Taxation Law: CGT Liability and Capital Allowance for Depreciating Assets

Running head: TAXATION LAW
Taxation Law
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TAXATION LAW1
Table of Contents
Answer to question 1:.................................................................................................................2
Introduction:...........................................................................................................................2
Answer to question 2:.................................................................................................................7
Issues:.....................................................................................................................................7
Laws and Application:...........................................................................................................7
Conclusion:..........................................................................................................................10
References:...............................................................................................................................11

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Answer to question 1:
Introduction:
“Part 3.1 of the ITAA 1997” explains that there are certain general rules that are
applied in determining the CGT liability. There is a limitation which is imposed by the “sec
100-25 (1), ITAA 1997” that restricts the assets on which part 3 is applicable to those which
is purchased on or following the 20th September 1985 (Miller and Oats 2016). The taxpayer
must understand that till 21st September 1999 those gains are levied tax that are falling within
the GST regime. The provision of CGT is only implemented on the realised or actual gains.
Under the “sec 6-10” capital gains are held for assessment as the statutory earnings while
under “sec 102-5 (1)” the capital gains is included as the assessable earnings of the taxpayer.
Answer A:
Sale of family home:
There is an explanation that is mentioned in “Div 118-B” that relates to the main
residence exemption (Anderson 2019). The common principles given in the “sec 118.110-
ITAA 1997” pronounces that capital gains or loss arising from house in which taxpayer’s
lives as their main dwelling is usually exempted from tax.
Jasmine as a resident of Australia has made the decision of moving to UK
permanently and decides to sell all of her assets. In the current year she sells her house that
valued $650,000. In 1981 the house was purchased for $40,000 by Jasmine. She used the
house for her main dwelling purpose and never used it for producing income. Therefore, the
house here should be treated as pre-CGT asset (Osborn 2018). This is because the house was
purchased before 20/9/1985. The capital gains that is made by Jasmine on selling the house is
exempted from tax under “sec 118.110-ITAA 1997”.

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Answer B: Sale of Car:
Certainly, there are some of the CGT assets under “sec. 108-20, ITAA 1997” beside
the collectable that are used by taxpayer for private purpose or personal usage purpose. These
assets are known as personal use assets (PUA’S). Examples of personal use assets mainly
involve the racehorses, boats, furniture, household goods and electrical goods. In pursuit of
the “sec 118.110 (3), ITAA 1997” the taxpayer here are required to pay attention that
whenever there is a capital loss happening from sale of PUA’s they should be simply ignored
under “sec 108-20 (1)” (Herdegen 2016). Whenever a taxpayer sells the CGT asset there is a
CGT event A1 under “sec 104.10 ITAA 1997”. This event is applied on assets that is bought
by taxpayer afterwards 19/9/1985.
Jasmine in 2011 purchased a car. The car valued $31,000 when she purchased it. In
the present tax year the car worth approximately $10,000. The car is a personal use asset
under the definition of “sec 108.20 (1), ITAA 1997” (Frecknall-Hughes 2014). Jasmine
mainly kept the car for her personal use. The sale of car by Jasmine led to CGT event A1
under “sec 104-10, ITAA 1997”. As she made a capital loss from the car, the loss will be
ignored under “sec 108-20(1)”.
Answer C: Sale of business:
“Division 152-ITAA 1997” says that to help the small business there are certain
concessions from CGT is given. There are few rudimentary circumstances that must be met
(Qureshi and Kumar 2019). This includes;
a. The company should be classified as small business entity with the total turnover of
$2 million or the net value of it is assets is no more than $6 million.
b. The CGT asset should be categorized as the active asset.