Jasmine and the Income Tax Assessment Act 1997

Under the said Act, Part 3-1 along with part 3-3 discusses the provisions pertaining to the capital tax gain or CGT. Sub section of 1 of 108.5 enumerates that any kind of property or equitable or legal right can be referred to as the CGT asset. It provides that CGT assets include goodwill or interest attached to any property, land, buildings, company shares, units of unit trust, debts, right to discharge any duty, options, foreign currency and others. However, the

Running head: TAXATION LAW
TAXATION LAW
Name of the Student:
Name of the University:
Author Note:

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Answer to Question no. 1:
Issue:
The present case invokes the following issue such that whether Jasmine will be having
any CGT consequence in respect of the transactions made by him.
Law:
The case of Jasmine is required to be analyzed by construing to the provisions
enumerated under the Income Tax Assessment Act 1997, hereinafter will be denoted as
ITAA1997 (Woellner et al. 2016). Income taxes form the most important type of taxation in
Australia. The federal government collects these taxes and then pays them to the states by
following a distribution formula which is decided by the Commonwealth Grants Commission.
Under the said Act, Part 3-1 along with part 3-3 discusses the provisions pertaining to the capital
tax gain or CGT.
Section 104-5 of ITAA1997 discusses the various events that result into CGT
consequences. Section 108.5 contained in sub-division 108-A discusses the provisions related to
CGT assets. Sub section of 1 of 108.5 enumerates that any kind of property or equitable or legal
right can be referred to as the CGT asset. To make it more clearly, subsection 2 of the said
section provides the various kinds of CGT assets in an elaborate way. It provides that CGT assets
include goodwill or interest pertaining to any property, land, buildings, company shares, units of
unit trust, debts, right to discharge any duty, options, foreign currency and others. However, the
asset to be treated for CGT calculation the acquisition of such asset must be done after 20th
September 1985. Only assets acquired after this date will be taken into consideration.

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Section 108.10 enumerates that losses arising out of collectables can be offset only
against gains arising out of collectables. Moreover, losses arising out of collectables cannot be
used for reducing capital gain of 500 $.
Section 110.25 of the Act enumerates that rules regarding cost base. Subsection 1 of the
said section provides that cost base of a CGT asset comprises of 5 elements mainly.
Those 5 elements are discussed below:
Element 1:
This is given under subsection 2 of the said section and provides that this element
includes the money deposited or required to be deposited in order to acquire an asset. In case
where such asset is acquired by exchanging another asset, then the present market value of the
asset that has been exchanged will be taken into consideration.
Element 2:
Sub section 3 of the Act enumerates that element 2 which is the costs that are incidental
for acquiring the asset.
Element 3:
Subsection 4 provides element 3 which denotes the costs expensed in order to own a
CGT asset. It includes costs incurred for maintaining, insuring or repairing any kind of assets. It
also includes the interest imposed on the sum of money that has been borrowed to acquire the
asset. However this element does not include collectables or assets that have personal usage.
Element 4:

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Subsection 5 enumerates the element 4 of the cost base. It includes the expenditure
incurred to increase the material value of the asset or costs spent for moving or causing
installation of the asset.
Element 5:
Subsection 6 provides that the capital expensed in order to demonstrate any legal right or
to defend or preserve any title related to such asset or any right attached to the asset.
Section 115 enumerates that the capital gain that has been resulted out of an asset is liable
to 50 percent discount in case it can be proved by the tax payer that he has been living there for a
period of more than 12 months.
Section 116.20 discusses about the capital proceeds. It states that capital proceeds are the
sum of the money received or may be received when an event takes place. It also includes the
market price of any property that has been received or may be received when a particular even
occurs.
Moreover section 118.20 enumerates that in case a CGT asset is actually a home that has
been used by the tax payer as the main place of residence for the purpose of staying then it will
be excluded.
Application:
Transactions:
Selling of house:

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Her it is seen that Jasmine has acquired the house after 20th Sept 1985, thus such house
will be considered as the Post- CGT asset. This can be supported by Section 108.5 which the
asset to be treated for CGT calculation the acquisition of such asset must be done after 20th
September 1985. Only assets acquired after this date will be taken into consideration.
Moreover, the house was used for principal place of residence by Jasmine so it will be
exempted from application of CGT consequences. This can be supported by section 118.20
which enumerates that in case a CGT asset is actually a home that has been used by the tax payer
as the main place of residence for the purpose of staying then it will be excluded. Although the
selling of the house invokes an A 1 Event of CGT, but it being a main place of residence will not
be treated as the Capital gain event.
Transaction of car:
The car was acquired for 31000 dollars and its current valuation is 10000 $. Its sale also
triggers an A 1 event of CGT. Capital gain can be found out by the formula= CP- CB. Here it is
seen that the transaction will result into a loss. Thus reduced cost base will substitute the cost
base and due to this depreciation cost will be excluded from element 3. Selling of the car at
10000$ will result into a capital loss of about 21000$. But as car is an item for using it personally
it has be excluded from tax calculation of the given financial year. This can be supported by
Transaction involving business sale:
Here cleaning business of Jasmine was sold for 125000$. This sale proceeds also include
equipment cost of 65000 worth 75000$ together with the business’s goodwill for about 60000$.
Jasmine can avail the concession applicable to the sale of business. The selling of equipment will
be an of CGT A1 category. Here CB= price + cost of ownership. The concession is allowed if

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the taxpayer’s assets valuation is less than 6 million dollars. Moreover, Jasmine has held it for
more than 1 year so discount of 50 percent is also available. This can be supported by Section
115 that enumerates that the capital gain that has been resulted out of an asset is liable to 50
percent discount in case it can be proved by the tax payer that he has been living there for a
period of more than 12 months.
Transaction related to furniture sale:
Jasmine caused the sale of her furniture at 5000 $. The furniture pieces do not exceed
2000 $ in value. A CGT asset held for personal usage will not be considered if its valuation
amounts to less than 10,000$ threshold. Thus this sale will not be considered.
Transaction related to painting sale:
Jasmine sold them for 35000$. She bought none of them for more than 500$. Only one
was bought for 1000$ which she sold for 5000$. As per section 108.10, painting amounts to a
collectable. But if its value is less than 500 then will be ignored. Only the painting bought for
1000$ and sold for 5000%will be used in calculation. It will result a capital gain amounting
4000$ which will be subjected to 50$ discount which will again reduce it to 2000$.
Conclusion:
CGT consequences have been discussed as above.
Answer to question 2:
Issue:

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Issue here is whether Machine purchased by John will be included under calculation of
capital allowance.
Law:
The case of John is required to be analyzed by construing to the provisions enumerated
under the Income Tax Assessment Act 1997, hereinafter will be denoted as ITAA1997 (Woellner
et al. 2016). Income taxes form the most important type of taxation in Australia. The federal
government collects these taxes and then pays them to the states by following a distribution
formula which is decided by the Commonwealth Grants Commission.
Division 40 again provides that the value of any depreciating asset in relation to a
particular taxation year has to be calculated according to the provisions enumerated under this
division. The assets having restricted and limited effective life will be incorporated as an asset
that depreciates with time.
Section 40.30 enumerates the provision of depreciating assets. These type of assets have
a certain period of effective life which gradually declines with its usage with passing of time.
The beginning of such decline of the effective life of a depreciating asset is considered as
the starting time. such declining value of the asset is generally calculated as constant percentage
on the cost of the asset given under the prime cost methodology.
Calculation:
Decline of the asset value= (cost of the asset) multiplied by( number of days the asset was
held/365) multiplied by (100% divided by the effective life of the asset).

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Sub division 40C again enumerates the manner by which the asset cost that is undergoing
depreciation can be calculated.
Section 40.60 further provides that decline of the asset value begins from the starting
time and it also denotes the time when the asset was made ready for its usage.
Section 40.175 states that the cost base or CB of any depreciating asset has to be
calculated by using its two elements. Section 40.180 provides the 1st element pertaining to the
cost and section 40.190 denotes the second element pertaining to the cost.
Moreover, section 40.185 enumerates that payment that has been made by the asset’s
owner in order to acquire the said asset is required to be calculated in the period of time during
which the holder of the asset actually gets the asset. It includes all the expenses made by the
holder of such asset in relation to each and every economic benefit that arises after acquiring the
asset in order to bring the asset in the present state together with the current location at the time
which marks the commencement of the holding of the asset.
Application:
Here John went to Germany to visit the factory of CNC machines. His sole purpose of
visiting Germany is to visit the factory of CNC machines so that he can choose and purchase
such machine fit for his purpose. The machine bought by him was imported from Germany on 1st
of November of 2014. He bought it for 300000 $. The purchasing price denotes Element one s
per section 40.180.
His trip to Germany costs him about 12000 $. As this expense was incurred to John
before purchasing the machine, hence the same cannot be included within the asset cost.

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The second element of the asset cost is needed to be computed from the time which
marked that the asset was held by the holder As per section 40.190 that denotes the second
element pertaining to the cost.
It will include all the expenses suffered by him in relation to each and every economic benefit
that arises after acquiring the asset in order to bring the asset in the present state together with the
current location at the time which marks the commencement of the holding of the asset.
Hence, this will include the cost of installation of the machine which is 25000 $ and it
will be added to the second element to calculate the cost. When the machine begins to run, John
feels that a guiding rod will make the machine perform better. Thus he caused a guiding rod to
be attached to the machine on February 1st. This costs about 5000 dollars. It will be further added
to the cost of CNC. Thus the machine can be said to function effectively from 1st on February
and the cost of the CNC can be computed as :
CNC cost = purchasing price + installation price + guiding rod fixing price= 300000 +
25000 + 5000 = 330000 dollars. Hence the CNC machine cost is 330000$.
Conclusion:
Thus it can be concluded that the CNC machine cost is 330000 and the machine can be
said to function effectively from 1st on February.

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References:
Reference
The Income Tax Assessment Act 1997 (Cth)
Woellner, R., Barkoczy, S., Murphy, S., Evans, C. and Pinto, D., 2016. Australian Taxation Law
2016. OUP Catalogue.