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

Taxation Theory, Practice & Law
STUDENT ID
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Question 1
The main agenda of the given case study is to analyse the disposal of the assets of the taxpayer
which has been performed in the income year 2017/18. As the taxpayer is not associated with
any business related to trading of assets, therefore, the nature of the proceeds from the disposal
would be capital proceeds and therefore, the relevant taxation implications would be in the form
of Capital Gains Tax (CGT). Further, the key aspects along with their application on the
disposed assets (block of land, shares, antique bed, painting and violin) is analysed and
represented below.
Pre-CGT Asset
The provision of s. 149 (10), Income Tax Assessment Act 1997 describes that the assets that are
owned by taxpayer before September 20, 1985 are named as pre-CGT asset (Sadiq, et.al., 2015).
As the assets are purchased before the enactment of CGT consequences and hence, would not
attract any CGT liability.
CGT Event
All the above transactions are CGT events which are classified in the A1 sub class and therefore,
the cost base and proceeds from the disposal of the assets are the two main factors for computing
the capital gains or losses for CGT (Barkoczy, 2017).
Cost Base
The relevant provisions about the cost base of asset is highlighted in s. 110 (25) ITAA 1997
indicates that five main elements which includes various costs which are cumulatively paid by
taxpayer. These five elements of cost base are listed in table given below (Austlii, 2018).
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Capital loss Adjustment
The s. 102 (5) defines that the capital losses will be balanced against the capital gains produced
from the assets (Krever, 2017). The imperative aspect in this regards is that the capital losses on
account of collectables would be balanced against the capital gains produced from the sale of
collectables only (Sadiq, et.al., 2015). The unbalanced capital losses will be shifted to the next
year for future adjustment.
Reduction of CGT liability
Selection of suitable method would lower the net CGT liability of taxpayer. The indexation
method is enforceable only for the capital assets which are owned before 1999. Further, the
capital gains that are derived from assets which concerned taxpayer holds for more than a year
are categorised as long term capital gains (Barkoczy, 2017). A flat 50% discount is applied on
the capital gains which then provide only 50% of the capital gains for CGT implications. Further,
when this period is lower than one complete year then the short term capital gains would not get
any rebate and complete amount of capital gains will be taken for CGT implications (Reuters,
2017).
Realisation of Capital receipts
TR 94/29 defines that even if the payment for sale of a given asset is not received in a given tax
year but the contract of sale has been enacted, then the underlying tax implications would be
considered in the current year only (ATO, 1994) .
CGT Exemption
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CGT will not be imposed on the capital gains received when the following factors are incurred
(Deutsch, et.al., 2015).
 When taxpayer has sold a pre-CGT capital asset then CGT is exempted
 When the personal use asset has been acquired at lesser than $10,000 then also CGT is
exempted.
 When any collectable has been acquired lesser than $500 then CGT is exempted
Disposal of Block of Vacant Land
The CGT liability will be linked to the capital gains or losses computed in case of sale of land
block because the transaction is not related to a pre-CGT. Further, the nature of transaction for
selling the asset is CGT event of A1 subclass. The proceeds from the sale of the land will
actually be received in FY2019 while the sale contract has been made in FY2018 and hence, as
per the applicability of TR 94/29, the proceeds will be used for capital gains/losses computation
in FY 2018 only (Deutsch, et.al., 2015). Further, the losses from the previous years will also be
counterbalanced against the capital gains generated. Ownership period for land has exceeded one
year and therefore, 50% will be chargeable on the capital gains received so as to minimize the
net CGT liability for taxpayer.
Disposal of Antique Bed
Antique bed is classified as collectable (s. 118-10) and the CGT liability will be applied on the
capital gains/loss received from the disposal income because the owning amount is $3,500
whereas the threshold cut-off limit is more than $500 which is satisfied and hence, CGT will be
applicable. It is apparent that taxpayer has not voluntarily sold the antique bed and rather it has
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