Sale of Land 4 Answer to Question 1: 2 Answer to Question 2: 6 Answer to E: 8 Answer to F: 8 Answer to E: 8 Answer to E: 8 Answer to F: 8 Answer to E: 8 Answer to E: 8 Answer to E: 8 Answer to E: 8 An

Running head: LAWS OF TAXATION
LAWS OF TAXATION
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Author note
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LAWS OF TAXATION1
Table of Contents
Answer of question 1:................................................................................................................2
Answer A: Sale of block of land................................................................................................2
Answer B: Sale of shares...........................................................................................................4
Answer C: Sale of Stamp Collection.........................................................................................4
Answer D: Sale of Guitar...........................................................................................................5
Answer to question 2:.................................................................................................................6
Answer to A:..............................................................................................................................6
Answer to B:..............................................................................................................................6
Answer to C:..............................................................................................................................7
Answer to D:..............................................................................................................................7
Answer to E:...............................................................................................................................8
Answer to F:...............................................................................................................................8
Answer to G:..............................................................................................................................8
Answer to H:..............................................................................................................................9
References................................................................................................................................10

LAWS OF TAXATION2
Answer of question 1:
Answer A: Sale of block of land
Five elements are basically included in the cost. As mentioned under “sect-110-25
(2)” the first elements includes property paid or the money paid to obtain an asset. “Sect-110-
35” describes second element of cost which includes incidental costs which includes legal
fees, stamp duty etc. The third elements includes the cost of ownership which involve
ownership costs, land taxes, insurances and interests (McCluskey and Franzsen, 2017). As
mentioned under “sect-110-38”, the fourth element includes the cost of preservation and
capital improvement. Improvement, installation expenses and moving expenses are the
example of this type of cost. Capital improvement in maintaining the title rights of assets are
included under the fifth elements of the cost. Under “sect-110-45” includes the examples of
this cost which includes the cost which has occurred in acquisition of land by government
(O’Connell, 2017).
In the current situation, Sophia has reported that she sold a land for $800,000 which
she purchased for $130,000 in the year 1991. To ascertain the CGT of the land, the
acquisition cost of the asset must be understood. “Sect-110-25 (2)” describes that this
acquisition cost includes the cost of asset which is included in the purchase price paid by
Sophia on acquisition. Sophia also paid legal fees $1,200 and stamp duty for $800. “Sect-10-
35” describes that these type of cost are to be classified as incidental cost and therefore
Sophia should include the incidental amount in the cost base of the asset (Collier et.al, 2018).
Sophia also had a bank loan which she paid interest of $27,000 in order to purchase
the property. Sophia paid a water rates, council rates and insurance of $18,500 when she
owned the property. This type of expenses must be classified as property ownership cost and
hence she should add it in the cost base to calculate the net capital gains as noted under “sect-

LAWS OF TAXATION3
110-36”. Sophia also had a dispute with her neighbour for which she paid legal fees worth
$8,000.
As mentioned under “sect-110-25 (6)”, this cost should be classified under fifth
element cost base which will be used to establish the cost of the property. Sophia also
reported that she also had an expense to remove pine trees from the property which was
hazardously presented there and it is a capital expenditure as mentioned under “sect-110-25
(5)” and the taxpayer has occurred the expenses which increased the asset value therefore,
Sophia should include the expenditure under her cost base (Barkoczy, 2016).