Taxation Law: CGT Consequences of Sale of Assets

This document discusses the CGT consequences of the sale of various assets, including an antique painting, historic sculpture, jewelry, and picture, under Taxation Law. It analyzes the provisions of the Income Tax Assessment Act 1997 and determines the capital gains or losses incurred in each case. The document also explores the tax implications of receipts earned by Barbara for her book and manuscript sales. Additionally, it examines whether the additional 5% amount repaid by David to Patrick is considered assessable income.

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

1TAXATION LAW
Question Number 1:
Part 1:
The issue that has to be discussed in this part of the question is identification of the
consequences of capital gain by the sale of antique painting of sale.
The issue is to be analysed according to the provisions laid down in the Income Tax
Assessment Act 1997 (Woellner et al. 2016.). As per sec. 180-10 (2), the antique
impressionism painting will be considered to be a collectable and also a capital gain asset.
According to the provisions of sec. 102.2, CGT is applicable when a CGT incident has taken
place according to the table provided under sec. 104.5 of ITAA 1997. The sale of a CGT
asset or its disposal is to be regarded as an event of CGT A1 as seen in the sec. 104-10(1).
The TP (tax payer) will be an owner at the time when the asset is being acquired as given in
sec. 109-5(1).
From the facts of the case, it cannot be ascertained when Helen acquired the painting.
The reason behind this is that the antique impressionism painting was bought by Helen’s
father. If the antique impressionism painting was bought before 20th September of the year of
1985, it will be considered as a pre CGT asset and hence will be excluded from CGT. If it
was collected by her father after the mentioned date, it will be considered as a collectable.
From sec. 110-25(2), the cost base E1 is the acquisition price of the painting which is 4000
dollars. Since it was purchased by her father, she would have got the painting by gift or by
will. According to that, CB will be varied by the market price present at the time of
acquisition according to sec. 112-20. The selling price of 12000 dollar will be regarded as the
capital proceeds according to sec. 116.20. The CG is equal to Capital proceeds minus Cost
Base. If the asset is hold for more than one year, then she will be eligible under Div. 115 to
incur a discount of 50 percent.

2TAXATION LAW
Part 2:
The issue to be discussed in this part is the determining the CGT effect due to the sale
of the historic sculpture.
Helen had made a sale of a historic sculpture on 1st of January of 2018 at 6000 dollars.
As per sec. 180-10 (2), the historic sculpture will be considered to be a collectable and also a
capital gain asset. According to the provisions of sec. 102.2, CGT is applicable when a CGT
incident has taken place according to the table provided under sec. 104.5 of ITAA 1997. The
sale of a CGT asset or its disposal is to be regarded as an event of CGT A1 as seen in the sec.
104-10(1). The TP (tax payer) will be an owner at the time when the asset is being acquired
as given in sec. 109-5(1). In this case, Helen made its purchase on December of 1993 for
5500 dollars. This will be regarded as the acquisition’s time of the sculpture. Thus it is an
asset of post CGT and its sale is the CGT A1 event as per sec. 104-10(1). The cost base E1 as
per sec. 110-25(2) is equal to 5500 dollars that is the price of acquisition. The CP is the
selling price of 6000 dollars according to sec. 116.20. The Capital Gain= CP – Cost Base. It
means 6000 $ - 5500 $. Hence the final CG is 500 dollars. It also means that she is eligible to
a discount of 50 % as per sec. 115.10 because she being an individual and is being holding
the asset for about a year as per sec. 115-15 and she has acquired the sculpture after
December 1993 according to sec. 115-25.
Part 3:
The issue here is determining the CGT effect on the sale of the jewellery.
The jewellery piece was sold by Helen on 20/03/2018 at the price of 13000 dollars
which she bought for 14000 dollars on October of 1987. As per sec. 180-10 (2), the historic
sculpture will be considered to be a collectable and also a capital gain asset (Jones 2016).
According to the provisions of sec. 102.2, CGT is applicable when a CGT incident has taken

3TAXATION LAW
place according to the table provided under sec. 104.5 of ITAA 1997. The sale of a CGT
asset or its disposal is to be regarded as an event of CGT A1 as seen in the sec. 104-10(1).
The TP (tax payer) will be an owner at the time when the asset is being acquired as given in
sec. 109-5(1). In this case, Helen made its purchase on October of 1987 for 14000 dollars.
This will be regarded as the acquisition’s time of the sculpture. Thus it is an asset of post
CGT and its sale is the CGT A1 event as per sec. 104-10(1). The cost base E1 as per sec.
110-25(2) is equal to 14000 dollars that is the price of acquisition. The CP is the selling price
of 13000 dollars according to sec. 116.20. The Capital loss = CP – Cost Base which is equal
to 1000 dollars. This loss however can be offset against CG and not from GC. This loss will
be forwarded to coming year.
Part 4:
The issue to be identified here is the CGT effect due to the sale of the picture by
Helen.
The issue is to be analysed according to the provisions laid down in the Income Tax
Assessment Act 1997. As per sec. 180-10 (2), the antique impressionism painting will be
considered to be a collectable and also a capital gain asset. According to the provisions of
sec. 102.2, CGT is applicable when a CGT incident has taken place according to the table
provided under sec. 104.5 of ITAA 1997. The sale of a CGT asset or its disposal is to be
regarded as an event of CGT A1 as seen in the sec. 104-10(1). The TP (tax payer) will be an
owner at the time when the asset is being acquired as given in sec. 109-5(1).
From the facts of the case, it cannot be ascertained when Helen acquired the picture.
The reason behind this is that the picture was bought by Helen’s mother. If the painting was
bought before 20th September of the year of 1985, it will be considered as a pre CGT asset
and hence will be excluded from CGT. If it was collected by her motherr after the mentioned

4TAXATION LAW
date, it will be considered as a collectable. From sec. 110-25(2), the cost base E1 is the
acquisition price of the picture which is 470 dollars. Since it was purchased by her mother,
she would have got the painting by gift or by will. According to that, CB will be varied by the
market price present at the time of acquisition according to sec. 112-20. The selling price of
5000 dollars will be regarded as the capital proceeds according to sec. 116.20. The CG is
equal to Capital proceeds minus Cost Base. If the asset is hold for more than one year, then
she will be eligible under Div. 115 to incur a discount of 50 percent.
Question 2:
Part 1:
The issue is determining whether receipts that are incurred by Barbara as per the
given facts of the case.
Income out of personal exertion is interpreted under sec. 6-1 of the Income Tax
Assessment Act 1936. But the interpretive clause is very wide and inclusive in nature. It is
not appropriate to categorise a receipt. Thus the present case is to be discussed in the light of
case laws. As per the decision given in Hayes v Federal Commissioner of Taxation. 96
CLR 47 1956 - 0523B case, it was held that a receipt is an ordinary income for being the
income out of receipt’s personal exertion and thus can be segmented in to a reward or an
outcome of income gaining act.
13000 $
There must be a strong connection between the service provided and the income
receipt. A huge amount paid to an independent contractor can be presumed to be an ordinary
income (OI) as it originates from the services provided. In the similar manner, Barbara can be
regarded as an independent contractor as she was contracted by the Eco Books Ltd to pen

5TAXATION LAW
down a book at a prise of 13000 dollars. This receipt will amount to an Income out of
personal exertion as observed in the case of Brent v FC of T (1971) ATC 4195.
13400 $
Barbara received an amount of 13400 dollars for the sale of the copyrights of her
book to the publisher company. As held in the case of Brent v FC of T (1971) ATC 4195,
when the taxpayer has sold his copyright for anything, it will amount to a capital receipt.
Here in this case, as Barbara has sold of her copyright of the book for 13400 dollars, it will
amount to a capital receipt and not an income from personal exertion.
4350 $
The income incurred by the sale of the manuscript can be treated as an income out of
personal exertion as stated in the case of Hobbs v Hussy (1942) TC 153 which states that the
selling of rights related to an auto biography will be an assessable income. Following this
case law, Barbara’s income by selling the manuscript will be regarded as an assessable
income as she earned it with the intention of incurring profit.
3200 $
The income that is received by the sale of interview manuscripts by Barbara will be
similarly regarded as income from personal exertion as stated in the case of Hobbs v Hussy
(1942) TC 153 which states that the selling of rights related to an auto biography will be an
assessable income. Following this case law, Barbara’s income by selling the interview
manuscript will be regarded as an assessable income as she earned it with the intention of
incurring profit.
Part 2:

6TAXATION LAW
The issue to be discussed here is to discuss the nature of receipts incurred by Barbara
if the book was written by her in her free time without any income.
According to sec6-5 of ITAA 1936, income comprises of incomes out of ordinary
heads. There has to be presence of intention to gain profit to regard receipt to be an income.
This was observed by Taxation Ruling 97/11which declares that hobby does to amount to an
assessable income. Thus, if the book was authored by her in her free time, her income in this
regard will be considered as an income out of hobby. Thus it is not an assessable income.
Question 3 :
The issue in this part is to analyse whether the amount repaid by David as an
additional 5% amount will be regarded as an assessable income for Patrick.
The decision given by the court in FC of T v Whitfords Beach Pty Ltd (1982) ATC
4031, states that when any individual is involved in on off trade and has an intent to gain
profit, then the receipts of the transaction will amount to an income to the Tax Payer (TP). In
Lomax v Peter Dixon and Son [1943] 1 KB 671 case, the court put forwarded that an
interest will be an ordinary income for the TP (Freudenberg et al. 2017).
The same rule is also given in the case of FCT v Myer Emporium Ltd. As per the
decision given by the court in this case, it was held that in case a transaction is made with
intention of incurring profit, it will be considered to be an income of the TP.
Application:
In this case study, it is seen that Patrick gave a loan to his son without any intent to
gain profit. David, son repaid the entire loan amount after two years; this attracts an
additional amount of 5% on the loan amount. This will be an income for Patrick. It was put
forwarded in the case of Federal Commissioner of Taxation v Whitfords Beach Pty Ltd.

7TAXATION LAW
[1982] HCA 8 that if a person is engaged with an on- off transaction, then any receipt out of
such transaction will amount to income for TP.
Conclusion:
Similarly, 5 % extra payment by David will amount to an assessable income to the
father.

8TAXATION LAW
References:
FC of T v Myer Emporium Ltd 87 ATC 4363
Federal Commissioner of Taxation v Whitfords Beach Pty Ltd (1982) ATC 4031
Federal Commissioner of Taxation v Whitfords Beach Pty Ltd. [1982] HCA 8
Freudenberg, B., Chardon, T., Brimble, M. and Isle, M.B., 2017. Tax literacy of Australian
small businesses. J. Austl. Tax'n, 19, p.21.
Jones, D., 2016. Capital gains tax: The rise of market value?. Taxation in Australia, 51(2),
p.67.
Lomax v Peter Dixon and Son [1943] 1 KB 671
Taxation Ruling 97/11
The Income Tax Assessment Act 1936
The Income Tax Assessment Act 1997
Woellner, R., Barkoczy, S., Murphy, S., Evans, C. and Pinto, D., 2016. Australian Taxation
Law 2016. OUP Catalogue.