Taxation Law: Capital Gains Tax and Depreciation

Running head: TAXATION LAW
Taxation Law
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TAXATION LAW1
Table of Contents
Answer to question 1:.................................................................................................................2
Answer to question 2:.................................................................................................................5
References:.................................................................................................................................9

TAXATION LAW2
Answer to question 1:
Sale of Land:
As clarified in “sec 100-25 (1), ITAA 1997” the CGT system restricts the asset on
which Pt 3 is applicable to those that are purchased on or following 20 September 1985. The
provision of the capital gains tax is applicable on the actual or the realised gains (McCluskey
and Franzsen 2017). The capital gains tax are generally held for tax under the statutory
income under “sec 6-10” and the same is comprised in the taxable earning with respect to
“sec 102-5 (1), ITAA 1997”. The vital operative provision of the CGT regime is given in
“sec 102-5 (1)” which takes into the account the net capital gains in the assessable income.
Disposal of the CGT asset under CGT Event A1 is given in “sec 104-10, ITA Act 1997”. The
“CGT event A1” happens when the asset purchased on or after 20/9/1985 (McCluskey 2018).
The CGT must be disposed to another entity by the taxpayer. The “CGT event A1” is only
applied on assets purchased on that date only however assets purchased before the
aforementioned date is exempted from CGT.
As per the “Div 118-B” the general principles associated to the main residence is that
capital gain or loss from sale of house of the taxpayer is exempted or disregarded under “sec
118-110” (Mankiw, Weinzierl and Yagan 2019). The house should completely be used by
taxpayer for residence purpose only and should not be used for earning income.
A home was purchased in 1981 by paying $40,000 by Jasmine. As she is retiring from
her business and moving back to UK, Jasmine sold the house for $650,000. A “CGT event
A1” occurred in “sec 104-10 (1), ITAA 1997” when the house was sold (Cnossen 2015). The
house is a main residence of Jasmine which should be treated as a pre-CGT asset because it
was purchased in 1982 which is before the CGT system was introduced in 19/9/1985. No
CGT liability arises for Jasmine as it is a pre-CGT asset.

TAXATION LAW3
Capital gain or loss from car:
This is defined under “sec 108-20 (2)” which is used by taxpayer for personal purpose
and enjoyment. Common examples are television, car, bicycle, yacht and mobile phone that
are kept for private use (Nightingale 2014). Taxpayer must denote that under “sec 108-20
(1)”, when a capital loss happens from selling personal use asset then it is always ignored.
The situation here states that Jasmine sold a car for $10,000 that originally had the
worth of $31,000 in 2011. Car here is regarded as personal use asset under “s 108-20 (2)”.
Disposal of car has led to “CGT event A1”. The capital loss that is suffered from selling the
car should be ignored by Jasmine under “s 108-20 (1), ITA Act 1997”.
Capital gain in relation to sale of business:
There are four CGT concessions that can be accessible by taxpayer for the small
business when they sale their business assets. These are;
a. 15 year exemption: This is mainly for assets held for a minimum of 15 years.
b. The 50% reduction: Eligible taxpayers get 50% CGT discount
c. Retirement concession: Capital gains of $500,000 is ignored if the sales proceeds are
utilized in relation to taxpayer’s retirement (Burman et al., 2016).
d. Rollover relief: Capital gains from small business active asset is deferred when it is
replaced by another purchase of assets.
When a business goodwill is disposed a “CGT event C1” ensues. There must be a
perpetual end of business for happening of “CGT event C1”.
Jasmine here sold is moving to UK and sells all her business for $125,000. On selling
the assets Jasmine got $65,000 while selling her business goodwill it fetched her $60,000.