Taxation Law: Capital Gains Consequences and Capital Allowances

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

TAXATION LAW1
Table of Contents
Answer to Question 1.....................................................................................................2
Solution to Question 2....................................................................................................3
References.....................................................................................................................5

TAXATION LAW2
Solution to Question 1
Jasmine is 65 years of age and is a resident of Australia. She was born in the
United Kingdom. After carrying on her small business as a cleaner, she now plans to
sell off all her Australian assets and move back to the UK. The advice to Jasmine about
the capital gains consequences of her sales are as follows:
A. The house of Jasmine was purchased in 1981 for $400000. She is selling this
house in the present year for $650000. It has been mentioned that this house
was the main residence of Jasmine ever since its purchase. As per the ATO
rules, the main residence of a person in Australia is one where they have lived
for a majority part of their residence in Australia. If this main residence of a
person is sold, then CGT is exempt. However, it should be made sure that the
house was not used for any other purposes other than residence. If the house
was used in any particular business, then the amount earned from the sale would
be charged as ordinary income earned during the course of business. For
Jasmine, the sale of her house is exempt from CGT (Ato.gov.au 2019).
B. A car or a motor vehicle, as defined by the ATO, is a vehicle that cannot carry
more than 9 passengers and a load of one tonne at once. If it satisfies both the
conditions, then the sale of such a vehicle is exempt from CGT. This means that
the capital gains earned from its sale is not taxable. If capital losses are earned
from the same, then they cannot be used to reduce the overall capital gains or
increase the overall capital losses of the person. As Jasmine had bought the car
for $31000 in 2011 and is selling the same for $10000, it is evident that she is
making capital losses through its sale. This should not be included at all in the
taxable CGT (Ato.gov.au 2019).
C. A small business in Australia is one whose annual turnover at any point is not
more than $2 million and the net assets owned by it are not more than $6 million.
The regulating authorities provide four types of exemptions to the owners of
small businesses (Sadiq and Marsden 2015). The primary exemption is the 15-
year exemption. This suggests that if the owner of a business is above 55 years
of age and will be retiring after the and has owned an active asset for a period of
more than 15 years, then the sale of the asset is not an assessable capital gain.
The next deduction is a 50% reduction in the capital gain of the asset. This is in
addition to the 50% CGT discount that is provided to a person for owning an
asset for 12 months or more. In case of a retiring person, the total capital gains
from the assets are exempt up to a lifetime limit of $500000. If the person is
below 55 years of age, this amount should be contributed to a recognised
retirement or superannuation fund (Ato.gov.au 2019). The final type of exemption
available is called the rollover exemption. In this type of exemption, all the capital
gains earned from an asset can be deferred up to a period of 2 years, or for a
longer period, if the capital gains from an asset are used in the acquisition of a
new asset. As Jasmine’s age is 65 years, which is more than 55 years, the sale
proceeds from the business assets are allowed up to a lifetime amount of
$500000. Hence, the entire amount of $125000 received from the sale of the
business assets is to be disregarded in the hands of Jasmine.