Calculating Janice's Net Capital Gain in Tax Law

Tax Law
30 June 2019
Seminar Number 8 T1 2019
Question 1
You are required to just calculate Janice Brown’s “net capital gain” for the 2018/19 income
year. Assume Janice is not entitled to use any of the small business concessions in Division 152
ITAA 1997.
In addition to the transactions listed below, Janice also received salary income of $150,000 in
the 2018/19 and an unfranked divided of $3,000 from BHP shares. Janice also has carried
forward capital losses from:
 the sale of a coin collection of $3,500, and
 the sale of shares in Rio Tinto of $10,000
Janice had the following capital gains and/or losses (prior to considering any capital losses,
indexation method or discount method
 Initial capital loss of $7,000 on Jet Ski (acquired 3 March 2014; disposed 12 June 2019);
 Initial exempt capital gain of $1150 on a Painting (acquired 19 May 1990; disposed 12
June 2019);
 Initial capital gain of $1,200 on Rare Book (acquired 5 April 2003; disposed 12 June
2019); and
 Initial capital gain of $159,900 on Investment House (acquired 16 October 2010;
disposed 12 May 2019)
 Initial capital gain of $340,000 on Telstra Shares (acquired 16 July 2016; disposed 6
April 2019).
Rainbow Bay Property
Janice signed a contract to purchase a house (on 0.2 hectares) at 19 Finders Street Rainbow
Bay on the Gold Coast on 15 August 2008 for $350,000. Ownership transferred to her on 15
September 2008. Janice lived in Rainbow Bay Property as her home from the 15th September
2008 until to 20th November 2014.
On 21st November 2014, Janice decided to move to Brisbane so that her children could attend
an exclusive private school. She rented the Rainbow Bay house to tenants from the 21st
November 2014 and received approximately $35,000 per year in rent. The family moved into an
apartment at Kangaroo Point which they rented through a local real estate agent.
In April 2019 Janice decided that her family had settled well into the Brisbane lifestyle and as a
result she would buy a home in Brisbane. As a consequence, she had to sell the Rainbow Bay
house to fund the purchase. She placed the property on the market and sold the Rainbow Bay
house for $800,000 under a contract dated 13 June 2019. In relation to the sale, she paid a
$16,000 commission to the real estate agent and $2,500 in legal fees to her lawyer. The
ownership of the Rainbow Bay house transferred to the new owner on 13 July 2019.
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Tax Law
30 June 2019
Springwood Property
On 10 January 1984 Janice Brown purchased a block of land for $20,000 in
Springwood on which to build a house. After receiving many quotations, Janice signed a
contract on 21 April 1988 with Construct with Us Pty Ltd to construct the house. The
house construction began on 1 July 1988 and was completed on the 31st October 1988 at
a cost of $95,000.
Instead of moving into the house, Janice rented it out to tenants. She continued to do this
until she eventually sold the property for $720,000 under a contract dated 11 June 2019
with the ownership transferring on 11 July 2019. An independent valuation revealed that
the land was worth $550,000 at the time of sale. (Hint! Could the house be considered
as separate asset to the land?)
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Tax Law
30 June 2019
Rainbow Bay Property - Refer to the set of CGT events from last weeks seminar to answer for the property. Ensure
that you are discussing the correct type of CGT Asset with regard to the house. Be mindful of any rules than apply for
exemption.
1 –
CGT event?
.
CGT event A1 (Section 104-10(1)), ITAA 1997
2 –
CGT asset?
CGT Asset – Land and Building (Section 108-5 (1), ITAA 1997
3 –
Exemption?
Consider main residence exemption here: have treated the dwelling as their main residence throughout the ownership
(1) are an individual;
(2) have treated the dwelling as their main residence throughout the ownership period; and
(3) did not inherit the property.
4 – Rollover? N/A
5 –
Initial
CG or CL
Capital proceeds: $ 781500
less Cost base $350,000
Capital gain $431,500
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