Calculation of Net Capital Gain and Fringe Benefits Tax Liability for Rapid Heat

Taxation Theory, Practice & Law
Student Name
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Question 1
Based on the given information, the task is to determine the net capital gain or net capital loss of
the client for year ended 30 June of the existing tax year.
1) Calculation of capital gains or loss derived from selling of block of land
Pre-CGT assets are those assets which are acquired by the concerned taxpayer earlier than 20
September 1985 and are not taken for the Capital Gain Tax (CGT) under the provision of
149(10) of Income Tax Assessment Act 1997 (Hodgson, Mortimer and Butler, 2016). Hence, it
is essential to find whether the assets are pre-CGT assets or not. In present scenario, client is an
investor as well as an antique collector (who is not running a business) has signed a contract to
sell a land block which she acquired in 2001. With this information, it can be defined that land
block is not a pre-CGT asset as the acquired date of asset is after 1985. Further, provision of s.
104-5 defines that transaction for selling of land is A1 event and hence, CGT liability will be
levied on client for the land disposal. Cost base of the asset is imperative parameter to calculate
the exact amount of capital gains or loss. Five factors are considered for the calculation of cost
base of asset which is discussed below (Wilmot, 2014).
 Sum amount given by taxpayer to purchase the asset as per s. 110-25(2).
 Incidental costs given by taxpayer in the process of buying or/and selling the asset as per s.
110-25(3).
 Numerous costs paid by taxpayer for the ownership of asset such as sewerage tax, loan
interest payment, land tax and so forth as per s. 110-25(4).
 Capital expenditure given by taxpayer in regards to increase the net worth of the asset or to
preserve the asset for long term as per s. 110-25(4).
 Capital expenditure given by taxpayer in regards to protect the title of asset as per s. 110-
25(5) (Barkoczy, 2017).
Sum amount given by taxpayer to purchase the land = $100,000
Cost paid by taxpayer for the ownership of land in the form of local council, land taxed, water
and sewerage rates = $20,000
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Cost base = 100000 + 20000 = $120,000
As per TR 94/29, the payment of the signed contract for selling the land will lead to contribution
to the CGT for the same year in which the contract is signed while the payment would be
received by taxpayer in upcoming tax year. Here, also client has signed contract for a
consideration of $320,000 in current tax year but will receive the payment in upcoming year.
Hence, this amount would be held taken for CGT liability in current year only (Hodgson,
Mortimer and Butler, 2016).
Consideration amount (Sale proceeds) =$320,000
Capital gains = 320000 -120000 =$200,000
It is essential to first counterbalance the derived capital gain with the carried forward capital
losses incurred in previous tax year. Here, client has $7,000 carried forward capital losses.
Hence,
Capital gains = 200000 -7000 = $193,000
Method to find the capital gain for CGT will be decided based on the holding period of asset. It
means if the asset is long term (holding year is higher than 12 months) then, 50% of capital gains
will be contributed for CGT as per 115-25(1). Client has land block for more than 12 months and
therefore, it is long term asset (Barkoczy, 2017).
Thereby,
Capital gains for CGT = 50% of $193,000 = $96,500
2) Calculation of capital gains or loss derived from selling of antique bed
Collectables are capital assets and disposal of such assets will lead to CGT levied on the
concerned taxpayer only if they do not belong to pre-CGT asset as per TD 1999/40. Also, the
essential term in this scenario is that the taxpayer must acquire the collectable for not less than
$500. Here, taxpayer has an antique bed which she acquired for $3500 in 1986 and therefore,
CGT will be levied for transaction of A1 event as per s.104-5 (Barkoczy, 2017).
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Capital expenditure spent by taxpayer in regards to increase the net worth of the bed by installing
innerspring mattress as per s. 118-25(2) =$1500
Cost base of antique bed =3500 +1500 = $5,000
Taxpayer’s antique bed was stolen and thus, she received a sum of $11,000 from insurance
(household contents policy) =$11,000
Capital gains = 11000 -5000 =$6,000
It is essential to first counterbalance the derived capital gain with the carried forward capital
losses incurred in previous tax year (Nethercott, Richardson and Devos, 2016). Here, client has
$1,500 carried forward capital losses from selling of sculpture. Hence,
Capital gains = 6000 -1500 = $4,500
Method to find the capital gain for CGT will be decided based on the holding period of asset. It
means if the asset is long term (holding year is higher than 12 months) then, 50% of capital gains
will be contributed for CGT as per 115-25(1) (Wilmot, 2014). Client has antique bed for more
than 12 months and therefore, it is long term asset.
Thereby,
Capital gains for CGT = 50% of $4,500= $2,250
3) Calculation of capital gains or loss derived from selling of painting
It is apparent that pre-CGT assets those which are acquired by the concerned taxpayer earlier
than 20 September 1985 and are not taken for the Capital Gain Tax (CGT) under the provision of
149(10) of Income Tax Assessment Act 1997.With this information, it can be defined that
taxpayer acquired a painting by a well-known Australian artist on 2 May 1985. It is clear
indication of the aspect that painting is pre-CGT asset as it has been acquired earlier than 20
September 1985 (Hodgson, Mortimer and Butler, 2016). Hence, no CGT would be levied on the
capital gains ($125,000) generated from the sale of painting.
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