Taxation Consequences of Selling a Shop, Goodwill, and Apartment

Running head: TAX
Tax
Name of the Student:
Name of the University:
Authors Note:

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Table of Contents
Answer to Question 1.................................................................................................................3
Answer to question 2..................................................................................................................6
Reference..................................................................................................................................11

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Answer to Question 1
Issue
The main purpose of this report is to provide the appropriate taxation consequences of
Amber who owned a boutique chocolate shop and recently sold it. The taxation concerns over
the CGT assets owned by Amber and the determination of capital gains or losses incurred by
Amber will be subjected to analyze in this report. Several sections of the Income Tax
Assessment Act 1997 will be taken into consideration in order to establish the stated
legislations in this report.
Laws
The recognition of all capital gains in a form of assessable income by an individual is
stated in the section 102-5 of the Income Tax Assessment Act. The payable tax is calculated
over the assessable income incurred by the individual in the concurrent year. The CGT
qualification of the income or assets incurred by the individual is tested in order to evaluate
whether the outcome is profitable or non-profitable (Sharkey, 2015). In order to identify the
probable capital gains or loss, the CGT event A1 stated in the section 102-20 is used. The
disposal of the CGT event is described in the section 104-10 of ITAA 1997.
In case of any expiry or end of an asset occur, it is regarded as CGT event C2. This
CGT event is stated in the section 104-25 where the end of ownership over the assets is
described. In order to calculate the goodwill of assets, CGT event C1 is applied for such
circumstances. The CGT event C1 cannot be calculated unless the business is totally ceased
by the owner of the business (Becker et al., 2015). In order to evaluate the disposal of
goodwill or the interest implemented over the goodwill, taxation ruling 1999/16 is
considered. The CGT event C1 only results if the business is permanently closed. It does not
occur when the business is temporarily ceased.
In the case law of FCT v Murry, the citations regarding the identification and the
taxation over the goodwill are stated. The goodwill is an intangible asset which is gained
from the assets as a result of generating profits from the assets. It is needed to be regarded as
a CGT assets as per section 108-5 is stated (Saad, 2014). The nature and the character of the
goodwill changes over each business and the operations of the business determine the nature
of the goodwill. The CGT value of Goodwill is added in the taxable income in case of the
owner sell the goodwill incurred from the assets.

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The restrictions regarding the competitiveness among the identical businesses are
stated in the taxation ruling of 1999/16. In this ruling, the provisions applied for the taxpayer
to put certain restrictions over the business activity made by them if the taxpayer is already in
an agreement with the vendor (Parker, 2018). This provision does not allow the purchaser to
attract the clients of the vendor in an identical business as per the agreement.
The payment received by the taxpayer for signing the agreement of restriction cannot
be considered as an income for taxation purpose. As it can be seen in the citation of the case
Jarrold v Boustead, the received payment could not be considered as an income as far as the
taxation ruling was concerned for this case. Apart from that, another citation of the case FCT
v Dickenson states that, the selling of the shell product cannot be considered as an income as
far as the provision is stated (Richardson et al., 2015).
The CGT assets will be represented over the goodwill if the assets are vested with
restrictive covenants. If any such restriction is vested upon the taxpayer regarding his assets
by another individual or entity, CGT event D1 will be implemented upon the assets for
creating the contractual rights over it. In the citation of the case Higgs v Olivier, the income
gained by the individual upon the CGT event D1 will not be accounted as a taxable income as
certain contractual rights were imposed upon the assets in a form of trade agreement
(Altshuler et al., 2015).
In the next segment, the primary residential status of the individual will be regarded in
order to figure out the provisions regarding the exemptions. In order to figure out the
eligibility of the exemption status of the individual, the main residency of the taxpayer is
needed to figure out. The main residence of the individual is considered as the primary
dwelling place of the individual (Schenk et al., 2015). In accordance with the Commissioner
of Taxation, the total period of physical occupancy in a place determines the main residence
of an individual. A total period of 5 years is considered as a standard time for indentifying the
residential status of the individual. The exemption over the main residency can be incurred as
a capital loss or gain with a purpose of implementing the exemption over the asset. In case of
generating any CGT assets by the exemptions, it will be considered as a capital gain or loss.
A partial exemption can also be issued to the taxpayer in case of the residency of the taxpayer
is considered as a CGT assets (Lang, 2014).
Application