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Taxation Law - HI6028 - Taxation Theory, Practice & Law

   

Added on  2020-03-13

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TAXATION LAW
Taxation Law - HI6028 - Taxation Theory, Practice & Law_1
TaxationAnswer-1IssueOver the past 12 months Eric acquired and sold some of the assets. Will it lead to capital gain or loss for the year?RuleIt was held in the case of Californian Copper Syndicate (Limited) v. Harris (Surveyor of Taxes) (1904) 5 TC 159 that those transactions held in the normal course of business will be subjected to tax.ApplicationNet Capital Gain or Loss computation -In the past 12 months there has been various acquisitions by Eric. As the date has not been given,it can be assumed that the assets have been held by Eric for less than 12 months. Capital Gain tax arises where the sale consideration of the assets sold is more than the cost base of the said assets (Hopewell, 2012). Here the benefit of indexation will not be available as the assets have been held for less than 12 months period.First of all the assets held should be classified under their respective heads as under:Collectables- these are the items that are bought by the individual mostly for personal benefit or enjoyment. No capital gain arises on the sale of such collectible assets if the acquisition costs of these assets are $500 or less than that. In the given case, Eric has the following collectibles in hand with the acquisition cost given:Antique Vase- $ 2000Antique Chair- $ 3000Painting- $ 9000Personal Use Assets- these are the assets which are used by an individual for his own use or enjoyment but other than collectibles. Capital gain does not come into picture if there is a sale of the personal assets and where the acquisition cost of these assets was $ 10,000 or below (Nethercott et. al, 2013).2
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TaxationIn the given case, Eric has the following personal use assets in hand with the acquisition cost given :A home sound system- $ 12,000Other than the Collectibles and Personal Use Assets, Eric had purchased shares in a listed company for $ 5,000 which come under the purview of capital gain tax.ConclusionIt needs to be noted that as per Income Tax Assessment Act 1997, section 102-5 the income that is assessable will contain net capital gain. For calculation of capital gain tax for the assets held for less than 12 months, the following formula shall be used:Capital Proceeds – Assets as per the base cost(Amounts in dollars)ParticularsCost Base of AssetsCapital Proceeds of AssetsNet Capital Gain/ (Net Capital Loss)Antique Vase 2,00030001000 GainAntique Chair 3,0001000(2000) LossPainting 9,0001000(8000) LossHome Sound System12,00011000(1000) LossShares in listed company 5,0002000015000 GainTotal5000 Net Capital GainHence, the total taxable capital gain for Eric for the year comes to $5,000.Working Notes:i.The overall collectibles have been acquired on an individual basis (cost ranks higher than $5000) therefore will attract capital gainii.All the Personal use assets individually have been purchased at a cost more than $ 10,000, hence they are applicable for taxable capital gain.iii.Even the assets that are used personally are acquired at a cost that exceeds $10,000 and therefore capital gain is applicable3
Taxation Law - HI6028 - Taxation Theory, Practice & Law_3
Taxationiv.The process of set off has occurred between the capital gain and the loss to determine the net capital gain or loss (Hopewell, 2012).4
Taxation Law - HI6028 - Taxation Theory, Practice & Law_4

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