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Taxation Liabilities: Capital Gains Tax and Capital Allowance

   

Added on  2022-12-01

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Running head: - Taxation liabilities
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AUSTRALIAN TAXATION LAW
CAPITAL GAINS TAX AND CAPITAL ALLOWANCE
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Taxation Liabilities: Capital Gains Tax and Capital Allowance_1

Taxation liabilities
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Table of Contents
Introduction.................................................................................................................... 3
Answer to question no- 1............................................................................................ 3
Professional Advise to Jasmine, an Australian Resident, on CGT Consequences of
Her Sale of Assets before Leaving Australia for the UK...........................................3
Answer to question no- 2............................................................................................ 9
Capital Allowance for CNC Machine Acquired by John.............................................9
Conclusion................................................................................................................ 11
References................................................................................................................... 11
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Introduction
With the changes in time, taxation rules and regulations have been changing. However, in
order to compute the proper taxation liabilities of the tax payer, there is need to implement the
proper tax planning as per the applicable taxation rules and regulations. It is considered that
capital gains tax (CGT) was introduced to the Australian taxation system in 1985. As such CGT
applies to any asset acquired after 20th September, 1985, subject to certain exemptions.
Australian Tax Office defines capital gain as the positive difference between the price that
assesse receives on disposal of the asset and the cost of the asset to the assesse. This report
reflects the key aspects of the taxation liabilities in the different situations.
Answer to question no- 1
Professional Advise to Jasmine, an Australian Resident, on CGT
Consequences of Her Sale of Assets before Leaving Australia for the
UK
The assessee is required to report the capital gain or loss in the income tax return for the
purpose of paying CGT as part of income tax. As capital gain is added with the income, it might
significantly increase the income tax liability of the assessee. Since there is no provision in
Australian tax system for withholding CGT, the taxable capital gain needs to be worked out
earlier in order to make funds available to meet the tax obligation.
Australian taxation system has the provision of offsetting capital losses against capital
gains, and carrying forward the net capital loss for an indefinite period, but capital loss cannot be
offset against normal income of the assessee.
Capital Gains Tax (CGT) Event
According to Australian Tax Office (ATO) following are considered as CGT event
whether gain or loss (Australian Government, 2019):
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i) An asset is sold or given away to someone else,
ii) An asset is lost or destroyed,
iii) Owned shares are cancelled, redeemed or surrendered,
iv) The taxpayer ceases to be an Australian resident,
v) As a shareholder the person receives payment, other than dividend, from the company.
Capital Gains Tax (CGT) Assets
All assets acquired by the taxpayer since the inception of CGT are subject to CGT, if not
exempted specifically (Australian Taxation Office, 2019). Following is a succinct list of CGT
assets:
Real estate: Most of the real estate assets are subject to CGT. This includes houses, vacant land,
rental properties, hobby farms, and holiday homes.
Shares and other investments: Company shares and units in a unit trust are subject to CGT,
unless those were acquired before 20 September, 1985. However gain on shares sold as part of
business activities is not subject to CGT, rather it is treated as ordinary income.
Crypto-currency: This is a digital asset, and gain on its sale is subject to CGT.
Leases, licenses, goodwill, contractual rights: Intangible assets are subject to CGT if they were
active assets.
Personal use assets: Personal use assets for CGT purpose includes furniture, electronic goods,
household items, and boats etc. which are kept for personal enjoyment.
Collectables: Collectables are items of personal enjoyment or enjoyment of associates of the
assessee. Section 108 of the Capital Gains Tax 1985 list certain items as collectables and subject
to CGT (Australian Taxation Office, 2019). These include. Sculptures, drawings, paintings,
engravings or photographs, reproductions of these items. or similar property, antiques, jewellery,
postage stamps or first day covers, rare manuscripts, books, folios.
Taxation Liabilities: Capital Gains Tax and Capital Allowance_4

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