ACCY963 Taxation Law Case Study: CGT and Income Tax Assessment T1 2019

This case study solution addresses key aspects of taxation law, focusing on capital gains tax (CGT) implications and income assessment for a hypothetical couple, Ian and Eva. It identifies CGT events related to the sale of shares and loss of collectibles, calculating capital gains and losses, and determining net capital gains. Furthermore, it computes taxable income for Ian and Eva, considering salary, rental income, dividends, and business profits, while also accounting for allowable deductions such as interest expenses, work-related expenses, and donations. The solution also touches upon the concept of transfer pricing and its potential tax and accounting implications.

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

1TAXATION LAW
Table of Contents
Part 1:.........................................................................................................................................2
Answer to A:..........................................................................................................................2
Answer to question B:............................................................................................................5
Bibliography:..............................................................................................................................6

2TAXATION LAW
Part 1:
Answer to A:
Shares in AHP
Step 1: Assuming Ian and Eva are resident
Step 2: CGT event A1 following the sale of the disposal asset under section 104-10(1); time
of the event is July 1 2018 based on section 104-10(3) (a).
Step 3: The shares in AHP is the CGT asset based on section 108-5(1)(a).
Step 4: Not the exempt asset or event
Step 5: No special rules is applicable
Step 6: Calculation of Capital gains or loss
Computation of Capital Gains
Particulars Legislations Amount ($)
Shares in AHP
Capital Proceeds: s 116-20(1) 140000
No modifications apply ss 116-25 to 116-55
Reduced cost base Indexed Cost base
Cost of acquisition (s 110-25(1)-(6)) Cannot index a loss: 300000
Reduced cost base: s 110-55(2) s 110-55 (1)
No modifications: Div 112
Capital Loss -160000
Capital loss = $300,000-$140,000 = $160,000
Stamps:
Step 1: Assuming Ian and Eva are resident
Step 2: CGT event C1 is applicable being the loss or the destruction of the CGT asset under
section 104-20 (1). The time of the CGT event is 9 May 2019 section 104-20(2)(a)

3TAXATION LAW
Step 3: Collectables under section 108-10(2)(a)
Step 4: Not an exempted event as cost is more than $500; section 118-(2)(a)
Step 5: No special rules is applicable
Step 6: Calculation of capital gains or loss
Stamp
Capital Proceeds: s 116-20(1) 50000
No modifications apply ss 116-25 to 116-55
Reduced cost base
Cost of acquisition (s 110-25(1)-(6)) 30000
Reduced cost base: s 110-55(2) Indexed Capital gains
No modifications: Div 112
Cost Base: s 110-25 (3), 110-35 68.7/66.6 = 1.031 30000
Capital gains 19405
Subdivision 115-A individual, Asset held for greater than 12 months.
Therefore, choosing indexed capital gains
Oil Painting:
Step 1: Assuming Ian and Eva are resident
Step 2: CGT event C1 is applicable being the loss or the destruction of the CGT asset under
section 104-20 (1). The time of the CGT event is 9 May 2019 section 104-20(2)(a)
Step 3: Collectables under section 108-10(2)(a)
Step 4: Not an exempted event as cost is more than $500; section 118-(2)(a)
Step 5: No special rules is applicable
Step 6: Calculation of capital gains or loss
Oil Painting
Capital Proceeds: s 116-20(1) 10000

4TAXATION LAW
No modifications apply ss 116-25 to 116-55
Reduced cost base
Cost of acquisition (s 110-25(1)-(6)) 9000
Reduced cost base: s 110-55(2) Indexed Cost base
No modifications: Div 112 Cannot index a loss:
Cost Base: s 110-25 (3), 110-35 s 110-55 (1)
Capital Loss 1000
Capital loss $1,000 – Collectables under section 104-20 (3). The capital loss can be only
offset against the capital gains from collectables under section 108-10 (4)
Step 7: Working out the net capital gains as per section 102-5 (1)
Step 7 Working out net capital gains per s 102-5(1)
Particulars
Shares in
AHP
Stamps-
Collectable
Oil Painting -
Collectable
Car -
Discount
Capital Gains 19405 10000
Capital Loss
Current -160000 1000
Apply Loss
Cannot
Apply 7000
Subtotal 0 11405 10000
CGT discount
Not
Available Not Available Not Available 5000
Net Capital
gains/loss 0 11405 5000
Net capital gains = 11,405 + 5000 = 16405. The capital loss of $1000 + $7,000 = $8,000 can
be only offset against the capital gains made from collectables.

5TAXATION LAW
Answer to question B:
Item EVA IAN Reason for inclusion
Salary Income 35000 180000
Income from Ordinary concepts sec 6-5,
ITAA 1997
Rental Income
Holiday house in Brisbane 3000 3000
Income from Ordinary concepts sec 6-5,
ITAA 1997
CBD Office 42500 42500
Income from Ordinary concepts sec 6-5,
ITAA 1997
Investment Property 13875 13875
Income from Ordinary concepts sec 6-5,
ITAA 1997
Bank Interest 1750 1750
Income from Ordinary concepts sec 6-5,
ITAA 1997
Dividends from Shares in Goodwill
Fully Franked (net) (38500*70/100) * 60% = 26950 16170 10780 Stautory Income under s 44 (1), ITAA 1936
Gross up for franking credits (11550* 30/70) * 40%) = 11550 6930 4620 Stautory Income under s207-20(1) ITAA97
Profits from Eva's Business (Notes 1) 81470
Income from Ordinary concepts sec 6-5,
ITAA 1997
Superannuation 90000 80000
Total Assessable Income 290695 336525
Expenses allowable as deductions
Interest on Investment property 19800 19800 General Deductions under s 8-1, ITAA 1997
Interest on CBD Office 12000 12000 General Deductions under s 8-1, ITAA 1998
Interest on Holiday house 6000 6000 General Deductions under s 8-1, ITAA 1999
Work related expenses 16050 5400 General Deductions under s 8-1, ITAA 2000
Self-education 8800 General Deductions under s 8-1, ITAA 2001
Donations 950 0
Specific Deductible under “section 30-15
(2), subdivision 30c, ITAA 1997”
Expenses related to holiday home 7050 7050 General Deductions under s 8-1, ITAA 2000
Expenses to Investment property 1650 1650 General Deductions under s 8-1, ITAA 2001
Expenses related to CBD Property 11250 11250
Specific Deductible under “section 30-15 (2),
subdivision 30c, ITAA 1997”
Tax agent fees 770 990 Specific deductions under s 25-5, ITAA 1997
Total Allowable Deductions 75520 72940
Total Taxable Income 215175 263585
Tax on taxable income 69925.75 91710.25
Add: Medicare levy 4303.5 5271.7
Less: PayG 2000 50000
Less: Franking Tax offset 6930 4620
Total Tax Payable 65299.25 42361.95
Computation of Income Taxable Payable
For the year ended 2018-19

6TAXATION LAW
Bibliography:
Robin, H., 2019. Australian taxation law 2019. Oxford University Press.
Robin & Barkoczy Woellner (stephen & murphy, shirley et al.), 2019. Australian taxation
law select 2019: legislation and commentary. Oxford university press.