Taxation Implications for Capital Proceeds and Fringe Benefits

Taxation Theory, Practice & Law
STUDENT NAME/ID
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Question 1
Issue
The issue is to consult the taxpayer about her taxation implications for year 2017/18 on the
account of received capital proceeds from the disposal of the capital assets belonging to
taxpayer.
Law
When the taxpayer does not carry a business course of action of trading the assets for deriving
the assessable income, then the disposal of assets would be considered as capital receipts not
revenue receipts (Barkoczy, 2017). Therefore, the applicable taxation treatment would be Capital
Gains Tax (CGT).
1) Pre-CGT assets
The CGT will not be imposed on the received capital gains when the disposed asset is a pre-CGT
asset (Deutsch, et.al., 2015). The assets that are purchased before September 20, 1985 are named
as pre-CGT asset (s. 149 (10), ITAA 1997 (Coleman, 2016). Thus, the first step would be to
decide whether the asset is pre-CGT asset or not.
2) Transaction
The exact procedure for calculating the capital gains/losses from the asset disposal would be
decided based on the type of transaction (Nethercott, Richardson & Devos, 2016). For the given
scenarios, the transaction is considered as CGT event (TYPE A1) and hence, the income resulted
from disposal of the respective capital asset would be used to deduct the cost base of the capital
asset (S. 104 (5), ITAA 1997) (Woellner, 2017).
3) Cost Base
All the respective payments which the concerned taxpayer have paid at the various stages of the
transactions for the asset would cumulatively be termed as cost base (s. 110 (25), ITAA1997.
The five board classification of elements of the cost base with respect to the relevant sub section
is highlighted below (Hodgson, Mortimer & Butler, 2016).
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4) Applicable rebate %
The rebate (50%) will only be applicable on long term capital gains (Reuters, 2017). Hence, it is
essential to differentiate between long term and short term capital gains. The best way to
ascertain this is to find the holding period of the asset by the taxpayer (Nethercott, Richardson &
Devos, 2016).
Holding period of asset > 1 year: Long term capital gains
Holding period of asset < 1 year: Short term capital gains
Further, no rebate will be applicable on short term capital gains (Deutsch, et.al., 2015).
5) Balancing the capital losses
The taxpayer will either receive capital gains or capital losses from the disposal of assets. When
the taxpayer has earned capital losses, then it is essential to balance the capital losses with capital
gains which are derived from similar capital asset disposal (Krever, 2017). Further, when only
capital losses are received by taxpayer, then these capital losses will be taken to the next year. It
means the unbalanced capital losses will be transferred to the next year and will be adjusted with
capital gains of next year (Wilmot, 2014).
6) Consideration of proceeds
As per TR 94/29, the income which would be derived from sale of asset will be realised for CGT
consequences in the same year in which the contract of sale has been entered into by the parties
(Coleman, 2016). This aspect will remain unchanged when the income will be received in next
year and enactment of contract has been done in present income year (Sadiq, et.al., 2015).
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Application
Assets
1) Block of vacant land
Acquisition date: 2001
The date itself defines that block of land is not a pre-CGT asset. Hence, CGT treatment would be
levied on the received capital gains or losses. Further, the taxpayer has sold the land block which
indicates that it is a CGT event (TYPE A1) and the capital receipts from sale and cost base of the
asset will be calculated. The income of sale of land will be received in next year while the
contract of sale has been made in 2017/18. However, the income will be realised in the
assessment year only. The capital losses ($7000) of last year will also be balanced with the
obtained capital gains. At last, 50% rebate will be directed on the long term capital gains to find
the net capital gains from block land sale (Holding period of asset > 1 year: Long term capital
gains).
2) Antique bed
Acquisition date: 1986
The date itself defines that antique bed is not a pre-CGT asset. Hence, CGT treatment would be
taken place on the received capital gains or losses. Further, the taxpayer has not sold the bed and
it was stolen which is also a CGT event (TYPE A1) and thus, capital receipts which are in the
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