Taxation Law - Question and Answer

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

TAXATION LAW1
Table of Contents
Question 1......................................................................................................................2
Issue...............................................................................................................................2
Relevant Laws................................................................................................................2
Application......................................................................................................................3
Conclusion......................................................................................................................4
Question 2......................................................................................................................4
Issue...............................................................................................................................4
Relevant Law..................................................................................................................5
Application......................................................................................................................5
Conclusion......................................................................................................................6
References.....................................................................................................................7

TAXATION LAW2
Question 1
Issue
The given situation is related to the tax liability of Sophie, who has entered into a
variety of transactions on which CGT can be charged for the relevant taxation year.
These are as follows:
The primary issue is related to the sale of land in Ninety Mile Beach for $800000.
However, prior to this sale, there were some expenditure incurred in relation to the sale
of the land. The most important cost in this regard was the cost of acquiring the land
which amounted to $130000 in 1991. At that time, she also paid $800 in stamp duty and
$1200 in legal fees. In order to facilitate the purchase, Sophia also happened to take a
bank loan for which the total interest paid by her was $27000. However, these were not
the only costs incurred by her. Others included $8000 paid as legal fees in order to
settle the dispute with the neighbour about the land. Similarly, the council rates, water
rates and insurance paid by her amounted to $18500. In order to facilitate the smooth
sale of the property, she had to make it fit for sale. Hence, she incurred an additional
expenditure of $1500 to remove a large number of pine trees that were growing on the
land. Additional expenditure included the advertising, legal and agent’s fees which were
totalled at $25000. In this case, advice is to be provided to her on the amount of
deduction that would be allowed to her on the sale and regarding the items which can
be added to the cost base of the asset.
The second CGT transaction is the sale of shares in ABC for $32.20 per share. The
purchase date of these shares was in 1983 and a brokerage of 1% was paid on the sale
of the asset.
The third CGT asset sold by Sophia was a stamp collection purchased in January 2018
for $33000 which was purchased for a fees of $23000. The auction fees in relation to
this fees totalled at $3000.
The final CGT asset sold by her was a Bob Marley guitar purchased in 2003 for $70000.
The sale of this guitar fetched $45000 in 2018.
Relevant Laws
In Australia, the CGT began from 20 September 1985. Any assets which were acquired
prior to this date are not covered under CGT on the sale of assets (Ato.gov.au. 2020).
Under s104-10(1) of ITAA 1997, a CGT event happens when the taxpayer disposes off
a CGT asset. As per s104-10(2) of ITAA 1997, a capital loss occurs if the sale proceeds
from an asset are lower than the revised cost base of the asset. Similarly, if the
proceeds from the asset are more than the cost base of the asset, then there is an
occurrence of capital gains. The sale of land can either be taxed under the Income from
Business and Property or under the head Capital Gains. However, as held by the court
in FCT v St Hubert’s Island Pty Ltd, if the primary activity of the taxpayer is to develop
and sell land, then the sale proceeds would be taxable as a part of the business
income. Under s108-5(1) of ITAA 1997, an asset is a CGT asset if it is a legal or
equitable right but not a property. Some of the assets covered under this section include
land and buildings, units, shares and other contractual obligations. As per s108-10(2) of
ITAA 1997, a collectable is a CGT. Some of the items covered under the definition of a