Taxation Assignment

This assignment provides solutions to various case scenarios related to taxation. It covers topics such as capital gains, deductions, cost base, reduced cost base, and more. The solutions are based on the Income Tax Assessment Act and guidelines published by the Australian Tax Authorities. It is a valuable resource for students studying tax courses.

Taxation Assignment
Question 1
Answer 1
In the present question, net capital gain/ loss of Brooke Limited is required to be computed
based on given data. The data given states that the consideration received for selling the
apartment encompass bank realisation of $ 800,000 and Rolex Watch of $ 50,000. Further,
the purchase of the property took place on 03, August 1999 and the fair value of property on
that date was $ 300,000. It shall be noted that fair value has been considered for the purpose
of computing capital gain as in terms of Income Tax Assessment Act, in case of transfer of
capital asset between relatives fair value of the asset shall be considered as consideration
received.
In addition, since the asset has been held for more than 12 months, discount method shall be
applicable. On the basis of above rational, the computation of net capital gain has been
detailed here-in-under:
In the books of Brooke Limited
Computation of Net Capital Gain
$ $
Sl No Particulars Amount Amount
1 Sales Consideration
- Bank 800000
- Gold 50000 850000
2 Cost of Purchase
- Fair Market Value at time of purchase 300000
Stamp Duty 30000
Solicitor Fees 10000 340000
3 Net Capital Gain 510000
4 Discount 255000
5 Net Capital Gain 255000
(Commonwealth Of Australia, 2019)
Answer 2
In the second case, there are various instance and it needs to be deduced whether the said
activity shall comprise a part of cost base or not. The solution of the case has been detailed
here-in-below:
In the first situation, the cost of conveyancing kit shall not form part of cost base if the same
relates to current sale as the same shall be a part of net consideration. However, if the said
expense was incurred during the purchase in 2012 then the said expense shall be treated as
cost base.
Further, the said case falls under second element and is incidental to acquiring the CGT asset.

The second case does not fall under the five elements of cost base and shall not form a part of
the cost of asset. Further, cost of repainting the crack in the bathroom does not improve the
asset. Hence, the said cost shall not increase the cost base.
In the third case, interest paid on loan taken for acquiring the property shall be added to the
cost base if is not allowed as deduction under other head. Also, the said expenditures shall
fall in the five element of cost base i.e. cost of maintain CGT asset.
In the fourth case, since the legal fees has been incurred to protect the asset against
neighbours alleged claim of the tax payer land, the same shall fall under the five element of
cost base which states that cost incurred for preserving or defending the title of the CGT asset
shall form part of cost base. (Commonwealth Of Australia, 2019)
Answer 3
In the third case, the property has been inherited by Larry post death of Uncle Ben who has
always used the asset for the purpose of main residence and the house was purchased by ben
post 20th September 1985, Further, the asset post inheritance has been used by Larry for
renting and later on sold by Larry within a period of two years. (Commonwealth Of
Australia, 2019)
In the said case, two conditions have been satisfied:
(a) Property has been used as residence by the previous year;
(b) Property has been sold within a period of two years from inheritance.
Hence, no capital gain shall be levied on such in terms of Income Tax Assessment Act and
guidance published by Australian Tax Authorities from time to time.
Answer 4
In the present case, Trent used the house initially as personal residence and later on used the
property for the purpose of renting and business purpose. Post above, he sold the property in
August 2010 for $700,000.
In the said case, the cost base of the property shall be the fair market value of the property on
date in which the residence property was let out for business in terms of Income Tax
Assessment Act and guidance published by Australian Tax Authorities from time to time.
Accordingly, the cost base shall be $600,000 and the net consideration shall be $690,000.
Also, since the asset has been held for more than 12 months, discount method shall be
applicable. On the basis of above rational, the computation of net capital gain has been
detailed here-in-under:
In the books of Trent Limited
Computation of Net Capital Gain
$ $

Sl No Particulars Amount Amount
1 Sales Consideration 700000
Less: Cost incidental to sale -10000
2 Cost of Purchase
- Fair Market Value on date of conversion 600000
3 Net Capital Gain 90000
4 Discount 45000
5 Net Capital Gain 45000
(Commonwealth Of Australia, 2019)
Answer 5
In the present case, Clarie was a financial analyst who was employed by Jason and when she
left the business she was paid a non-compete fees for not engaging a similar profession
within 10 km area for a period of 3 years. The said receipt shall be capital in nature in the
hands of Clarie and no capital gain shall be paid on the same. Further, Jason shall be able to
take claim of the same under section 8-1 of the income tax Act as the said expenditure has
been incurred for the purpose of generating assessable income. (INCOME TAX
ASSESSMENT ACT 1997 - SECT 8.1, 2019)
Answer 6
In the present case, deductibility of interest expenditure on loan needs to be determined along
with cost of expenditure incurred for fixing bathroom in an investment property.
Since the loan taken by Rowan was used partly for business and partly for private purpose,
the interest on such loan shall also be allowed to be deducted in a similar manner in terms of
Section 8-1 of the Income Tax Assessment Act, 1997 which states that only those
expenditure shall be allowed to be deducted while computing the taxable income which has
been incurred by the assesse for generating assessable income. Accordingly, the computation
has been provided as under:
Computation of Deduction of Interest
Particular Amount
Total Loan 100000
Loan for Private Purpose 30000
% for Private Purpose 30%
Interest 10000
Interest not deductible 3000
Total Interest allowed 7000
Further, the expenditure incurred by Rowan for fixing the bathroom shall be allowed as
deduction under section 8-1 of the Income Tax Assessment Act, 1997 and shall be treated as
repairs. (Commonwealth Consolidated Acts, 2019)

Answer 7
In the present case, the tax payer Sol Pty Limited has been engaged in the business of tanning
products in Australia. During, the year one of the clients of the company have sued them by
alleging that the product used has burnt their skin and have caused them physical injuries
resulting in hospitalisation of the client. The resultant of such dispute was outflow of funds
for the company and the settlement of matter outside the court.
Since the said case occurred in the ordinary course of business and the product was sold by
the company to generate assessable income, the said expenditure shall be allowed for
deduction in terms of section 8-1 of the Income Tax Assessment Act, 1997. Also, the fact that
gave rise to litigation have been performed in the ordinary course of business. Since the said
settlement was not punitive in nature deduction shall be allowed. ( Intuit, Inc. , 2019)
Answer 8
In the eight case, there are various instance and it needs to be deduced whether the said
expenses are deductible under Income tax Assessment Act, 1997. The solution of the case has
been detailed here-in-below:
Under case 1, the travel cost has been incurred by an employee for going to his work of place
and the same shall not be allowed for deduction as same shall tantamount to personal travel
and will not be allowed to be claimed as deduction under Section 8-1 of Income tax
Assessment Act,1997 (Commomwealth Of Australia, 2019).
Under case 2, the cost of membership for the club was taken for conducting business meeting
which is incurred in the normal course of business of the assessee for generating assessable
income. Hence, the said expenditure shall be allowed as deduction in terms of Section 8-1 of
Income Tax Assessment Act, 1997.
Under case 3, there has been a provision made for future payout, hence the said expenditure
shall not be allowed for deduction under section 8-1 of the Income Tax Assessment Act,
1997.
Under case 4, the said expenditure shall not be allowed as deduction as the dress code was
not specific in relation to a business. (Commonwealth Of Australia, 2019)
Answer 9
In the first instance, expenditure was incurred by Matthews for the purpose of entering into a
new business and not for the purpose of existing business. Hence, the said expenditure shall
not be allowed as deduction in terms of Section 8-1 of Income Tax Assessment Act, 1997 and
other guidelines published by Australian Tax Authorities.
In the second instance, expenditure was incurred by Matthews for the purpose of honing
skills of existing business. Hence, the said expenditure shall be allowed as deduction in terms
of Section 8-1 of Income Tax Assessment Act, 1997 and other guidelines published by
Australian Tax Authorities.

Answer 10
The treatment of the elements shall be guided by Section 8-1 of Income tax Assessment Act,
1997 which states that only those expenditure shall be allowed to be deducted which has been
incurred for the purpose of generating assessable income. Also, only those portion of
expenses shall be allowed to be deducted which has been incurred for business purpose.
Accordingly, the computation has been presented as under:
Electricity : $ 300
(15% of 2000)
Internet Expense $ 150
(15% of 1000)
Interest on Mortgage : $ 450
(15% of 3000)
Accountant Charge: $ 250

References
Intuit, Inc. . (2019, MAy 6). Are business related settlement payments deductible? Retrieved from
tlc.intuit.com/: https://ttlc.intuit.com/questions/3044154-are-business-related-settlement-
payments-deductible
Commomwealth Of Australia. (2019, May 6). Vehicle and travel expenses. Retrieved from
www.ato.gov.au: https://www.ato.gov.au/Individuals/Income-and-deductions/Deductions-
you-can-claim/Vehicle-and-travel-expenses/
Commonwealth Consolidated Acts. (2019, MAy 6). INCOME TAX ASSESSMENT ACT 1997 - SECT 8.1.
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http://classic.austlii.edu.au/au/legis/cth/consol_act/itaa1997240/s8.1.html
Commonwealth Of Australia. (2019, MAy 6). Capital proceeds. Retrieved from www.ato.gov.au:
https://www.ato.gov.au/General/Capital-gains-tax/Working-out-your-capital-gain-or-loss/
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Commonwealth Of Australia. (2019, May 6). CGT exemptions for inherited dwellings. Retrieved from
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https://www.ato.gov.au/general/capital-gains-tax/deceased-estates-and-inheritances/
inherited-dwellings/cgt-exemptions-for-inherited-dwellings/
Commonwealth Of Australia. (2019, May 6). Clothing, laundry and dry-cleaning expenses. Retrieved
from www.ato.gov.au:
https://www.ato.gov.au/individuals/income-and-deductions/deductions-you-can-claim/
clothing,-laundry-and-dry-cleaning-expenses/
Commonwealth Of Australia. (2019, May 6). Elements of the cost base and reduced cost base.
Retrieved from www.ato.gov.au:
https://www.ato.gov.au/General/Capital-gains-tax/Working-out-your-capital-gain-or-loss/
Cost-base/Elements-of-the-cost-base-and-reduced-cost-base/
Commonwealth Of Australia. (2019, MAy 6). Using your home to produce income. Retrieved from
www.ato.gov.au: https://www.ato.gov.au/general/capital-gains-tax/your-home-and-other-
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INCOME TAX ASSESSMENT ACT 1997 - SECT 8.1. (2019, May 6). INCOME TAX ASSESSMENT ACT 1997
- SECT 8.1. Retrieved from /classic.austlii.edu.au:
http://classic.austlii.edu.au/au/legis/cth/consol_act/itaa1997240/s8.1.html