Taxation: Assessable Income and Capital Gains Tax Consequences

This document provides an overview of taxation, focusing on assessable income and capital gains tax consequences. It includes a computation of assessable income for an individual and provides advice on capital gains tax for a retiring business owner. The document also discusses the exemptions available for certain assets and provides practical implications of tax rules and regulations.

Taxation

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK...............................................................................................................................................3
Question 1: Emmi’s Total Assessable income:...........................................................................3
Question 2: Capital Gains Tax (CGT) consequences:.................................................................4
CONCLUSIONS..............................................................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
Taxation refers to term with respect to event when any taxing authority/body, which is
generally government, levies/imposes tax. Taxation generally relates to all forms of non-
voluntary charge, from incomes/capital gain. In Australia, income tax is main source of
government's income. In country, overall taxation structure is user friendly and administrated by
Australian Taxation Office (Braithwaite and Reinhart, 2019). tax structures have greatly varied
throughout jurisdictions and over time. Taxation happens in many other contemporary systems
on the both physical assets, like property as well as particular events, including a sales transfer.
Tax policy formulation is among the most crucial and divisive questions in today's politics.
Taxes in Australia is mainly imposed by federal government on different incomes of individuals
as well as companies. Since WW-II, in country state governments haven't levied any income
taxes (Hobson, 2019). This assessment consists of two tasks, one is related to assessment of
assessable income of Emmi who is individual assessee and second task involves some advices
related to different capital gain consequences. The aim of whole assessment is to present
practical implications of rules and regulations stated in Income tax act.
TASK
Question 1: Emmi’s Total Assessable income:
Facts Given:
 Emmi studies accounting at Holmes Institute and also a part-time worker in Crown
Melbourne restaurant(Hospitality Employees).
 Tips from customers: $335 cash
 Income through working in the Crown Melbourne restaurants: $25,000
 Expensive perfume received as gift from regular customer by Emmi at Christmas time:
worth $250 (She gave the perfume to her mother)
 Monthly entertainment event paid by the restaurant owner (on the meals that Emmi
consumed): $380
Based on the above listed facts, here following is the Computation of Emmi’s Total Assessable
income, as follows:
Computation Emmi's Total Assessable Income

Income Heads $
Tips from customers1 335
Income from working in the Crown Melbourne
restaurants2
25000
Gift from Customer: Expensive perfume3 250
Gift from Father3 15000
Monthly entertainment event paid(On Meals)4 380
Total Income 40965
Less: Deduction of Gifts (15000 + 250) 15250
Total Assessable income 25715
Notes:
1. The receipt of ‘tips’ by a hospitality employee is assessable income under paragraph 26(e) of
the Act (Leave on a café table assessable. 2019).
2. Income from working in the Crown Melbourne is regarded as salary income even if Emmi
works part-time in Crown Melbourne restaurant.
3. Rewards or any gifts obtained by individual on any special event or occasions, like
anniversary or birthday cash presents and gifts obtained from relatives out of love/affection
(Although, gifts are also taxable in case individual acquire them as-part of commercial business-
like activities or in regards to income-earning operations as employee/working staff or
contractor)
4. Individual can not claim any deduction with respect to costs of foods, drinks or snacks
consumed in during normal working days as these are regarded as private expenses.
Question 2: Capital Gains Tax (CGT) consequences:
Facts Given:
Liu Age is : 65 year
Australian resident but born in China: Thus residential status of Liu is “Resident”.
Liu is retiring form business and Shifting to China
Details of Assets she is selling:

House (Main Residence) Purchased in 1981 for $55,000 Present worth is $630,000
Car Which cost $37,000 in 2011 Present worth around $8,000
Small business enterprise
(Photography Business)
Value of business as per
takeover proposal: $125,000
Sales price includes:
 Photography
equipment: $ 53000
[Cost is: $ 63000]
 Goodwill: $ 50000
Furniture $ 4,800 (No single furniture item being
sold cost more than $2,000)
Paintings (Purchased form
second hand shops)
$ 28,000 No single painting cost more
than $500
One Purchased from Artist:
$1000 [Selling Price: $8000]
Advise: As in given case scenario of Liu who is 65 year old this means he comes in category of
senior citizen. Also given than he is resident of Australia but born in China but now want to shift
totally in China after retiring from business, so considering all such stated facts here are some
advices for Liu for tax assessment purpose, as follows:
1. Liu want to sell house which is purchased by her in 1981 for $55000 and present worth of
house is $630000. Here notable aspect is that house is Liu's main residence. As per
provisions of act main residence of any individual assessee is in general exempt from
capital gains tax (CGT) also assets acquired before 20,Sep 1985 is also exempt from
CGT (CGT: Your home and other real estate, 2019). So in this case the whole amount of
capital gain will be exempt in hand of Liu.
2. Liu also want to sell her car which is her personal vehicle. Purchase cost of car in 2011
was $37000 which is now has worth of only $8000. As per act's provisions, sale of
personal car is also exempt from CGT, so there is no tax liability will occur in this event.
3. Liu is going to sell small business enterprise named: Monte Liu Photography Studio.
Here first Liu should determine whether this business satisfies any criteria of small
business. If business is only run individual not under partnership contract and also and

total net value of CGT assets does not exceeds $6 million, then it is considered as small
business. Here business of Liu satisfies this criteria so this business is small business.
Further, there are certain exemptions available in case of CGT on sale of small business.
As per provision of act if business has owned asset for at least 15 continuous years; or
individual is aged 55 years or over; or individual is retiring or permanently incapacitated,
then such individual assessee will not be liable for capital gain tax. Thus Liu who is aged
65 years and retiring thus she is not liable for any capital gain tax (Capital gains tax for
business. 2019).
4. Furniture which Liu wants to sell is presumed to be for personal use and value of
furniture is $4800. As per the provisions of act there is exemption available for capital
gain or loss in case of sale of personal use items for less-than $10000. Here in given case,
furniture is asset of personal use as well as sold for $4800 which is less than $10000, thus
sale of furniture is exempt from capital gain tax.
5. Paintings belongs to Collectable items category. Here provisions of the act states that
capital gain or loss in case of individual assessee may be disregarded if individual
purchased it for $500 or less, or individual acquired interest in any collectable for amount
$500 or lower before 16/12/1995, or purchased any collectable when it's market value
was $500 or lower. Here in given case Liu has offer to sale paintings for $28000 which
are from purchased in second hand shops or market and no single-painting is costing
above $500 except painting purchased from Artist. So, capital gain in respect of paintings
which are costing lower than $500, would be exempt. However, painting purchased from
artist costing $1000 would be subject to capital gain.
CONCLUSIONS
From above assessment it has been articulated that effective application and use of
different rules and regulations is significant for individual taxpayers as it help in saving taxable
amount. Also consideration of these rules and regulations enables individuals to handle any legal
complexities and issues. Entire system of taxation in Australia is quite liberal and individuals are
taxed at progressive rates. Also in every budget as per economical growth and GDP, government
changes these rates also declares various exemptions.

REFERENCES
Books and Journals:
Braithwaite, V. and Reinhart, M., 2019. Preliminary Findings and Codebook for the Australian
Tax System: Fair or Not Survey. Centre for Tax System Integrity (CTSI), Research
School of Social Sciences, The Australian National University.
Hobson, K., 2019. 'Say no to the ATO': The cultural politics of protest against the Australian
Tax Office. Centre for Tax System Integrity (CTSI), Research School of Social
Sciences, The Australian National University.
Murphy, K., 2019. Moving towards a more effective model of regulatory enforcement in the
Australian Taxation Office. Centre for Tax System Integrity (CTSI), Research School of
Social Sciences, The Australian National University.
Online:
CGT: Your home and other real estate. 2019. [Online]. Available through:
<https://www.ato.gov.au/General/Capital-gains-tax/Your-home-and-other-real-estate/>
CGT assets and exemptions. 2019. [Online]. Available through:
<https://www.ato.gov.au/general/capital-gains-tax/cgt-assets-and
exemptions/#Personal_use_assets>
Capital gains tax for business. 2019. [Online]. Available through:
<https://www.business.gov.au/Finance/Taxation/Capital-gains-tax-for-business>
Leave on a café table assessable. 2019. [Online]. Available through:
<https://www.lewistaxation.com.au/business/general-business/tax-on-tips-gratuities>