Computation of Net Capital Gains/Losses and Fringe Benefits Tax Assessment

Taxation Theory, Practice & Law
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Question 1
The computation of net capital gains/losses for the income received from disposed capital assets
of the taxpayer is the main objective. All the transactions of the taxpayer have derived capital
receipts since the transactions are non-business in nature and thus, would be liable for Capital
Gains Tax (CGT) treatment.
Capital Asset 1: Sale of Block of Vacant Land
The asset has been purchased well after September 20, 1985 and therefore, the block of vacant
land is not named as pre-CGT asset of client as mentioned in details in s. 149 (10) ITAA 1997
(Barkoczy, 2017). Hence, the application of CGT will be valid on the proceeds of the disposal
for the calculation of capital gains or losses. Also, as per the underlying clauses of s. 104 (5)
ITAA 1997, the type of transaction for disposing the block of land is a capital gains tax event
(CGT event) of A1 type (Wilmot, 2014). According to this sub class, the capital gains or capital
losses could be determined by subtracting the cost base of asset and the capital receipts received
from the disposal. Hence, based on the above, it is essential to determine the cost base of asset
whose constituent elements are highlighted in s. 110(25) ITAA 1997 and in details in the
subsection of s. 110(25)-1 ITAA 1997 (Sadiq, et.al., 2015).
The enactment of contract for the sale is an imperative aspect because the provisions of TR
94/29, defines that capital gains or losses derived from asset sale will be considered for CGT
application in contract enactment year only while the payment of the contract may or may not be
received in the same financial year (Woellner, 2017). In present case also, the taxpayer would
have receive the contractual payment for the sale of land in FY2018/19 while the contract of sale
has been conducted in FY 2017/18. However, the sale proceeds will be used for capital
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gains/loss calculation in FY 2017/18 only. The taxpayer has kept the asset for more than a year
and thus, the capital gains will be long term and 50% concession will be provided to taxpayer as
provided under the aegis of s. 115-25 ITAA 1997 (Reuters, 2017). Moreover, before applying
50% concession the previous capital losses will also be balanced from the derived capital gains
as outlined in relevant clauses of s. 102(5) ITAA 1997 (Nethercott, Richardson and Devos,
2016).
Capital Asset 2: Sale of Antique Bed
The asset has been purchased well after September 20, 1985 and therefore, the antique bed is not
named as pre-CGT asset of client as mentioned in details in s. 149 (10) ITAA 1997. Hence, the
application of CGT will be valid on the proceeds of the disposal for the calculation of capital
gains or losses (Krever, 2017). Also, as per the underlying clauses of s. 104 (5) ITAA 1997, the
type of transaction for disposing the antique bed is a capital gains tax event (CGT event) of
A1.type. According to this sub class, the capital gains or capital losses could be determined by
subtracting the cost base of asset and the capital receipts received from the disposal. The
taxpayer has kept the asset for more than a year and thus, the capital gains will be long term and
50% concession will be provided to taxpayer under the aegis of s.115-25 ITAA 1997
(Hodgson,Mortimer and Butler, 2016). Moreover, before applying 50% concession the previous
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capital losses will be balanced from the derived capital gains as outlined in the relevant clauses
of s. 102(5) ITAA 1997 (Barkoczy, 2017). However, the imperative factor before executing the
computation is that antique bed is a type of collectable and therefore, the condition required for
CGT treatment of collectable must be met.
Condition: The antique item must be procured for a sum amount higher than $500 as indicated in
s. 118-10 ITAA 1997 (Krever, 2017).
Test for Antique Bed: The taxpayer has procured the bed for a sum of $3500 which is fairly
higher than $500 and thus, the CGT will be applied as highlighted above.
Capital Asset 3: Sale of Painting
The asset has been purchased earlier than September 20, 1985 and therefore, the painting is
named as pre-CGT asset of client as mentioned in details in s. 149 (10) ITAA 1997. Hence, the
application of CGT will not be valid on capital gains or losses which will be computed from the
proceeds of disposal of painting.
Capital Asset 4: Sale of Shares
The shares have been purchased well after September 20, 1985 and therefore, it is not named as
pre-CGT asset of client. Hence, the application of CGT will be valid on capital gains or losses.
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