Understanding Capital Gains Taxation Law: A Comprehensive Guide

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:.................................................................................................................................8

2TAXATION LAW
Brief overview:
Capital gains are not treated as income based on ordinary concepts and are excluded
from income tax. The concept of capital gains was introduced in 20 September 1985 and
introduces capital receipts for taxation purpose. The net capital gains form the part of income
tax liability (Yagan 2015). The capital gains tax requires the taxpayer to accrue the net
amount of capital gains in an income year and the same is included for assessment purpose in
the taxable income of taxpayer. A taxpayer cannot claim deductions for the capital loss from
their assessable income however the capital loss can be offset against the capital gains for
that income year or can be carried forward in future years to determine the net amount of
capital gains.
Capital gains are not treated as separate tax rather it is treated as the residual
provisions which is created to ascertain the sum of statutory income to be included into the
assessable income of taxpayer (Meidner, Hedborg and Fond 2017). The first step in
ascertaining whether the transaction give rise to capital gain is to determine whether the CGT
event has taken place. Capital gains or loss happens when there is a CGT event comprising of
the CGT assets.
Capital gains tax asset can be as the part or interest in property or lawful equitable rights
(Auerbach and Hassett 2015). The capital gains assets are divided in three categories for
taxation purpose which is stated below;
a. Personal use assets
b. Collectables
c. Other CGT assets
To ascertain the cost base of CGT asset such as collectables and personal use assets,
the non-capital cost of ownerships should be excluded.