Taxation Law: Capital Gains, Depreciation and Deductions

Running head: TAXATION LAW
Taxation Law
Name of the Student
Name of the University
Authors Note
Course ID

TAXATION LAW1
Table of Contents
Answer to question 1:.................................................................................................................2
Answer to question 2:.................................................................................................................6
References:...............................................................................................................................10

TAXATION LAW2
Answer to question 1:
A: Sale of Home:
As a general note, the capital gains or loss happening to pre-CGT assets such as the
assets procured before 20/9/1985 is tax exempt from CGT. Other assets which is not
subjected to CGT is the main dwelling. Under “sec 118-110 (1)”, exemptions on main
residence is applied only when the dwelling qualifies as the main home where the taxpayer
lives (Mangioni 2015). The application of exemption on main dwelling is completely
dependent on the fact. There are some factors that is given by the tax commissioner this
includes;
a. The length of time lived in the dwelling by taxpayers
b. Place of residence of taxpayers family
As noted it is necessary that some degree of physical occupancy is needed to establish
the main exemption.
The situation here says that Jasmine an Australian resident is now deciding to move to
UK. She sells the home for $650,000 which was purchased 1981. During purchase she paid
$40,000 to acquire the house. The house of Jasmine qualifies as main residence exemption
under “sec 118-110 (1)” because she was using it for her dwelling purpose and under no
circumstances used for generating income (Becker, Reimer and Rust 2015). The capital gains
earned by Jasmine will be further exempted because her house is a pre-CGT asset because
she bought before 20/9/1985.
B: Sale of Car:
Capital gains or loss happens when the CGT event takes place. A CGT event A1
under “s 104-10 (1)” when capital gains or capital loss takes place.

TAXATION LAW3
Most notably in “subdivision 108-C” non-collectable assets or in other words
personal use asset refers to assets kept or used by taxpayer for private enjoyment purpose
(Braithwaite 2017). The example under “sec 108-20” includes the furniture, motor vehicle,
boat and household things. The most important aspect of the personal use asset is that under
“sec 118-10 (3)”, any kind of capital gains is ignored when assets has a base cost of $10k or
low. This implies that details must be kept by the taxpayer when they are purchasing assets
for a value greater than $10k. While “sec 108-20 (1)”, explains that capital loss from
disposing private use asset is not counted for tax purpose.
In 2011 a car was purchased by Jasmine that cost her $31,000. While in current tax
year she sells the car that had the worth of $10,000. Therefore, selling of car has transpired a
CGT event A1 under “sec 104-10 (1), ITA Act 1997”. The car is characterized as the personal
use asset under sec 108-20. The capital loss from disposing the car by Jasmine under sec 108-
20 (1) is ought to be ignored.
C: Capital gain on sale of business:
As noted in “Div 152” basic concessions is given to help the small business. The basic
conditions includes the following;
a. The company should be categorized as small business with gross business revenue not
more than $2 million (Sterner 2017).
b. CGT asset should be actively used in business.
Four types of small business concessions is available;
1. 15-year capital gains from CGT asset
2. 50% reduction in capital gains after imposing general 50% discount
3. Retirement concessions of up to $500,000 on capital gains proceeds
4. Roll-over relief for using the capital gain to purchase replacement assets