Taxability of Capital Gain

Added on -2020-02-18

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TAXATION
TaxationAnswer to 1Computation of net capital gain or loss for the year:Since the past one year, Eric had taken various attempts to procure some assets and based on the question, it can be assumed that he has held these assets for less than one year. As per Kenny et. al (2017) taxability of capital gain arises when the selling price of an asset exceeds its cost base. The indexation benefit will not accrue to Eric, as the assets are not held for more than a year.The classification of the assets procured by Eric must be done based on their respective heads:a.Assets intended for personal useA person for their own enjoyment or use buys these assets but it does not include collectibles. Besides, when these assets are sold to another person, taxability of capital gain does not incur when the procurement cost of such assets is less than or equal to $10000. Based on the question, the following personal assets have been acquired by Eric (Kenny et. al, 2017). The first asset is a home sound system with an acquisition cost of $12000 and the second asset is the shares of a listed company with an acquisition cost of $5000.b.CollectiblesA person purchases these assets for enjoyment or personal efficacies and taxability of capital gain does not accrue if the procurement cost is less than or equal to $500. Further, based on the given information, the following collectibles have been acquired by Eric. The first asset is painting with an acquisition cost of $9000, the second asset is an antique chair with an acquisition cost of $3000, and the last asset is an antique vase with an acquisition cost of $2000 respectively (Renton, 2005).Considering the above scenario, the following formula can be utilized for the computation of capital gain for assets held for less than a year.Capital Proceeds of the above assets(Amounts in dollars)ParticularsCost Base of AssetsCapital Proceeds of AssetsNet Capital Gain/ (Net Capital Loss)2
TaxationHome Sound System12,00011000(1000) LossShares in listed company 5,0002000015000 GainPainting 9,0001000(8000) LossAntique Chair 3,0001000(2000) LossAntique Vase 2,00030001000 GainNet Capital Gain/Loss5000 GainImportant notes:a.All assets intended for personal use are acquired for more than $10000 and therefore, taxability of capital gain is applicable.b.All collectibles are acquired for more than $500 and therefore, taxability of capital gain isapplicable.c.Capital losses for the entire year have been set-off with capital gain to ascertain the net gain or loss.3

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