Capital Gains Tax Consequences and Fringe Benefits Assessment

Taxation Theory, Practice & Law
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Question 1
A legal advice is required to be extended to the client for the relevant Capital Gains Tax (CGT)
consequences that would be occurred because of the disposal of the capital assets of taxpayer.
Further, the assumption has been made that taxpayer does not involve in running a business of
trading these capital assets and hence, the taxation implication is applicable here is to treat the
given proceeds not to assessable income under s. 6-5 ITAA 1997 (Gilders, et. al., 2015). This is
because the taxpayer is producing the capital proceeds from the disposal of capital assets and
these are not taxable. Thus, the only potential tax liability is related to the capital gains or loss
realised by the taxpayer.
Asset: Vacant Land Block
Taxpayer who has sold pre-CGT assets is exempted from CGT liability (s. 149 (10) ITAA 1997)
(Austlii, 2018 a). It is because the pre-CGT assets are those which have been purchased earlier
than September 20, 1985 when there was no CGT implication (Deutsch, et.al., 2015). Therefore,
any asset which does not belong to pre-CGT asset will be held taken for capital gains/loss and
thus, CGT liabilities would potentially result (Coleman, 2016).
Further, the selling of capital assets as per the given underlying situation is categorised under A1
CGT events. This includes the procedure that cost base (sum of associated costs of the asset) will
be deducted from the net income generated from sale so as to get the net capital gains/loss
(s.110-25, ITAA 1997). The cost base is comprised of the below highlighted elements (s.110-
25(1), ITAA 1997) (Austlii, 2018 b).
1) Cost incurred to purchase asset
2) Incidental costs like stamp duty, legal fees when the asset purchase or sale is done.
3) Cost for retaining the ownership (Taxes and interest cost if loan assumed for purchase of
asset)
4) Cost for enhancing of preserving the net worth of asset (capital expenses)
5) Cost for protecting the title of asset (capital expenses)
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It may be possible that there are some capital losses from last years that are unbalanced and
hence, it would be essential to adjust theses capital losses from the derived capital gains.
The capital assets which are held by taxpayer for a period higher than one complete income year
yields long term capital gains/losses and Division 115 ITAA 1997 would provide a rebate of
50% on capital gains before CGT consequences are levied.
TR 94/29 implies that income from sale will be used for capital gains/losses computation for the
given year in which the taxpayer has signed the agreement of sale of asset (ATO, 1994). There
will be no effect of the fact that the income is expected to receive in next year and in actual the
taxpayer did not get the income from sale.
Block of Land
Asset: Antique Bed
Collectables in their ambit also include the antique items and the capital gains derived from sale
will only be subject to CGT liability when the buying has been done for more than $500 on
behalf of the taxpayer (Barkoczy, 2017). Taxpayer has been bought the antique bed for $3500 on
July 21, 1986 clearly this is not a pre-CGT asset and is purchased higher than the threshold value
of $500.
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Therefore, the capital asset sale will be taken for CGT. The sale of collectable (antique bed) is
also a capital event A1.The taxpayer’s antique bed is stolen and she has received the claim from
insurance amount and hence, this amount will be assumed to be the sale proceeds from antique
bed for computation of capital gains/losses.
Antique Bed
Asset: Painting
The painting is pre-CGT asset since the taxpayer has made the purchase of painting on May, 2.
1985 that is prior to September 20, 1985 (s. 149(10), ITAA 1997). The capital proceeds will not
contribute to the total taxable capital gains of taxpayer and therefore, CGT liability will be
exempted in this case (Wilmot, 2014).
Asset: Shares
The shares are not classified as pre-CGT assets because taxpayer has been made the purchase of
shares after September 19, 1985 (s. 149(10), ITAA 1997). Also, the shares disposal will be
termed as capital event A1 and cost base and capital gains/loss is computed below. Further,
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