Taxation Law: Capital Gains Tax and Income from Personal Exertion

TAXATION LAW
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Question 1
Taxpayer Helen wanted to raise funds for her business as fashion designer and
therefore, she has sold some of her capital assets. The objective here is to estimate
the net capital gains or capital losses so as to provide a legal advice to Helen
regarding her Capital Gains Tax (CGT) consequences under the highlights of
relevant statutory law.
1) Helen’s father bought an antique impressionism painting
The required details about the capital asset are given below.
Month of purchase February, 1985
Purchasing cost $4000
Selling date December 1, 2018
Sale proceeds received $12,000
Holding period more than one year Yes
(Long-term asset)
The implication of the CGT on the produced capital gains/losses has been
highlighted in s. 149 (10) ITAA 1997 which also refers that CGT would not be levied
on the taxpayer when he/she disposed the pre-CGT asset. Any asset that has been
purchased on the part of the concerned taxpayer earlier than September 20, 1985 is
named as pre-CGT asset (Austlii, 2019). This is because CGT came into existence
only on September 20 1985 which means the assets that are purchased before this
date are free from any CGT implications. In regards to this case, Helen sold the
painting which her father bought in February 1985. Clearly, the painting purchase
has taken place before the period of CGT establishment. Hence, the asset is defined
as pre-CGT asset and CGT would not be levied on any capital gains related to asset.
2) Helen disposed her historical sculpture
The required details about the capital asset are given below.
Month of Purchase December, 1993
Purchasing cost $5,5000
Selling date January 1, 2018
Sale proceeds received $6,000
Holding period more than one year Yes
(Long-term asset)
Historical sculpture is considered as part of the collectibles and thus, capital asset as
evident from the provisions given in ss. 108 (10) ITAA 1997. From the data
represented in the above table, it is evident that the purchasing of sculpture has
been done after the establishment of CGT regime. Hence, CGT will be levied on the
capital gains/losses received from the disposal of asset. The transaction of sale for
capital asset is classified as A1 CGT event under ss. 104(5) ITA 1997.It means the
relevant formula for computation of capital gains/losses includes sale proceeds and
cost base of asset as given in ss. 104(10) ITAA 1997 (Barkoczy, 2017).
Capital gains
= Sale proceeds received - Sale proceeds
= $6,000 - $5,500
= $ 500
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received
Division 115, ITAA 1997 will be taken into account in order to minimize the CGT
payable on the produced capital gains considering that it is a long-term capital asset
and discount method will be applied (Sadiq et. al., 2016).
3) Helen disposed her antique jewellery
The required details about the capital asset are given below.
Month of Purchase October, 1987
Purchasing cost $14,000
Selling date March20, 2018
Sale proceeds received $13,000
Holding period more than one year Yes
(Long-term asset)
Antique jewellery is also considered as part of the collectibles and thus, is capital
asset as evident from ss. 108 (10) ITAA 1997. From the data represented above, it is
evident that the purchasing of jewellery has been done after the establishment of
CGT implication. Hence, CGT will be levied on the capital gains/losses received from
the disposal of asset. The transaction of sale for capital asset classified as A1 CGT
event under ss. 104(5) ITA 1997. It means the relevant formula for computation of
capital gains/losses includes sale proceeds and cost base of asset as given in ss.
104(10) ITAA 1997 (Deutsch et. al., 2016).
Capital gains
= Sale proceeds received - Sale proceeds
received
= $13,000 - $14,000
= -$1000
Helen has suffered a capital loss of $1000 from collectibles which would be counter
balanced through the capital gains derived from the sale of collectibles only. Further,
if Helen does not have any capital gains from collectibles then this loss would be
carried forwarded to the next financial year for adjustment and this process of
forwarding the losses would be continued until the losses get offset completely
(Krever, 2017).
4) Helen’s mother bought a picture
The required details about the capital asset is given below.
Month of Purchase March, 1987
Purchasing cost $470
Selling date July1, 2018
Sale proceeds received $5000
Holding period more than one year Yes
(Long-term asset)
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