Tax Implications on Sale of Assets and Small Business Gains

Question 1:
Tax residency of an individual is dependent on the residence status of the
individual, irrespective of the native place or the place of birth of Individual. In the
given case, Jasmine has been staying and working in Australia and thus, all the
transactions entered into, by her, would be taxable in Australia, as Australian
resident’s transactions.
Tax implication of each transaction including the exemptions available with Jasmine
are explained hereunder:
A. The transaction involves sale of home, which was used for residence
and was purchased in the year 1981 for $ 40,000. Now, it has been
sold for $ 650,000.
In the transaction, Jasmine has earned a net gain of $ 610,000 in the
transaction, and the same should be taxable as CGT, as the asset sold is a
capital asset for the assessee.
Whereas, Sect 100.30 of the Income Tax assessment Act, 1997, provides an
exemption to the assesses for certain categories of transactions, which
otherwise are taxable. The exemption list given in the section, also covers
the sale of dwelling unit, which has been used for residence. Thus, any sale
involving such house, will not attract CGT under the act (Section 100.30 of
the Income Tax Assessment Act. (1997). Retrieved from
http://www5.austlii.edu.au/au/legis/cth/consol_act/itaa1997240/s100.30.html
(Viewed on 21 September 2019).
Also, the period of purchase of house or any other asset is also relevant to
determine the taxability of the gains on the asset. Since, Sect 100.35 of the
Act, provides that capital gains earned through sale of any asset purchased
prior to 25 September, 1985 shall not be taxable in the hands of assessee
(Section 100.25 of the Income Tax Assessment Act. (1997). Retrieved from
http://www5.austlii.edu.au/au/legis/cth/consol_act/itaa1997240/s100.25.html
(Viewed on 21 September 2019).
Thus, in the given case, since the house was purchased prior to 25
September 1985 and was also being used for residence. Thus, though there is
a gain earned on the sale of house, the same would not attract CGT.
B. A car purchased of $ 31,000 has been sold for $ 10,000.
Car is a capital asset, based on the definition of capital asset given under the
law. And any gains or losses arising on sale of car should be taxed or
deducted in computation of the Capital Gains Tax of the assessee.

Whereas, when the car is purchased for personal use, since there is no
depreciation or capital allowance that the assessee claims on the car and the
amount of loss incurred on the sale car, based on purchase price of the car
would be high and there would always be loss, incurred on sale of car, held
for personal use. Sect 100.30 of Income tax assessment Act, 1997 covers this
scenario and explicitly excludes any gain or loss incurred on the sale of car,
along with providing various other exemptions or exclusions.
Thus, in the given case, though Jasmine has incurred a capital loss of $
21,000 on the sale of car, such capital loss would not be deductible for the
computation of capital gains/ capital gains tax.
C. Gain earned by the assessee on sale of small business:
Sect 328.110 of the Income tax assessment Act, 1997 covers the definition of
“Small business”, it spells out various criterias that a business or entity needs
to fulfil, for it, to be categorized as small business. All the criterias given in
the section are based on turnover for current year and previous year (Ref:
Sect 328.110 of Income Tax assessment Act, 1997. Retrieved from
http://classic.austlii.edu.au/au/legis/cth/consol_act/itaa1997240/
s328.110.html. Viewed on 21 September, 2019)
If a business qualifies as small business as per above mentioned definition,
Sect 152D of Income tax assessment act, provides an exemption for the
gains on sale of such business, which is commonly known as small business
retirement exemption.
The above mentioned section provides an exemption up to $ 500,000 for the
lifetime of the individual, i.e. any number of small businesses hat an
individual might sell and gain from, a total amount of $ 500,000 shall be
exempt for the individual.
Section further provides exemption differently for two different categories of
individuals based on age:
i. Less than 55 years old:
Since the exemption is also known as small business retirement
exemption, an individual who is less than 55 years old and has sold a
small business, is required to invest the amount in a complying
superannuation fund or RSA within 7 days of taking that decision.
ii. More than 55 years old:

In case the individual is more than 55 years old, he is deemed to have
crossed the retirement age, and in order to claim the exemption, he is
not required to invest any amount in the superannuation fund (Ref:
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)).
In the given case, though the detail of turnover of the “Small cleaning business” of
Jasmine is not mentioned, since it is explicitly mentioned to be a small business,
assuming it to be satisfying the criterias for being classified as small business under
Income Tax Assessment Act, 1997, and also given that Jasmine is 65 years old, the
amount of gain made by Jasmine in the given transaction, i.e.
i. Gain on sale of goodwill = $ 60,000
ii. Gain/(loss) on sale of equipment = $ (75,000-65,000) = $ (10,000)
Thus, the net gain of $ 50,000 on the transaction shall not be taxable, as all the
conditions of Sect 152D are met and the amount of gain is well within the maximum
amount of $ 500,000.
D. Jasmine has sold the furniture for $ 5,000; no item of furniture was
costing $ 2,000 individually
Furniture falls in the definition of capital assets and any gain or loss on sale of
furniture shall be taxable or deductible from the capital gains earned otherwise.
In order to exclude the low level furniture from being covered in the taxation, Sect
100.30 also covers furniture costing up to $ 10,000 individually in the exemption list
and thus, any item of furniture which was costing less than $ 10,000 individually
shall not be taxable, irrespective of the sale price of the item.
In the given case, no item of furniture was costing more than $ 2,000 individually
and hence these items are exempt by Sect 100.30 of Income tax assessment Act,
1997 and hence, no amount of gain on sale furniture, if any, shall be taxable.
E. Sale of collectables:
Sect 100.30 of Income Tax assessment act, 1997 also covers collectables purchased
for less than $ 500 each, in the exemption list. Though, collectables otherwise are
capital assets, but based on exemption provided by section 100.30, gain on sale of
collectables acquired for less than $ 500 shall be not be taxable under CGT.
In the given instance, Jasmin has sold several paintings for $ 35,000, she purchased
all her paintings from a secondhand store and the cost of none of her paintings was