Net Capital Gain or Loss and Fringe Benefits Tax Assessment

Taxation Theory, Practice & Law
HI6028
Student Name
[Pick the date]

Question 1
The objective of the given scenario is to compute the net capital gain or capital loss for the given
client who is not only an investor but also an antique collection. The relevant capital gains
implications of the various transactions that have been enacted in the given tax year are as
presented below.
Block of Vacant Land
Section 149-10 ITAA 1997 states that any asset that has been acquired before September 20,
1985 would be a pre-CGT asset and hence exempt from Capital Gains Tax (CGT). It is apparent
that the given block of land has been purchased in January 2001, hence the land would not be
considered a pre-CGT asset (Barkoczy, 2017).
Section 104-5 states that the underlying transaction is an A1 event whereby a CGT asset in the
form of land block has been sold. The capital gains/(loss) on the same would be computed by
deduction of the sales proceeds and the cost base of the asset. For the computation of cost base,
s. 110-25 ITAA 1997 ought to be considered. As per s. 110-25(1), there are essentially five
elements which comprise the cost base of the asset as indicated below (Nethercott, Richardson
and Devos, 2016).
In the
given case, purchase price of land = $100,000
Ownership period expenses = $ 20,000
Cost base of the asset = 100000 + 20000 = $ 120,000

Another issue in the given case is whether the capital gains would be considered in the current
year when sale contract is signed or in the next year when the settlement of the contract would be
done. As per TR 94/29, the capital gains needs to be included in the same year where contract is
signed for asset disposal even though the actual payment of CGT can be done upto 30 days from
the settlement of contract without attracting any penalty from ATO. Thus, the capital gains
would be represented in the current year tax filing (Reuters, 2017).
Capital gains on land block = Sale proceeds – Cost base = 320000 – 120000 = $ 200,000
There is a previous year capital loss to the tune of $ 7,000 which would be used to settle against
the above capital gains. Hence, capital gains = 200000-7000 = $ 193,000
As per s. 115-25(1), a discount of 50% is available on the capital gains arising from the disposal
of long term assets i.e. those whose holding period exceeds one year (Woellner, et.al., 2017).
Thus, capital gains subject to CGT = 0.5*193000 = $ 96,500
Antique Bed
As per s. 118-10, antique items fall within the ambit of collectables considering their broad
definition. Further, as per s. 118-10(1), any capital gains or losses on the antique item would be
disregarded for CGT purposes if the underlying asset was acquired for $500 or less. In
accordance with s. 104-5, the underlying transaction is an A1 event whereby a CGT asset in the
form of land block has been sold. The capital gains/(loss) on the same would be computed by
deduction of the sales proceeds and the cost base of the asset.
In the given case, the antique bed has been purchased post September 20.1985 and also the
buying price is greater than $ 500 and hence resultant CGT liability would not be disregarded,

Clearly, there has been involuntary disposal of bed, leading to realisation of $ 11,000 which
would be treated as the disposal price.
As per s. 115-25(1), a discount of 50% is available on the capital gains arising from the disposal
of long term assets i.e. those whose holding period exceeds one year (Hodgson, Mortimer and
Butler, 2017).
Painting
In accordance with s. 149(10) ITAA 1997, any asset that has been acquired before September 20,
1985 would be a pre-CGT asset and hence exempt from Capital Gains Tax (CGT). It is known
that painting purchase date lies in pre-CGT era thus disqualifying this asset from CGT
imposition. Since the given painting is a pre-CGT asset, hence the resultant capital gains arising
from the sale of painting would be discarded and no CGT would be applied on the same. Hence,
no capital gains or losses arise from the sale of the given painting (Deutsch, et. al., 2015).
Shares
In accordance with s. 104-5, the underlying transaction is an A1 event whereby a CGT asset in
the form of shares been sold. The capital gains/(loss) on the same would be computed by
deduction of the sales proceeds and the cost base of the asset (Woellner, 2016).