Tax Assignment: Capital Gains Taxable and Capital Allowance

Running head: TAX ASSIGNMENT
Tax Assignment
Name of the Student
Name of the University
Author Note

TAX ASSIGNMENT1
Table of Contents
Solution to Question 1.......................................................................................................2
Solution to Question 2.......................................................................................................3
References.........................................................................................................................6

TAX ASSIGNMENT2
Solution to Question 1
Introduction
In Australia, the capital gains tax (CGT) operates in a manner that the tax is
levied on the net income that is to be treated as income in the hands of the taxpayer.
This net income from capital gains is calculated after providing for all the necessary
deductions and exemptions that are to be given in a particular year. The given situation
is related to providing advice on capital gains taxable of Jasmine, a resident of
Australia. She was born in the UK and has been carrying on a small business in the
area of cleaning. Now that she is 65 years old, Jasmine has decided to return to her
country of birth, the UK. She has decided to sell off all her Australian assets before
doing so. The advice to her on the sale of her various assets is as mentioned below:
A. Jasmine’s home was purchased in the year 1981 by paying an amount of
$400000. This property’s value has continued to increase over the years and it is
$650000 now. Ever since she purchased this house, this has been the main
residence of Jasmine. The Australian Taxation Office (ATO) suggest that the
main residence of a person is usually exempt from the CGT if the property has a
dwelling on it and the taxpayer resides in it. Exemption cannot be claimed on a
vacant block of land (Ato.gov.au 2019). The person living in it should also be a
resident of Australia to be able to satisfy the main residence exemption. As it has
been plainly declared that the house property was Jasmine’s main residence
ever since she purchased it, the amount earned from selling it is not to be
charged under capital gains tax. The sale proceeds are exempt from the tax
liability.
B. One of the exemptions that is included in ATO’s list of items exempt from CGT is
a person’s car. A car is defined by the ATO as a motor vehicle in a manner that it
cannot carry more than 9 passengers or a load of one tonne at once. If both
these criteria are met, then the capital gains or losses earned from that particular
sale are exempt from CGT. Jasmine purchased her car in 2011 for $31000. This
vehicle is now worth around $10000. As the vehicle has been said to be a car,
the capital losses from its sale are exempt. This means that the capital losses
incurred from its sale cannot be used to offset other capital gains earned by
Jasmine (Ato.gov.au 2019).
C. A ‘small business’ is one where the annual turnover of the entity does not go
above $2 million in a particular year or the net assets owned by it are not more
than $6 million. To accommodate the setting up of more small businesses in the
country, there are four types of exemptions provided by the Australian
government to their owners on the sale of the active business assets (Sadiq and
Marsden 2015). They are as follows:
 The 15-year exemption which suggests that if the person had owned a
business asset continuously for more than 15 years and are aged over 55
years and are retiring, then the capital gains on the sale of the asset won’t
be assessable for taxation purposes;
 50% reduction which states that the capital gains earned on the sale of an
asset is to be reduced by 50% of the amount;