Capital Gains Tax on Liquidation of Assets

TAXATION
STUDENT iD:
[Pick the date]

Question 1
The prime objective in wake of the extended facts is to outline the capital gains tax
which would be levied on taxpayer (Helen). This may arise since during the given tax
year, a host of CGT assets have been liquidated by taxpayer in order to arrange
funds for the business. For each of these assets the CGT treatment has been
discussed separately and at the end a cumulative picture would be presented.
Liquidation of Antique Painting
The given asset has been purchased in the month of February 1985. This is vital
considering the fact that the current taxing of capital gains was not always the norm.
The CGT was introduced on September 20, 1985. As a result, any assets which the
taxpayers have bought before this date belong to an era when there was no tax
levied on the capital gains realised by the taxpayer on the sale of assets. These
assets are classified as pre-CGT assets as highlighted in ss. 149-10. The
classification of these assets assumes significance since no CGT is levied on any
capital gains realised from liquidation of these assets (Austlii, 2019). The antique
painting is also labelled a pre-CGT asset as it was purchased before the threshold
data (i.e.20th September, 1985) and hence the capital gains realised on the painting
would not be considered for application of capital gains tax.
Liquidation of Sculpture
The date of purchase for this asset falls in December 1993 and thereby the asset is
not pre-CGT asset. This implies that any capital gains derived on this asset can be
subject to CGT.
A particular asset class described in ss. 108-10 is called “collectibles” and includes
various art forms (like painting), picture, antique, sculpture, rare books. The capital
gain or loss calculation is required when a particular CGT event presents itself as a
trigger. The sale of a collectible would lead to an A1 CGT event which would require
determination of capital gains. For this type of CGT event, the correct formula would
be as hinted in s. 104-10 ITAA 1997. Considering the input information available
about the underlying asset and deploying the requisite formula, the capital
gains/(losses) are shown as follows
In wake of the above computation, it is noteworthy that the above capital gains would
be adjusted as per cost indexation or discount method. In the given case, discount
method has been chosen over the former and hence the taxable capital gains would
be halved after offsetting any capital losses that may be available (Barkoczy, 2018).
Liquidation of Antique Jewellery
The date of purchase for this asset falls in October 1987 and thereby the asset is
not pre-CGT asset. This implies that any capital gains derived on this asset can be
subject to CGT.
A particular asset class described in ss. 108-10 is called “collectibles” and includes
various art forms (like painting), picture, antique, sculpture, rare books. The capital
gain or loss calculation is required when a particular CGT event presents itself as a
trigger. The sale of a collectible would lead to an A1 CGT event which would require
determination of capital gains. For this type of CGT event, the correct formula would
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be as hinted in s. 104-10 ITAA 1997. Considering the input information available
about the underlying asset and deploying the requisite formula, the capital
gains/(losses) are shown as follows (Gilders et. al., 2016).
The key aspect to note in the wake of above capital loss is that it cannot be used to
offset any revenue receipt that the taxpayer receives during the year. The capital
losses on collectible asset class can be adjusted/offset only against the capital gains
which are obtained by the taxpayer on the sale of the collectible asset class asset
only (Krever, 2017).
Liquidation of Picture
The date of purchase for this asset falls in March1987 and thereby the asset is not
pre-CGT asset. This implies that any capital gains derived on this asset can be
subject to CGT.
Pursuing to discussion in previous section, painting would be also categorised as a
collectible asset. In accordance with ss. 118-10(!), it is essential that the underlying
cost base should be higher than $ 500 for capital gains on collectible asset to be
subject to CGT (Woellner, 2014). The information provided about the liquidated
asset highlights that the buying price was $ 470 (which is < $500). As a result,
despite the capital gains made on the painting, none of these gains would attract any
CGT.
Conclusion
Considering the above discussion, it becomes clear that the CGT consequences
would arise only for the sculpture and jewellery while the remaining assets are CGT
exempt. In sculpture, capital gains to the tune of $ 500 is realised while the capital
gains to the tune of $ 1,000 is realised in case of jewellery. As a result, for the given
asset sale, the net capital loss of $ 500 would arise which Helen can carry forward
and offset against the collectible related capital gains (Deutsch et. al., 2016).
Question 2
The scenario presented implies that an offer for writing a book has been given to
Barbara so as to write a book which relates to economics. The profession of Barbara
relates to research in economics. It is given that various proceeds have been
obtained by taxpayer (Barbara) with regards to writing, copyrights sale, book
manuscript sale along with the interview transcript sale. In wake of these proceeds,
the aim is to outline if from the various proceeds, any proceeds would be identified
as personal exertion.
For any proceed to be treated as personal exertion based income, it is pivotal as per
s. 6 ITAA 1997 that the engagement of taxpayer in the underlying activity must
produce commercial value. If the taxpayer does an activity without commercial value,
then the personal exertion does not lead to assessable income (Coleman, 2016).
Further, certain activities are such that they are used for asset transfer and the
proceeds are meant for the asset. In such cases, the personal exertion on the
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