Taxation Law - Individual Assignment

Running head: TAXATION LAW – INDIVIDUAL ASSIGNMENT
Taxation Law – Individual Assignment
Name of the Student
Name of the University
Author Note

TAXATION LAW – INDIVIDUAL ASSIGNMENT1
Table of Contents
Answer to Question 1........................................................................................................3
Background of the situation............................................................................................3
A. Sale of home........................................................................................................3
B. Sale of Car............................................................................................................3
C. Sale of business assets........................................................................................3
D. Sale of Furniture...................................................................................................4
E. Sale of Paintings Collection..................................................................................4
Answer to Question 2........................................................................................................4
Issue...............................................................................................................................4
Law and Application.......................................................................................................5
Law and Application.......................................................................................................5
Law and Application.......................................................................................................5
Conclusion......................................................................................................................6
References.........................................................................................................................7

TAXATION LAW – INDIVIDUAL ASSIGNMENT2
Answer to Question 1
Background of the situation
According to section 6(1) of ITAA 1936, a person shall be considered to be a tax
resident of Australia if they satisfy the conditions under the ordinary ‘resides’ test
conducted by the tax authorities. Jasmine, a 65 year old UK born woman, is being
considered as an Australian resident in this particular situation. Hence, she is liable to
pay taxes on the income earned by her in a given financial year. She is planning to
leave Australia in the given financial year and move back to UK. Before doing the same,
she is selling off her business and personal Australian assets and wants to understand
the amounts on which she would be liable to pay tax in the assessment year. The
relevant advice to Jasmine about her capital gains tax is as below:
A. Sale of home
Jasmine had purchased a house property in the year 1981 by paying $400000. In
the present day, this property’s value has gone up to $650000. It has been
suggested that the property has been her main residence since the time she
purchased it. As per section 118.100 of the ITAA 1997, a capital gain or a capital
loss that is earned from a capital gain event should be ignored if the property in
question is the main residence of the taxpayer. The full exemption on CGT is
available if the person uses this particular property for producing business or
other forms of income. As the property has only been used as a residence and
not for any income generating activities by Jasmine, capital gains earned through
the sale are to be ignored from the assessable income of Jasmine. Therefore, no
tax is levied (Ato.gov.au. 2019).
B. Sale of Car
As per the provisions of section 118.5 of ITAA 1997, capital gains or losses
earned from the sale of a car, motor cycle or similar vehicle is to be ignored in
the hands of a taxpayer. The ATO ruling states that a car is a vehicle that cannot
carry more than 9 passengers and a weight greater than a tonne (Ato.gov.au.
2019). Exempting the capital gains means that the capital gains earned or the
capital losses suffered are not to be included in the tax returns. Hence, as the
cost of the car was $31000 and its sale value was $10000, capital losses have
been incurred on the car. These are not to be included in the tax returns.
C. Sale of business assets
In Australia, a small business as per section 328.110 is one whose annual
turnover in a financial year does not exceed $10 million. Jasmine’s cleaning
business has been identified as a small business. There are four forms of tax
concessions available by the ATO to the small business owners (Sadiq and
Marsden 2015). These are the 15-year exemption, 50% active asset reduction,
small business retirement exemption and the small business roll-over. The 15-