Taxation Law: Capital Gains Tax Implications and Income from Personal Exertion

TAXATION LAW
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Question 1
The given situation relates to taxpayer Helen who has sold a host of assets during
the current financial year (2017-2018) in order to provide funds to her business. The
relevant implications in term of capital gains tax are as outlined below.
Capital Asset: Impressionism painting
In accordance with the given information, this asset was liquidated on December 1,
2018 for a sum of $ 12,000. This asset was acquired by Helen’s father in February,
1985.
The crucial aspect with regards to the current asset is the date of purchase. It is
noteworthy that CGT system was not always in place and before September 20,
1985, there was no tax on any capital gains derived by the various taxpayers. The
assets that were purchased during that time are referred to as pre-CGT assets. This
concept has been explained in s. 149-10 ITAA 1997. The significance of these
assets lies in the fact that no CGT would apply to any capital gains on disposal of
these assets (Gilders et. al., 2016). As a result, irrespective of the capital gains on
the impressionism painting sale, Helen would not have to pay any CGT on the same.
Capital Asset: Sculpture
In accordance with the given information, this asset was liquidated on January 1,
2018 for a sum of $ 6,000. This asset was acquired by Helen in December, 1993.
It is evident that the sculpture is not a pre-CGT asset as the purchase has been
made at a time when capital gains were taxed. It is noteworthy that as per s. 108
ITAA 1997, sculpture is classified under “collectible” asset. These assets are CGT
assets and thereby when any of these is liquidated, the CGT event A1 is triggered in
accordance to s. 104-5 ITAA 1997 (Barkoczy, 2018). The relevant formula for
calculation of resultant capital gains has been outlined in s. 104-10 1997 as per
which the proceeds from asset liquidation should be adjusted for asset cost base. In
wake of the given information, this is shown below (Reuters, 2017).
The above gains can be reduced using the discount method as the asset was held
for more than one year and also the taxpayer Helen is an individual taxpayer. As a
result, 50% discount on the capital gains would be applicable but the same woul
apply after all existing capital losses are adjusted (Krever, 2017).
Capital Asset: Antique jewellery piece
In accordance with the given information, this asset was liquidated on March 20,
2018 for a sum of $ 13,000. This asset was acquired by Helen in October, 1987.
It is evident that the antique jewellery is not a pre-CGT asset as the purchase has
been made at a time when capital gains were taxed. It is noteworthy that as per s.
108 ITAA 1997, antique jewellery is classified under “collectible” asset. These assets
are CGT assets and thereby when any of these is liquidated, the CGT event A1 is
triggered in accordance to s. 104-5 ITAA 1997. The relevant formula for calculation
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of resultant capital gains has been outlined in s. 104-10 1997 as per which the
proceeds from asset liquidation should be adjusted for asset cost base. In wake of
the given information, this is shown below.
With regards to collectible ss. 108-10(1) highlights that any capital losses can only
be offset against collectible assets linked capital gains. If such gains are not
available to the required extent, then the pending capital losses to be offset would be
carried forward to future tax years (Deutsch et. al., 2015).
Capital Asset: Picture
In accordance with the given information, this asset was liquidated on July 1, 2018
for a sum of $ 5,000. This asset was acquired by Helen’s mother in March, 1987 for
$470.
It is evident that the painting is not a pre-CGT asset as the purchase has been made
at a time when capital gains were taxed. It is noteworthy that as per s. 108 ITAA
1997, painting is classified under “collectible” asset. Additional requirement in case
of collectible assets is referred to in ss. 118-10 ITAA 1997 as per which for levying of
CGT, the minimum purchase price ought to be $ 500 (Austlii, nd). While this
condition was being adhered by the previous assets discussed that belonging to this
asset class, this is not fulfilled for current asset. As a result, no CGT would apply on
any capital gains derived by Helen.
Based on the above discussion, only the two following two asset have some CGT
implication.
 Sculpture = $ 500 gain
 Antique jewellery = $ 1000 loss
 Net position for Helen (2017-2018) = 500 – 1000 = -$ 500 or $ 500 capital
loss
The implication of the above computation is that $ 500 capital losses would be
carried forward to the future tax years for offsetting. It is noteworthy that this cannot
be adjusted against assessable income derived from revenue receipts (Coleman,
2016).
Question 2
In line with the given case facts, it is evident that Barbara has written a book related
to economics after she received an offer from a book publisher. It is noteworthy that
she got the offer even though she has never written a book earlier. Further, she
received money in lieu of copyright sale related to book, sale of manuscript of book
along with interview transcripts which were conducted as part of the book writing. In
wake of the facts outlined, the issue is to determine if any of the proceeds underlined
may be attributed to personal exertion based income.
The discussion of the various proceeds obtained by Barbara and the suitable
treatment of the same is carried out below.
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