Capital Gain Tax and Depreciation of Assets

TAXATION LAW

Answer 1.
Capital gain is the amount derived by deducting all the expense that is directly associated with
the asset from the selling consideration. The purchase price, expenses and all the fees should be
deducted as an expense. A tax has to be paid on this capital gain which arises on selling a capital
asset and is known as capital gain tax. This rule is applicable on any asset whose value exceeds
$10000. The main point that has to be kept in mind while computing capital gain tax for certain
assets which has been purchased before 20th September, 1985 is not applicable for paying capital
gain tax. These certain assets which are excluded from tax includes residence, car, depreciable
assets, motorcycle that were purchased before the given date (Bruner, Eades and Schill, 2017).
(A) Capital gain in relation to the family home.
The family home that is talked about is a residential property which is owned by Jasmine, a
resident of Australia. Jasmine belongs to UK and has only this property in Australia which is
held for residential purpose and there is no intention of generating revenue. She lives in this
house and also her mailing address is this. So, she has met all requirements for claiming
exemption. The property was bought for an amount equal to $40000 in the year 1981 and also it
was sold at $650000. The capital gain from the sale of this property amounts to $(650000-
40000)= $610000. If any of the requirements were not fulfilled for claiming full exemption then
a discount of 50% would be applicable on the capital gain tax which would amount to $610000 *
0.5 = $305000. There is also one alternative that is present which is deducting the indexed cost
of acquisition from the selling consideration. This would lead to increase in the cost amount and
decreased amount of capital gains. Also, there is a provision which states that any property that is
acquired before the year 1985 is not exempted from capital gains tax (Fairhust, 2015).
(B) Capital gain or loss made from the car.
The sale of a car falls under the special provision of exemption which states that any asset that
has been purchased prior to 1985 is exempted from paying capital gain tax. Therefore, we can
conclude that no CGT will be paid in this case. In the case provided to us, the purchase price of
the car amounts to $31000 and the sales price is equal to $10000 which results into a capital loss
of $21000. As we know, there is no capital gain tax liability in this case Jasmine will also not be
able to book this loss for reduction of its tax liability (Hassani, 2016) .

There is a general knowledge about Capital gain tax which states that a capital loss can be set off
against the capital gain that has arisen from any asset. If there is any asset such as a property of
gold that has been owned for more than 36 months which has a capital loss on sale. Then, this
amount can be adjusted by the amount of capital gain derived from the sale of other assets.
(C) The capital gain in relation to the sale of the business.
As per the capital gain concessions that are provided to small businesses, any individual who is
aged more than 55 years is provided this benefit of concession. Jasmine is 65 years old which
means that she will be benefitted by this provision. However, the business should be held by her
for more than 15 years for claiming exemption. We have taken an assumption that Jasmine held
the business for more than 15 years on the basis of the information about the year in which she
shifted to Australia. So, Jasmine is eligible for claiming exemption. If the business was not held
by her for 15 years, then she would have been able to get the exemption and capital gain tax
would have been added to the assessed value.
In this case, the selling consideration for the business amounts to $125000 which included
equipments and goodwill. The sales price of the equipments was $65000 and for goodwill was
$60000. The capital gain tax liability in this case would amount to $(125000-75000) = $50000.
A capital gain discount of 50% is also applicable in this case which amounts to $50000*50% =
$25000.
(D) The capital gain in relation to selling the furniture.
Furniture is held by Jasmine for the purpose of personal use and so if its value does not exceed
$1000 then the capital gain tax will not be applicable. In the case given, the furniture is exempted
from CGT because it is held for personal use and also the selling price is less than $2000. The
exemption is given on the basis of purchase price and the selling value is not taken into
consideration in personal assets while computing capital gain tax liability. Here, the sales value
is $5000 whereas the purchase price is given to be $2000 and so it is exempted from capital gain
tax.
(E) The capital gain in relation to selling the paintings.