Capital Gains Tax (CGT) Consequences and Fringe Benefits Tax (FBT) Assessment

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

Question 1
The legal advice needs to be provided to taxpayer about his Capital Gains Tax (CGT)
consequences for FY2018.
Pre-CGT assets are those which the taxpayer purchased before September 20, 1985 and do not
result in CGT liability on the concerned taxpayer under 149(10), ITAA 1997 (Austlii, 2018 a). It
means the CGT will be applicable for the case whereas there is disposal of asset which does not
qualify as pre-CGT asset. The transaction for the sale of such assets is considered as A1 category
CGT event under s. 104-5, ITAA 1997. It indicates that cost base of asset needs to be determined
for the capital gains/loss of taxpayer from the sale of asset. The five costs/expenses are defined
in the cost base of the asset which is listed below (Austlii, 2018 b).
Land Block
It has been reflected from the given case facts that land block have been purchased for a sum
payment of $100,000. The date is indicative itself to conclude that the land block is not a pre-
CGT asset under 149(10), ITAA 1997 and the relevant CGT implication is charged on taxpayer
(Austlii, 2018 a). Further, the disposal of capital assets is a CGT event of class A1. The ruling
TR 94/29 defines the underlying aspect in relation to the received capital proceeds from the
disposal of land block. It indicates that capital proceeds will be held contributed to the capital
gains computation in the year in which the signing of contract has been performed between the
buyer and seller (ATO, 1994). It means even though the taxpayer has not received the capital
proceeds, he/she would have to include the expected proceeds for capital gains determination.
1

Further, the capital gains from the disposal of land block will be considered as long term capital
gains and is liable for 50% rebate for CGT consequences. The capital gains are long term as the
holding period for this asset has been higher than 1 year (Barkoczy, 2017).
Antique Bed
It has been reflected from the given case facts that antique bed has been purchased for a sum
payment of $3,500 in the year 1986. The date is indicative itself to conclude that the antique bed
is not a pre-CGT asset under 149(10), ITAA 1997 and the relevant CGT implication is charged
on taxpayer (Austlii, 2018 a). Further, the disposal of capital assets is a CGT event of class A1
and therefore, the basic procedure of calculation for capital gains/losses will be adopted which is
used for class A1 event (Barkoczy, 2017). However, it is noteworthy that the antique bed is part
of the collectables and hence, the necessary condition used for treating the collectables for CGT
taxation would be checked.
It is essential that the antique item must be bought at price in excess of $500 for the applicability
of CGT on the capital gains derived from disposal of the asset. Here, the taxpayer bought the
antique bed for $3,500 which is significantly higher than the amount required to satisfy the
necessary condition (Barkoczy, 2017). Hence, CGT implication is charged on her. The capital
expense of $1500has been paid by taxpayer in order to enhance the quality of bed by installing
the interlined mattresses. The carried forwarded loss from the disposal of sculpture has been
adjusted from the current year’s capital gains. Further, the capital gains from the disposal of
antique bed will be considered as long term capital gains and is liable for 50% rebate for CGT
2

consequences. The capital gains are long term as the holding period for this asset has been higher
than 1 year (Gilders, et. al., 2015).
Painting
The disposal of the famous painting by the taxpayer does not create any CGT implication on her
as the aspect regarding the purchasing date of the painting indicates that taxpayer has been
purchased before September 20, 1985. Therefore, CGT implication is exempted as painting
belongs to category of pre-CGT asset which are immune to CGT taxation as per the highlights of
s. 149-10, ITAA 1997 (Austlii, 2018 a).
Shares
It is evident from that all the shares have been purchased by the taxpayer after September 20,
1985 which implies that CGT will be imposed because the shares are not belonged to pre-CGT
asset under 149(10), ITAA 1997 (Krever, 2017). Moreover, it is apparent that holding period for
the initial three assets tends to exceed one year and thus, 50% rebate will be applicable on the
long term capital gains and the fourth shares does not show holding period higher than a year and
hence, rebate will not be applicable on the short term capital gains.
3