Taxation Implications and Income Tax Computation for Jasmin Company

This report reveals the key aspects of the taxation implication and how tax is computed for the Jasmin Company. It analyzes the income tax computation for an Australian resident, the capital gain tax implications on selling assets, and the depreciation of a CNC machine. Proper tax planning is essential for computing taxation liabilities.

Taxation
Module Number

Table of Contents
Introduction.................................................................................................................................................1
Answer to question no- 1............................................................................................................................1
Answer to question no- 2............................................................................................................................3
Conclusion...................................................................................................................................................5
References...................................................................................................................................................6

Introduction
With the changes in the time, taxation rules and regulations are changing and used to
determine tax implication on the individual and assesse. This report reveals the key aspects of the
taxation implication and how tax is computed for the Jasmin Company. In the starting of this
report, income tax computation of the Jasmin being an Australian resident has been done. After
that, computation of cost of the CNC machine for the purpose of calculating the capital
allowance have been made. It is analyzed that with the computation of the taxation implication,
decline in value of the asset has been made. It also divulges the relevant legislative references to
support the taxation.
Answer to question no- 1
Jasmine is an Australian Resident and is 65 years of age. Jasmine was born in United Kingdom.
Jasmine is now selling her assets of her business as she is retiring from her business as returning
back to United Kingdom. Here is the treatment of her transactions which she did to clean up her
assets and winding up the business so that she can move back to United Kingdom (Wilkins,
2015).
A. Jasmine bought a house in Australian in the year 1981 for $40,000. She sold the house for
$650,000 at the time of her winding and clearing her assets. Since Jasmine bought this was the
main residence for Jasmine till the date she sold it out. Here is the treatment of her transactions
which she did to clean up her assets and winding up the business so that she can move back to
United Kingdom. Jasmine bought this house in the year 1981; no capital gain tax will be
applicable on this transaction (Dixon, J., & Nassios, 2016) According to the Australian Taxation
Office, The Capital Gain Head tax under the Income Tax is states that any asset bought by an
Australian Resident or Australian Taxpayer before the date 20 Sep 1985 does not fall under the
Capital Gain Head of Income Tax, no Capital Tax is applicable on selling of any asset sold by an
Australian Taxpayer which bought the asset before 20 Sep 1985. So, no Capital Gain tax will be
applicable on selling her main resident house for $650,000 at the time of winding up her assets.
Also, this was the main resident for Jasmine, so this is also the reason that no Capital Gain tax
will be applicable on this transaction as, Australian Taxation Office also states that no Capital

Gain Tax is implied on selling the main resident of a Tax payer. Jasmine made a profit of
$610,000 by selling the house at the time of her cleaning her assets at the age of 65 (Tucker,
2019).
B. Jasmine purchased a car in the year 2011 for $31,000. At the time of cleaning up her assets her
car was worth $10,000. The depreciation on the car will be applicable as the car is a depreciable
asset. The depreciation will be applicable to the car under the diminishing value method of
depreciation. The life on a car is estimated to be 8 years under the laws stated by the Australian
Taxation Office. The total depreciation will be applied on the car will be approx. 75% on the
value on which Jasmine purchased the car, given that the age of the car is 8 years stated
according to the Australian Taxation Office and also the car held by Jasmine is also 8 years as
she sold the car in the year 2019 (Braithwaite, 2017). The value of the car at the time of selling
the car according to calculation of depreciation under the diminishing method would be $7750.
Jasmine sold the car for $10,000. Jasmine made as profit of $2250 by selling her car for $10,000.
Capital Gain Tax will be applicable on this transaction as this asset was held by Jasmine for
more than one year, Jasmine held this car for 8 years. Capital Gain Tax will be applicable on the
amount of $2250 which she made by selling the car for $10,000 which was worth $7750
according to the books of Jasmine (O'faircheallaigh, 2017).
C. Jasmine runs a small cleaning business by herself. Jasmine has equipment’s worth $75,000 for
the business. She found a buyer for the business who paid her $125,000 for the acquisition of the
business. The equipment’s held by Jasmine were worth $75,000 and she took $65,000 from the
buyer against the equipment’s. The loss will not be assessable under the capital gain tax because
the Australian Taxation Office states that there are some concessions available for small
businesses to reduce the capital gain of a tax payer. Under certain conditions, a taxpayer may
apply as many as concessions as the taxpayer is entitled to until the capital gain tax is reduced to
nil (Parker, 2018). The concession which applies in this certain situation of selling the
equipment’s which are used by Jasmine for running her business would be 15 year exemption.
This refers to no assessable capital gain when selling business equipment’s or assets that has
been owned by the taxpayer for 15 years and the taxpayer is aged 55 years or over and is retiring.
In this case of Jasmine owns the assets for over 15 years and also she’s aged 65 and retiring and
moving back to United Kingdom. So, no Capital Gain tax will be applicable on selling off assets
of her small business (Llamas, Araar, & Huesca, 2017). Whereas the amount of the Goodwill

she took from the buyer of the business will be taxable under the Capital Gain Tax. Goodwill is
considered as an asset for any taxpayer in Australia. Jasmine took $65,000 as goodwill of her
business from the buyer. No exemptions and no concessions are applicable on the value of the
capital gain or loss considered as goodwill, In the case of Jasmine the whole amount $65000,
will be considered as the capital gain and capital gain tax will be applicable on the whole amount
(Arnold, 2019).
D. Jasmine is also selling her furniture for $5000. All the items of furniture’s were not more than
$2000 at the time of purchase. All the furniture sold by Jasmine was used by her for personal
use. No Capital Gain tax will be applicable on this transaction. According to the Australian
Taxation Office no Capital Gain tax is applied on the assets which a taxpayer acquires and uses
them as personal use and sells even after holding the asset for more than 12 months. So no
Capital Gain Tax will be imposed on this transaction of selling furniture by Jasmine (Auerbach,
and Hassett, 2015).
E. Jasmine also has several painting as collections. At time of cleaning her assets she sold all the
painting she had for $35,000. All of her painting was purchased in second hand shops and no
single painting cost more than $500. The one exception was a painting she purchased directly
from the artist for $1,000. This painting is being sold for $5,000. According to the Australian
Taxation Office, any asset or collectables acquired for the price of $500 or less are exempted
from the Capital Gain Tax. In this case, all the painting owned by Jasmine are not more than
$500 at the time of purchase so all the amount she collected from selling the paintings are
exempted except the painting which she purchased directly from the artist for $1,000 on which
Capital Gain Tax will be applicable (Brabazon, 2019). Capital Gain Tax will be applicable on the
painting which Jasmine bought directly from the artist as its value at the time of purchase was
more than $500. Jasmine held this painting for more than 12 months and also, Jasmine bought
the painting for $1,000 and sold it for $5,000 at the time of her retiring. So the Capital Gain Tax
will be implied on the amount $4,000 as the purchase price for the painting was $1000 and it was
sold at the price of $5000 (Faccio, and Xu, 2015).
Answer to question no- 2
John runs a manufacturing company which produces motor vehicle parts and accessories. This
business produces certified parts of BMW. John purchased a CNC (Computer Numerical

Control) machine imported from Germany on 1 November 2014 for $300,000. John also visited
the company to inspect and place order for the machine (Edmonds, 2015). This was the only
reason for his visit at the factory in Germany to purchase the Computer Numerical Machine for
which John incurred $12,000. This Computer Numerical Control Machine needed to be installed
by a specialist and bolted to John’s factory floor. The installation of the Computer Numerical
Control machine was completed on 15 January at a cost of $25,000. John immediately started
using the machine for manufacturing (Martin, 2019). Once the machine was installed and John
started using the Computer Numerical Control machine, John realized that the machine requires
an additional guiding rod to make it more effective for production. The Guiding rod was installed
on 1 February at a cost of $5,000 (Evans, Minas, and Lim, 2015). The total cost of the machine
comprises all the expenses made by John for the Computer Numerical Control Machine. John
bought the machine for the price of $300,000, so the base value of the machine is $300,000.
Additionally John took a trip to Germany to inspect and place order for the machine (Minas,
Lim, and Evans, 2018). His sole purpose to visit Germany was only for the Computer Numerical
Control Machine, so the expenses John incurred for the trip which is $12,000 will be part of the
cost of the machine. Also, the Computer Numerical Control machine was installed by a specialist
at the plant’s floor at John’s factory would also be considered as the part of the cost for John.
The specialist took $25,000 which will be added to the part of the cost of the Computer
Numerical Control Machine. The additional guiding rod which was installed by John later will
not be considered as a part of the cost of the machine. The additional guiding rod is an additional
part which is installed by John for the consideration of $5,000 is not considered as the part of the
cost because this was additionally incurred by John to increase the efficiency of the Computer
Numerical Control machine, this was not the initial cost and price for the Computer Numerical
Control machine (Pellegrinoa, Perbolib, and Squillerod, 2019). This guiding rod was an optional
investment which John did for making the machine efficient. So the final price of the machine is
$337,000 as it includes the basic price of the machine and cost incurred by John to travel to
Germany and the expenses incurred by John for the installation of the machine (Smith, 2015).
The start time for calculating the decline value of the asset is the time when the installation is
done which is 15 January 2015. The machine was imported by John on 1 November 2014, on
this date the machine was just imported at John’s factory but it was not installed (Richardson, &
Lanis, 2007). It took 2.5 months (75 days) to install the machine from the date of purchase of the

Computer Numerical Control machine. John started to use the machine from 15 January 2015, so
the decline in the value of asset will be taken and calculated from 15 January 2015. The
depreciation for the financial year 2014-15 for the Computer Numerical Control Machine will be
calculated from 15 January 2015.
Conclusion
After assessing the income tax implications, it has been inferred that computation of the
income tax of the individual is based on the various taxation rules and regulations. However, in
this, it has been found that tax payer purchased directly from the artist for $1,000 on which
Capital Gain Tax will be applicable. Capital Gain Tax will be applicable on the painting which
Jasmine bought directly from the artist as its value at the time of purchase was more than $500.
Now in the end, it could be inferred that proper tax planning is required to compute the taxation
liabilities of the tax payer.

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