Taxation Theory, Practice & Law: Capital Gains Tax and Fringe Benefits Tax Analysis

Taxation Theory, Practice & Law
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Question 1
The present circumstances would be analysed and the tax advice would be provided to the client
on the account of the received capital gains/losses from the disposal of the assets. The imperative
aspect is that taxpayer is not running a business involving trading of asset or engagement in
selling or buying the assets to generate revenue receipts and hence, the only available scenario
for the sale proceeds is capital receipts. Further, the tax treatment for the capital receipts would
not be done based on the assessable income taxation concepts and hence, the applicable tax
treatment would be Capital Gains Tax (CGT) on the account of the capital gains or capital losses
that have resulted from the capital proceeds. The basic terms which are essential to understand
the context of CGT are highlighted below.
(1) Pre-CGT Asset: Capital Gains Tax (CGT) has come into existence on September 20, 1985.
The assets which have been acquired before this date are categorised as pre-CGT asset. The
relevant provisions are highlighted in s. 140-10 Income Tax Assessment Act 1997 (ITAA
1997) (Krever, 2017). As the pre-CGT assets belong to the period which is prior to the
enforceability of CGT and hence, CGT liability is not applicable on those assets. The
taxpayer would not be held accountable for the CGT implication on the capital gains or
losses which are obtained due to the disposal of the pre-CGT asset (Woellner, 2017).
(2) CGT Event: Capital gains or losses would be computed when there is a CGT event
occurrence. The provision of s. 104-5 ITAA 1997 defines the list of CGT events for different
categories of the transactions. According to the current information, it would be concluded
that the incurred transactions of the taxpayers for the selling of the assets are CGT event and
the associated category is A1 (Krever, 2017). This indicates that income from disposal and
cost base of asset are the two main variables which need to be calculated to determine the
incurred capital gains/losses.
(3) Cost Base: This is combination of the various costs which are associated with the asset and
are paid by the taxpayer as defined in s. 110-25 ITAA 1997. The major components of cost
base are five which are shown below (Coleman, 2016).
Component 1 of cost base: Cost for the procuring the asset at the time of purchase
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Component 2 of cost base: Incidental costs which are associated with selling and buying
Component 3 of cost base: Capital expenses invested by taxpayer to improve the worth of asset
so that high sale proceeds can be derived
Component 4 of cost base: Capital expenses invested by taxpayer to keep the asset title
Component 5 of cost base: Cost related to the action which has been done so as to retain the
ownership of asset
(4) Capital Loss: There is a possibility that disposal of the asset would generate capital losses to
taxpayer and hence, in such cases the capital losses will be adjusted with the capital gains
received as per the understanding highlighted in s.102 -5 ITAA 1997. Moreover, if no capital
gains are generated to adjust the capital losses then these losses would be rolled over to the
next financial year (Barkoczy, 2017).
(5) Discount Method for Capital Gains: Assets that are deriving long term capital gains will be
liable for 50% discount on the capital gains for CGT implication as per s. 115-25 (Woellner,
2017). Long term capital gains are derived when there is holding period of asset of more than
12 months. Further, short term capital gains (holding period of asset less than 12 months) are
derived, then 50% discount will not be valid.
Block of vacant land
The land purchase has been taken place in year 2001 and liquidated in 2017/18. . These two
dates are enough to make the conclusion which is listed below.
 Land block is not pre-CGT asset (purchased after September 20, 1985)
 Holding period is more than a year (capital gains will be long term)
The transaction for the sale of asset is CGT event and the sub category is A1. The relevant
formula for calculating capital gains/losses for the block of vacant land is function of income
received on the account of selling of the asset and the cost base. Further, the relevant factor
related to the sell proceeds realisation is that taxpayer did not get the payment of land from the
respective buyer and only signed the contract for selling. As per the understanding highlighted in
TR 94/29, the expected proceeds of the sale will be realised in the very same income year in
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which the enactment of the contract has been performed by the concerned parties (Gilders, et. al.,
2015). This is true in the present case because taxpayer has made the contract for the sale but
will get the payment for the land in next financial year and therefore, due to the contract
enactment the expected proceeds would be realised in the year 2017/18 because the contract has
been enacted in 2017/18. The CGT calculation is represented below. The final capital gains will
be received after settling the loss of $7000 which remain unsettled in past year. As described
above, the long term capital gains would be held liable for 50% rebate for CGT implications as
has been performed in the last step of calculation.
Antique Bed
The antique bed purchase has been taken place in year 1986 and liquidated in 2017/18. These
two dates are enough to make the conclusion which is listed below.
 Antique bed is not pre-CGT asset (purchased after September 20, 1985)
 Holding period is more than a year (capital gains will be long term)
The transaction for the sale of asset is CGT event and the sub category is A1. The relevant
formula for calculating capital gains/losses for the antique bed is function of income received on
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