Computation of Capital Gains Tax and Fringe Benefits Tax for Rapid Heat

Taxation Theory, Practice & Law
STUDENT NAME/ID
[Pick the date]

Question 1
CAPITAL GAINS TAX
Issue
The task is to do computation for the capital gains/losses which would be resulted from the
disposal of the capital assets of the taxpayers for FY 2018.
Law
For given scenario, the taxpayer does not carry a business of trading the assets and hence, the
implication of ordinary income generation would not be applied here and thus, the disposal of
capital assets is deriving capital proceeds only (Nethercott, Richardson and Devos, 2016).
The key elements required for calculating the capital gains/losses are discussed below based on
the relevant provisions.
 It is essential to take note of the fact that Capital Gains Tax (CGT) will not be valid or apply
for the capital gains which are resulted from the liquidations of a pre-CGT asset. Thus, only
those assets which do not fall under the category of pre-CGT asset would be considered for
CGT liability. It can be easily be determined based on the date of buying of the capital assets
as any capital asset which has bought before September 20, 1985 is termed as pre-CGT asset
and capital gains from such type of assets will not be considered for CGT liability (Krever,
2017).
 Capital gains produced from the transaction made for capital asset’s disposal is termed as
CGT event A1 (s. 104-5, ITAA 1997) (Sadiq, et.al., 2015). The main procedure of
determining the capital gain from the capital asset’s disposal would involve two main
parameters which are sale proceeds and cost base.
 Sale proceed is the amount which would be derived from the disposal of capital asset
whereby, the cost base is the total amount which has been paid by taxpayer on the assets in
the form of five elements which are highlighted below (Wilmot, 2014).
1

 Income from the sale would be part of the capital gains in the year in which the sale contract
has been signed between the parties (taxpayer and buyer) irrespective of the underlying
factor that income proceeds would not be received in the same income year (TR 97/29)
(Reuters, 2017).
 According to TD 1997/40, any antique item will be known as collectable. Further, the CGT
liability will only be applicable when the purchasing amount of the antique item paid by
taxpayer is more than a benchmark amount which is $500 in case of collectables (Woellner,
2017).
 The items which are known as the personal use asset of taxpayer will only be taken for CGT
liability after disposal when the purchasing amount paid by taxpayer is more than a set
amount which is $10,000 (Gilders, et. al., 2015).
 For both collectables and personal use asset the benchmark buying cost paid by taxpayer is
essential condition because the CGT applicability will be valid only when the amount would
be more than $500 and $10,000 respectively (Sadiq, et.al., 2015).
 Long term capital gains are those which are produced through capital assets which are held
by taxpayer for more a year (s. 11525(1), ITAA 1997. It is imperative aspect to differentiate
between long term and short terms capital gains because when there is a long term capital
gains, then the taxpayer will receive the discount to halve the total amount of capital gains
subject to CGT liability as per s. 115-25 ITAA 1997 (Hodgson,Mortimer and Butler, 2016).
Application
Taxpayer has sold five capital assets during the FY 2018 which needs to be examined based on
the above understanding. Further, the determination of the assets which belongs to pre-CGT
asset (before September 20, 1985) is pre-requisite before applying other relevant provisions.
2

It is apparent from the above table that Painting is a pre-CGT asset and as per above
understanding the CGT liability will not be imposed on the capital gains/losses produced from
the disposal of paining. However, all the other four assets are not pre-CGT asset and the
respective transaction for capital asset sale is capital A1 event and therefore, the CGT liability
will bed impose and capital gains/losses are furnished as given below.
Block of vacant land
Purchase cost paid on January 2001=$ 100,000 ,
Signed contractual sale income that would receive in next year ¿ $ 320,000
Ownership payment would be incidental cost ¿ $ 20,000
Cost base ¿ 100,000+20,000=$ 120,000
Hence,
Capital gains ¿ 320,000 – 120,000=$ 200,000 (deducting cost base)
Capital losses = $7,000 (Previous years)
Net capital gains,
Capital gains ¿ 200,000−7,000=$ 193,000(Balancing capital losses)
Capital gains for CGT ¿ 0.5∗(193,000)=$ 96,500(long term capital gains because 50% rebate
will be applicable)
3