Impact of CGT on Asset Liquidation in Taxation Law

TAXATION LAW
STUDENT ID:
[Pick the date]

Question 1
The given case relates to Helen whose primary profession is fashion designer and
needs some incremental money for her business. As a result, in the current tax year,
she has liquidated some assets which she held. In context of these transactions, the
key aim is to outline the impact of these transactions in terms of any CGT liability
that would be payable by the taxpayer Helen.
1) Liquidation of antique painting
A key condition to be fulfilled for levying of CGT is that the asset should not be
purchased in the pre-CGT era. It is noteworthy that CGT system was introduced as
on September 20, 1985. Further, ss. 149-10 highlights that any capital asset which is
purchased before the cut off date (i.e. September 20, 1985) would not attract any
CGT. This is independent of the duration for which the asset is held and the
underlying capital gains or losses derived (Austlii, 2019). The antique painting would
be a CGT asset in accordance with s. 108-10 ITAA 1997. However, the disposal of
this asset would not lead to any CGT implication since the date of purchase
(February 1985) lies in the pre-CGT era or before September 20, 1985 owing to
which no CGT would be levied on this asset disposal.
2) Liquidation of historical sculpture
The first imperative aspect to highlight is that as per s. 108-10 (ITAA 1997), sculpture
is a CGT asset which falls under the asset class known as collectible The sale of a
CGT asset would require capital gains/(loss) computation to be performed since A!
CGT event would arise as per s.104-5. The formula for capital gains calculation is
driven by the underlying CGT event. For the current event, the formula has been
highlighted in s. 104-10. Considering the relevant formula and the input data
provided in context of the asset, the capital gain computation is shown below
(Barkoczy, 2017).
In accordance with s. 115-25 (ITAA 1997), the above gains can further be reduced
through the discount method owing to the holding period of asset exceeding one
year but same would be done after accounting for any outstanding capital losses
(Sadiq et. al., 2016).
3) Liquidation of antique jewellery piece
The first imperative aspect to highlight is that as per s. 108-10 (ITAA 1997), sculpture
is a CGT asset which falls under the asset class known as collectible The sale of a
CGT asset would require capital gains/(loss) computation to be performed since A!
CGT event would arise as per s.104-5. The formula for capital gains calculation is
driven by the underlying CGT event. For the current event, the formula has been
highlighted in s. 104-10. Considering the relevant formula and the input data
provided in context of the asset, the capital gain computation is shown below
(Deutsch et. al., 2016).
2

The above capital loss cannot be neutralised against revenue receipts or capital
gains from other asset classes as per s. 108-10(1). Thereby, the endeavour would
be to offset these losses in the present tax year or if adequate capital gains from
collectible asset disposal are not available, then any pending capital losses would
move forward to the next year (Krever, 2017).
4) Liquidation of picture
Like the other assets which Helen has disposed, this asset is also a collectible item.
There is a specific rule highlighted in s. 118-10(1) as per which CGT would be
applicable on the capital gains from such assets only under the condition that the
price of purchase is at a minimum of $ 500 (Reuters, 2017). This element is not
satisfied for the current asset under consideration as Helen’s mother bought this for
less than $ 500 ($470). As a result, the computations for capital gains have not been
performed since these would anyways be disregarded only.
Net Position
The summary of the four assets CGT implication is presented in the tabular manner
below.
Based on the above computation, it is evident that Helen would carry forward this
loss to the future years until offsetting against capital gains is performed based on
collectible assets disposed (Coleman, 2016).
Question 2
Case Facts
The taxpayer (Barbara) wrote a book “Principles of Economics” as she received an
offer regarding the same which she accepted. She got compensation for writing the
book along with compensation related to copyright, manuscript sale along with the
proceeds related to interview transcript sale. In wake of these proceeds, it needs to
3