Tax implications on sale of assets and computation of capital allowance on CNC machine

Question: 1
Jasmine is a born in UK and has been working in Australia, till date and now she is
65 and is planning to retire, before she moves to UK, she has decided to sell off all
her assets in Australia. Since she has been working in Australia, it can be safely
assumed that, she has stayed in Australia for more than 183 days in the relevant
year and thus, qualifies as resident for tax purposes. All the answers have been
given, assuming her to be a resident of Australia, for tax purposes.
Jasmine has entered in to five transactions, for each of the transaction, applicable
statutory provision, case laws, tax implications, etc are given in the table below:
S.
No.
Descript
ion
Facts of the
case
Applicable statute Conclusion
A. Sale of
main
residenc
e
Jasmine has
sold off her
home for $
650,000, which
was purchased
in 1981 for $
40,000 and was
been used by
Jasmine for
staying in
since, she
purchased it.
The case involves sale
of a house which was
purchased in 1981 and
was being used for
staying by the assessee.
Sect 100.30 of the ITA,
1997 provides
exemption for various
categories of assets that
an assessee could have
sold, one of them being,
house being used for
staying by the assessee,
it provides that any
profit arising out of sale
of such house shall not
attract CGT. This is
based on the premise
that the house which
was being used for
staying cannot be sold
to earn capital gains.
Further, Section 100.25
provides a generic
exemption form CGT on
all the assets which
were purchased prior to
25 September, 1985,
this was brought in as a
transitional provision,
when the tax on capital
gains was introduced for
the first time in 1985.
Since, the house
sold was purchased
by Jasmine in the
year 1981, which is
before the cut off
date provided in
sect 100.25, thus
any gains arising
on account of sale
of house, shall not
attract capital gains
tax (CGT).
In the given case,
the house was also
used for staying by
Jasmine, which also
gets covered in the
exemption
provided by 100.30
for sale of house
being used for
staying.
B. Sale of
car
Jasmine has
sold the car for
Sect 100.30 of ITA, 1997
also excludes
In the given case,
Jasmine though has

$10,000, which
purchased for $
31,000
profits/losses arising on
account of sale of car by
the assessee. This is due
to the fact that the car is
deemed to be a
personal asset and is
expected to lead to loss
in most, if not all of the
cases.
Thus, since car is
excluded based on sect
100.30, any capital
gain/loss arising on
account of sale of car,
shall not attract CGT.
incurred a loss of $
21,000, based on
the purchase price
of the car but the
same shall not be
deductible from the
capital gain earned
by Jasmine, in case
any.
C. Sale of
small
business
Jasmine has
sold her small
cleaning
business for $
125,000, which
includes
$65,000 for
business
equipment and
$60,000 for
goodwill.
The objective of the
government is to
exempt the gains arising
out of sale of small
businesses by the
assessee after
retirement. Sect 152D
was introduced, for the
same reason, the said
section provides
exemption from capital
gains arising on account
of sale of small
business, in case the
transaction is entered in
to by the assessee, after
the age of 55, since the
exemption was to
provide relief to the
retirees on account of
gains arising from sale
of small businesses,
which they have setup
by their own.
A person is allowed to
claim a total deduction
of gains amounting up
to $500,000 over the
lifetime of the person,
i.e. a person can claim
deduction for more than
one business in the
lifetime.
In the given case,
Jasmine has sold
the small cleaning
business, that she
did build by herself.
The business has
been sold for $
125,000, this has
two components,
viz. a) Goodwill:
which has been
sold for $ 60,000
and b) plant and
equipment: which
have been sold for
$ 65,000.
Since the goodwill
was earned by the
Jasmine herself,
there is no cost as
such that appears
in the accounts for
goodwill thus, the
entire amount
received shall be
treated as profit.
Further, she has
sold the equipment
purchased for $
75,000 in $ 65,000,
i.e. by incurring a
loss of $ 10,000.

In case, an assessee
retires prior to attaining
the age of 55 and sells
off the assets in the
market, he could still
enjoy the exemption in
case he deposits the
required amount in
complying
Superannuation fund.
Thus, in the
transaction,
Jasmine has
realized a net gain
of $ 50,000
($60,000-10,000),
which is within the
overall exemption
limit of $ 500,000
as per Sect. 152D.
Hence, there would
not be any tax
liability.
D. Sale of
personal
use
furniture
Jasmine has
sold her
furniture for $
5,000, each
individual item
of furniture did
cost her less
than $ 2,000
Sect 100.30 of ITA, 1997
also excludes
profits/losses arising on
account of sale assets
purchased for personal
use and costs less than
$ 10,000 each asset
individually.
In the given
instance, Jasmine
has sold furniture
which was
purchased for
personal use and
individual cost of
each item is less
than $ 2,000. Thus,
this transaction
falls in the purview
of Sect 100.30 and
is not liable to CGT
in the hands of
Jasmine,
irrespective of the
amount of gain/loss
made by Jasmine in
the transaction.
E. Sale of
painting
4,000 Sect 100.30 also covers
collectables in the
exemption list, but it
also provides a value, in
terms of cost of each
collectable, i.e. $500, if
the collectable cost up
to $ 500 individually, the
profit on such
collectables would be
not be chargeable to
tax.
Jasmine’s purchase
price for all the
paintings 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.