Consequence of CGT on Sale of Assets and Determination of Cost of Asset

Ques1:
Jasmine, being an Australian resident, will be taxable as per Australian laws, for
all the transactions in the given case. The fact that she will be moving to UK, will
not change the applicability of taxation laws.Consequence of CGT in the given cases
 Sale of home, being main residence of Jasmine in Australia.
In the given case, Jasmine purchased home in 1981, for $40,000 and
selling it for $6, 50,000. As per Sect 100.25 of the Income Tax Assessment
Act, 1997, assets purchased prior to 25 September 1985 are exempt from
Capital Gains Tax at the time of sale. Since, it has been purchased in the
year 1981, so it will not be liable to tax.
 Another important provision of section 100.30 0f the Income Tax
Assessment Act, 1997 is applicable in this case, which justifies that the
permanent residence of an assessee will not be liable to be taxed at the
time of its sale. Jasmine has been using this home as her main residence,
since the time of her purchase. So, this transaction will not be liable to be
taxed under CGT, as per section 100.30 (Ref: Types of CGT Events.
https://www.ato.gov.au/general/capital-gains-tax/selling-an-asset-and-
other-cgt-events/types-of-cgt-events/ . (Accessed on 20 September,
2019)).
.
So, despite of having $6, 50,000 from the sale of her property, Jasmine will
not be liable to be taxed for this transaction under Capital Gains Tax, due
to the specific provisions of the Income Tax Assessment Act, 1997.
 Sale of Personal Car
As per SECT 100.30 of the Income Tax Assessment Act, 1997, personal
used assets has been excluded. It excludes four categories of assets, one
of which is Exempt assets, such as cars, etc. Car in the Income Tax, is
considered to be a personal asset, as generally the value at which car
could be sold off is lower than the book value of the car, irrespective of the
age of the car.
Therefore, Capital Loss, incurred in case of sale of car at less than book
value, shall not be allowed as deduction. In the present case, Jasmine
bought the car at $31,000 and sold it at $10,000 resulting in a capital loss
of $21,000. She will not be entitled to deduct the capital loss incurred on
the sale of car, from capital gains on other transactions, if any.
 Sale of “small cleaning business”
In the following case, Sub-division 152D of Income Tax Assessment Act,
1997 will be applicable. This section deals with capital gain tax implication
on sale of small business by an assessee, in other words, it provides for
Small business retirement exemption.
The tax treatment, as per this section, is dependent on the age of the
assessee.

When the age of the assessee is less than 55 years old:
In case, the assessee is less than 55 years of age, at the time when
payment is made to them, and the assessee decides to avail the small
business CGT exemption, he/she must, within 7 days of making the choice,
make the payment in the complying super fund or RSA (SECT 152D,
Income Tax Assessment Act. (1997),
Retrieved from
http://classic.austlii.edu.au/au/legis/cth/consol_act/itaa1997240/
s100.30.html (Viewed on 16 September, 2019).
When the age of the assessee is more than 55 years old:
In case the assessee is more than 55 years of age, he/she is not required
to make any contribution to the fund and is still entitled to a small
business CGT exemption.
There is a lifetime limit on deduction under small business retirement,
under the sub-division, which amounts to $ 500,000. An assessee may
claim this deduction at once or in multiple instances combined, as per
his/her requirement.
In the present case, Jasmine is 65 years old, which implies that she can
opt for the second scheme where she is not liable to make any
contribution to the fund and is also eligible for the lifetime exemption limit
of $ 500,000. Since, she has sold her small cleaning business for $ 1,
25,000, which includes equipment as well as goodwill.
The cost of equipment was $75,000 which was being sold for $65,000,
resulting in a loss of $10,000. Moreover, she sold her goodwill for $60,000,
which was being generated at nil cost (She incurred no cost in making self
-generated goodwill, over a period). Thus, the sale of goodwill resulted in
gain of $60,000.
Overall, Jasmine was able to manage gains of $50,000 ($60,000-$10,000).
To conclude, Jasmine has earned a net capital gain of $ 50,000, which is
within the lifetime exemption limit of $ 500,000 and also, Jasmine is more
than 55 years of age, and hence, she is not required to contribute to the
fund as well.
 Sale of Personal Furniture
As per Sect 100.30 of Income Tax Assessment Act, 1997, when the assets
are purchased for personal use and its cost is less than $ 10,000
individually, then they are not liable to Capital gains tax.
In the present case, Jasmine has sold her personal furniture for $10,000.
None of the item of the furniture sold cost her more than $ 2,000
individually. Thus, irrespective of the amount of gain/loss made by Jasmine
in the transaction, this transaction falls in the purview of Sect 100.30 and
is not liable to CGT in the hands of Jasmine.
 Sale of collectables

Collectables acquired for less than $ 500 shall not be chargeable to Capital
Gains tax as per Sect 100.30 of the Income Tax Assessment Act, 1997.
Collectables are explicitly mentioned as one of the exclusions from CGT, in
the given section.
The mentioned section provides the exemption on the basis of cost of
asset and not the sale price of the asset, so the exemption would be
available for all collectables purchased for less than $ 500, irrespective of
the sale price of the collectables.
The purchase price for all the paintings (ie collectables) was less than $
500, except for one painting which was purchased for $ 1,000. Thus, gain
on only one painting which was purchased for more than $ 1,000 shall be
taxable, i.e. gain of $ 4,000 (5,000-1,000) shall be classified as CGT for
this transaction.
The taxability of each transaction discussed above is summarised in the
table below:
Case Section applicable Amount Taxable
Sale of home Sect 100.30 Nil
Sale of Personal Car Sect 100.30 Nil
Sale of “small cleaning
business”
Sect 152D Nil
Sale of Personal
Furniture
Sect 100.30 Nil
Sale of collectables Sect 100.30 $4,000
Thus, Jasmine is liable to pay tax on $4,000 only as per the provision of
Income Tax
Assessment Act, 1997. She will be liable to be taxed only in Australia as
income is accrued or arise in Australia only. The fact that she is born in UK
and going back to UK, is immaterial for calculating her tax liability in
Australia, as per the provisions of Income Tax Assessment Act, 1997.
Ques 2:
Issue:
In the given case, John produces certified BMW parts for which he
purchased an industrial computer numerical control machine (CNC), which
is being imported from Germany on 1st November 2014. The cost of the
machine was $3, 00,000. In addition to the cost of machine, John has also
incurred several other expenditures in relation to the machine, John also
had to visit the supplier’s factory to purchase the CNC machine, which did
cost him $ 12,000 and installation cost being $25,000 (installation date
was 15th January). The installation was carried out by specialists and