Taxation Law: Capital Gains Tax and Depreciation of Assets

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

TAXATION LAW1
Table of Contents
Question 1......................................................................................................................2
Question 2......................................................................................................................3
References.....................................................................................................................6

TAXATION LAW2
Question 1
A. Jasmine is a resident of Australia. She is 65 years old and was born in the UK.
She conducted her business as a cleaner in Australia and is retiring now. After
the retirement, she is moving back to the UK. She is selling off all her assets
before leaving the country. One of the oldest assets was the house property in
which she lived. The purchase of this property took place in 1981 when the worth
of the property was estimated to be $400000. In the present day, Jasmine has
sold the property for $650000. Ever since she bought it, this was the only
property that Jasmine continued to live in. She did not use the same for any
revenue generating or business purposes. The ATO suggests that the ‘main
residence’ of a person is never taxable under the Capital Gains Tax (CGT)
scheme. If the residence was used in business or for any profit making motives
and not just residential usage, then the gains earned from its sale would have
been charged under the ordinary income head. However, if it is used only for
residential requirements, then the capital gains from the sale would not be
charged under CGT. For Jasmine, the amount earned from the sale of her
residence is not chargeable under CGT (Ato.gov.au. 2019).
B. In 2011, Jasmine purchased her car by paying an amount of $31000. Under the
CGT regulations, a motor vehicle or a car that is designed in such a way that it is
incapable of carrying more than 9 passengers or a tonne of load at the same
time is not charged under taxation purposes. This also includes the vehicles
meant for the personal use of the taxpayer. Due to the fact that Jasmine sold a
car in the given year, the capital gains or losses earned by her are not
chargeable under the CGT in the given year. Hence, CGT is not charged on the
$10000 that she has received on the sale of the car (Ato.gov.au 2019).
C. For the owners of small scale businesses, there are four kinds of exemptions that
can be availed at the time of sale of the business assets (Business.gov.au.
2019). If the taxpayer had continued to own the business for a span of more than
15 years and is aged 55 years or more, the CGT is not levied on them provided
that they retire after selling off their business. If a person is incapacitated on a
perpetual basis, the gains from selling the business are not also not chargeable
under CGT. The second kind of exemption that is available to the owners is a
50% reduction in the capital gains earned from the sale of the active business
assets. However, the limit on these kinds of exemptions is $500000. A person
who is below 55 years of age has to handover the total amount of capital gains
received from the trade of the business assets to a recognised superannuation
fund or a retirement savings scheme acquainted by the government. If there is
some uncertainty about earning the capital gains from an asset, then the tax on
capital gains can be postponed for a year. If the capital gains are used in
purchasing a new asset, then these gains can be deferred for up to two years.
Jasmin’s age is greater than 55 years and she will be retiring after the sale of the
business assets. Hence, the entire amount earned as capital gains is exempt
from taxation purposes.
D. Jasmine is selling off her furniture which is included in the definition of a
personal use asset as suggested by section 108.20 of ITAA 1997