Taxation: CGT Implications on Sale of Assets, Income from Personal Exertion, Loan Payment Analysis

TAXATION
STUDENT iD:
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Question 1
Helen is the concerned taxpayer who has sold some of her CGT assets in regards to
derive income to run her fashion designer business. It is essential to determine the
capital gains tax (CGT) implications on the account of the capital gains or losses
derived from the transactions involving disposal of the assets during the tax year.
The CGT implications will only be imposed on the capital gains/losses generated
through the transaction of sale of the capital assets when it does not classify as pre-
CGT asset under ss. 149(10) ITAA 1997. The assets that have bought before the
enforceability of the CGT i.e. September 20, 1985 are termed as pre-CGT
asset(Austlii, 2019a). The sale proceeds from disposal would be used and after
eliminating the cost base of the asset, the net capital gains/losses would be
determined as given in ss. 104 (5) ITAA 1997 under A1 event for the transaction of
sale. Antique objects such as painting, art work, books, sculptures and so forth are
categorised as “collectibles” as highlights in ss. 108 (10) ITAA 1997(Austlii, 2018b).
There is an essential condition for collectable which needs to be fulfilled for the
applicable of the CGT liability. It is essential that the collectible must be purchased
for more than $500 (Barkoczy, 2018).
Capital Asset 1: Antique Painting
Antique painting is a pre-CGT asset because Helen has purchased it in February
1985 and at that time, CGT was not applicable. It represents that capital gains/losses
from the disposal of the painting would not attract CGT liabilities irrespective of the
fact that it is collectible and results in capital gains from this long-term asset.
Capital Asset 2: Sculpture
Sculpture is an antique object which has been purchased on the part of Helen post
September 20, 1985, This indicates that it will not be considered as pre-CGT asset.
Further, this collectible has been purchased for more than $500 and hence, the
necessary condition for CGT liability enforceable for collectible is also satisfied.
Therefore, the cost base would be subtracted from the total sale proceeds of the
sculpture as represented in ss. 104(10) ITAA 1997 (Krever, 2017).
Sale proceeds from the disposal of sculpture = $6000
Cost base pertaining to sculpture = $5500
Capital gains or capital losses = Sale proceeds from the disposal of sculpture -Cost
base of the sculpture = ($6000) – ($5500) = $500
There is a net capital gains $500 from the sale of sculpture. According to the
provisions of ss. 115 (5) ITAA 1997, the discount method would be adopted from
CGT payable amount for the long-term assets. Any asset which has holding period
more than a year is categorised as long-term asset. Here also, the sculpture is a
long-term asset which means discount method will be used to determine the taxable
capital gains (Reuters, 2017).
Capital Asset 3:Antique Jewellery
Antique jewellery has been purchased on the part of Helen post September 20,
1985. Hence, it will not be considered as pre-CGT asset. Further, this collectible has
been purchased for more than $500 and hence, the necessary condition for CGT
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liability enforceable for collectible is also satisfied. Therefore, the cost base would be
eliminated from the sale proceeds of the antique jewellery as given in ss. 104(10)
ITAA 1997.
Sale proceeds resulted from disposal of jewellery = $13,000
Cost base pertaining to antique jewellery = $14,000
Capital losses = Sale proceeds resulted from disposal of jewellery -Cost base of the
antique jewellery = ($13000) – ($14000) = -$1000
These derived capital losses would be taken for adjustment against the capital gains
derived from the transaction of sale of the collectibles. Further, if Helen does not
have any capital gains from collectibles in the given tax year, then this capital losses
would be forwarded to the next year and would be adjusted from future capital gains
from disposal of collectibles (Coleman, 2016).
Capital Asset 4 – Picture
Helen’s mother has acquired a picture which is considered as collectible under ss.
108(10) ITAA 1997. The essential condition regarding the CGT implications for the
disposal of the collectibles needs to be checked which means whether the buying
price of collectible is higher than the threshold value i.e. $500. It is evident that
Helen’s mother purchased picture only for $470 which is lower than the required
threshold value of being $500 and therefore, the CGT liability will not be enforceable
on Helen on the account of the capital gains derived from transaction of sale.
Net Capital Gains/Losses for Helen for all the four capital assets = $500 (Sculpture) -
$1000 (Jewellery) = -$500
As evident from the above that Helen has net capital losses of tune $500 from the
disposal of her capital assets during the tax year. It is apparent that she does not
have any current capital gains and thus, this capital loss would be forwarded to the
next tax year and will be balanced through the future capital gains resulted from
disposal of the collectibles (Sadiq et. al., 2016).
Question 2
The given information indicates that Barbara is a commentator and also a known
economist researcher. Even though she has not written any book previously, a book
publisher enters into a contract for book writing regarding economics. Barbara
derives economic proceeds not only on account of copyright sale but also sale of
manuscript of book besides sale of manuscript of interviews which she conducted for
the book. The aim is to outline if any payment received by her could be classified as
income derived from personal exertion.
Income from personal exertion is derived on indulgence in any activity where
taxpayer skills are deployed in order to produce commercial value. Mere indulgence
in an activity would not lead to income from personal exertion. Further, it is possible
in certain circumstances that the activity per se acts a medium of transfer for
knowledge which was already present and is not produced on account of the activity
(Krever, 2017). A noteworthy case in this regards is Brent vs Federal Commissioner
of Taxation (1971) 125 CLR whereby the taxpayer indulged in series of interviews to
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