Taxation Law | Assignment-3

Running head: TAXATION LAW
Taxation Law
Name of the Student
Name of the University
Authors Note
Course ID

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Table of Contents
Answer to question 1:.................................................................................................................2
Answer to question 2:.................................................................................................................7
Issues:.....................................................................................................................................7
Law:........................................................................................................................................7
Application:............................................................................................................................8
Conclusion:..........................................................................................................................10
References:...............................................................................................................................11

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Answer to question 1:
Sale of block of land:
As noticed in “sec 110-25, ITAA 1997” there are commonly five elements of cost
base for CGT purpose of an asset. Under element one of “sec 110-25 (2), ITAA 1997” the
amount paid to get the asset is included. The second element involves the incidental cost
relating to purchase and sale of CGT asset under “sec 110-25, ITAA 1997” such as stamp
duty, fees of lawyer, commission etc. The third element includes the non-capital ownership
cost of asset such as the interest, repairs, land tax, interest (Woellner et al. 2016). This
element is commonly considered relevant when the taxpayer uses the asset for generating the
assessable earnings to deduct the non-capital ownership cost against it. The fourth element
under “sec 110-25 (5), ITAA 1997” involves the capital expenses which is occurred for
improving the asset which is reflected at the time of selling the asset. The final or fifth
element involves capital expenses that is occurred in establishing, defending the title or rights
associated to asset under “sec 110-25 (6) ITAA 1997”.
The current state of Sophia explains that she purchased a block of land that was
located in Ninety Mile Beach for $130,000 in 1991 for investment purpose. The land was
eventually sold by Sophia in 2018 for $800,000. The sale of land by Sophia has results in
“CGT event A1” within “section 104-10 ITAA 1997”. However to ascertain the CGT it is
vital to understand the cost base of the property (Barkoczy 2016). As per first element of cost
base under “sec 110-25 (2), ITAA 1997” comprises of the purchase price of $130,000 that
was paid by Sophia to acquire the land.
Sophia also reports incidental cost such as stamp duty and legal fees of $800 and
$1,200 individually. These cost forms the second element of cost base under “sec 110-25
(3)”. Sophia also reports an interest on loan that amounted to $27,000. She further reports

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council rates, water rates and insurance costs of $18,500 during her ownership period. The
interest on loan, council rates, water rates and insurance costs is a non-capital ownership cost
of land and will be contained inside the third element of cost base under “sec 110-25 (4),
ITAA 1997” for CGT purpose.
Sophia also reports occurrence of legal fees amounting to $8,000 for settling the
dispute with neighbour regarding the use of land. Under “sec 110-25 (6) ITAA 1997”, the
legal fees is a capital expenditures incurred by Sophia to defend her title on the investment
property. Hence, it must be counted under fifth element of cost base for CGT purpose
(Freudenberg et al. 2017). Sophia before selling the land spent $1,500 for removing the
hazardous pine trees on land. These expenses are capital expenses occurred to improve the
asset and it will be included under fourth element cost base of CGT asset under “sec 110-25
(5) ITAA 1997”.