TAXATION LAW. STUDENT ID:. [Pick the date]. Question 1.

TAXATION LAW
STUDENT ID:
[Pick the date]

Question 1
Issue
In wake of the given facts, the objective is to provide legal advice to taxpayer Helen
in the context of CGT liability that could potential arise on account of the various sale
transactions that have occurred during 2017-2018.
Law
The relevant aspects to be considered are highlighted below.
Concept of Pre-CGT asset
This is a crucial aspect as in accordance with ss. 149-10 (ITAA 1997), it has been
indicated that a pre-CGT asset would not attract any CGT liability irrespective of the
holding period and the extent of capital gains or losses. It is essential to note that the
classification of these assets is done on the date of purchase. Since capital gains
regime was made enforceable on September 20, 1985, hence any assets purchased
before this date would be termed as pre-CGT asset and would not attract any tax on
account of capital gains or losses (Coleman, 2016).
Asset Class - Collectibles
A particular capital asset class which has a statutory definition is collectible as
indicated in ss. 108-15 (Austlii, n.d.). This includes various items such as antique,
artwork (painting, sculpture, picture) etc. The following are two key asp3cts related to
this asset class (Deutsch et. al., 2016).
 As per s. 108-10(1), the capital losses arising from this class of assets must
be necessarily adjusted against capital gains of this asset class only.
 As per s. 118-10, CGT would not apply for any capital gains or loss that arise
from collectibles having cost base less than $ 500.
Computation of Capital gains
As collectible belong to CGT asset, hence their disposal would trigger a A1 CGT
event. Under this event, there is a need to compute the capital gains by referring to
the formula which has been given in ss. 104-10. This formula advocates that asset
cost base ought to be deducted from the liquidation proceeds of the underlying asset
(Gilders et. al., 2016).
Taxable Capital Gains
There are two ways in which the tax liability could be reduced namely discount
method and cost indexation method. Discount method as described in Division 115
allows for 50% exemption on the capital gains for individual taxpayers provided the
asset is a long term asset (i.e. holding period of atleast one year).Cost indexation
method allows for inflation adjustment in the cost base which increases the same
and reduction of capital gains (Barkoczy,2018).
Application
Based on the given rules, the appropriate result for each of the transactions is as
highlighted below.
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Asset 1: Antique painting
The underlying painting was bought by taxpayer’s father in the pre-CGT era. This
can be established owing to the month of purchase being February 1985 which lies
before September 20, 1985. As a result, the given asset would be labelled as a pre-
CGT asset and thereby no CGT would be paid by Helen on any capital gains made
on this asset.
Asset 2: Sculpture
In line with the discussion as per s. 108, sculpture is a collectible which would be
considered as CGT asset. The sale of this CGT asset would lead to enactment of A1
CGT event. The underlying asset in not a pre-CGT asset and also the purchase
price is greater than $ 500. As a result, there is a need to compute the capital gains
based on the information given related to the asset in line with the mechanism cited
in s. 104-10 ITAA 1997. This has been carried out below.
The above capital gains can be reduced based on discount method as the holding
period of the sculpture exceeds one year. However, this adjustment would be done
only after any outstanding capital losses are adjusted (Krever, 2017).
Asset 3: Antique Jewellery
In line with the discussion as per s. 108, antique jewellery is a collectible which
would be considered as CGT asset. The sale of this CGT asset would lead to
enactment of A1 CGT event. The underlying asset in not a pre-CGT asset and also
the purchase price is greater than $ 500. As a result, there is a need to compute the
capital gains based on the information given related to the asset in line with the
mechanism cited in s. 104-10 ITAA 1997. This has been carried out below.
It has been highlighted in the relevant law section that any capital losses from
collectible ought to be only adjusted against corresponding capital gains from
collectible asset disposal. If this is not available during the year under consideration,
then there is carrying of the loss to the next tax year and so on (Reuters, 2017).
Asset 4: Picture
In the given asset, the purchase price of the picture is less than $500 as it is known
that this was purchased by Helen’s mother for a consideration of $470. As a result, s.
118-10(1) would be applicable here which would ensure that there would not arise
any capital gains tax on Helen with regards to the disposal of asset owing to the
minimum price threshold not being met
Cumulative Position
Conclusion
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