Taxation Law Australia Question Answer 2022

Taxation Law Australia
Case Study on Capital Gains Tax and Capital Allowance
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Answer to the question no- 1
Capital Gains Tax Consequences on Sale of Assets by Jasmine
After assessing the case of Jasmin, it is firstly required for Jasmin to understand the Australian
taxation rules and regulations. It is divulged to her that the Australian taxation system requires
the Jasmin to include the capital gain in the income tax return as part of income tax liability. This
increases the total income tax payable by her, at times to a substantial level. Hence it is necessary
for her to compute the CGT at an early stage to arrange for fund to pay the tax as Australian
taxation system does not have any provision of withholding CGT.
It is advised that tax payable by her on the capital gain in the taxation system on the assets which
she purchased on or after 20 September, 1985. Any asset acquired after that date is subject to
CGT excepting some exclusions and exemptions. Australian taxation system does not require
payment of tax on gains on sale of assets in a separate heading, rather the same is assessed
separately but clubbed with the normal income of the assess to arrive at the taxable income and
payable at the applicable income tax rate. When an asset is held for at least 12 months prior to its
sale, it is considered as long term asset and the assessee is allowed a 50% discount on the gain on
sale of the asset for the purpose of calculating CGT liability. For superannuation fund the
discount is 33% (Australian Taxation Office, 2019).
Set off and Carry forward of Loss
As per the Australian taxation system set off and carry forward rules, any loss arising from sale
of asset can be set off against gain from sale of other assets, provided such loss has not occurred
due to sale of any exempt asset, and can be carried forward for indefinite period, but such loss
cannot be set off against any other normal income of the assessee.
Capital Gains Tax (CGT) Event
A CGT event is deemed to have taken place when any or all of the following events take place:
i) The assesse sells or gives away any asset (Australian Government, 2019):

ii) She could redeems, cancels, or surrenders shares of a company (Australian Government,
2019).
iii) Any asset is lost or destroyed (Australian Government, 2019).
iv)The assesse ceases to be an Australian resident and leaves the country (Australian
Government, 2019).
v) Any payment from a company, other than dividend payment, is received by the assessee
Capital Gains Tax (CGT) Assets
It is advised to her that in Australia all assets are subject to CGT if acquired after 20th September
1985, unless specifically excluded from domain of CGT or exempted on the basis of their cost of
acquisition. A list of CGT assets is given below:
i) Real estate: All assets in the real estate category including vacant land, holiday homes, and
hobby farms.
ii) Shares and Units: Shares and units of unit trusts if those are acquired after 20 September,
1985 are subject to CGT. However when company shares are sold as stock in trade, the same is
not a CGT asset. Gains from sale of shares as business activity is considered as ordinary income
of the assessee and assessable for income tax purpose.
iii) Intangible Assets: Intangible assets like goodwill, license, patent, etc. if those were active
assets prior to sale gives rise to CGT.
vi Collectables: Collectable are those assets which are kept by the assessee for personal
enjoyment or for the enjoyment of associates of the assessee. Collectables for CGT purpose,
according to Section 108 of the Capital Gains Tax 1985 are paintings, drawings, engraves, old
postage stamps, jewellery, rare manuscripts, books, folios, and photographs (Australian Taxation
Office, 2019).
Assets Exempted from CGT

It is divulged to her that the Australian Taxation Office provides for exemption for certain assets
from CGT on her capital gain. The gains from such assets are not taxable, nor is any loss arising
out of sale of such assets available for setting off capital gains. Such assets are listed below:
i) Pre-CGT Assets: All assets acquired by the assessee before 20 September 1985 are excluded
from computation of CGT (Australian Taxation office, 2019).
i) Main Home of the Assessee: Main home of Jasmin is exempt, even purchased after September
1985, from being subjected to CGT if that is used by the assessee or her family for living, if the
personal belongings of the assessee are kept in the house, if the home is the official mailing
address of the assessee, and if the home has gas and electricity connections. However, if the
assessee was not a resident of Australia while living in the house, no exemption from CGT
liability can be claimed in respect of such house.
ii) Depreciating assets: Any depreciating asset used by the assessee in business solely for taxable
purpose is exempt from CGT. Equipments of business or items kept in property used for rental
purpose are examples of such assets. Gain from sale of any other asset outside of depreciation
pool is taxable as CGT and any loss from such sale can be used for offsetting capital gains.
iii) Personal Use Assets: Personal use assets acquired by the assessee for less than $10,000 or
were such valued when the assessee acquired them are exempt from CGT. Any loss arising out
of sale of such assets is also not available for offsetting capital gains from other assets.
However, Taxation Ruling TR 2004/18 provides certain exceptions to such exemptions. Shares
in private companies or shares in private trust acquired before 20 September, 1985 are subject to
CGT if combination of certain factors give rise CGT event.
iv) Cars and Motor Cycles: According to Sub Section 995 – 1(1) of the Income Tax Assessment
Act 1997, for the purpose of taxation, a car is defined as a vehicle capable of carrying less than 9
passengers and 1 tonne. Any gains from sale of such assets are not to be included for the purpose
of computation of CGT as per Section 118 – 5 of the Income Tax Assessment Act 1997.
However, a car is subject to CGT if it is an antique car. Section 108 – 10(2) deems an item to be
antique if it is at least 100 years old (Australian Taxation Office, 2019).
Resident for Tax Purpose