ignored.

3TAXATION LAW
A jewellery Costs $5,000:
The definition of Collectables is provided under “section 108-10(2) of the ITAA 1997”.
According to the “section 108-10(2) of the ITAA 1997” a collectable can be defined as the
assets that are mainly used or kept for the personal enjoyment of the taxpayer or the taxpayers
associates private use and enjoyment (Kenny, Blissenden and Villios 2018). The collectables
mainly comprises of the below stated following;
a. Any form of artwork, jewellery, antique object, medallion or a coin
b. A rare type of folio, book or manuscript
c. A first day cover or the postage stamp
d. Any interest or an option or the right of acquiring the above stated items or the debt
that originates from the above listed items.
As defined under “section 118-10(1) of the ITAA 1997”, collectables are acquired for
$500 or less must be excluded from the provision of the capital gains tax (McCouat 2018).
Where the collectables are normally sold as the assets or in the form of set, the set will be
held as the single CGT asset within the purpose of the stated threshold. Under “section 108-
10 (1) of the ITAA 1997” an individual tax payer reporting capital loss from the collectables
can be only used to offset the capital gains together with the future capital gains originating
from the collectables (Sadiq et al. 2018).
Where the taxpayer has two or greater than two losses from the collectables then it
must be applied in an order against the gains that were made. Under “section 108-17 of the
ITAA 1997” the costs base of the element does not comprises of the third element of the cost
base or the cost that is associated with ownership such as interest (Taylor et al. 2018).
In the present situation it should be noted that a “jewellery costs $5,000”. With
reference to “section 118-10(1) of the ITAA 1997” the jewellery should be classified as