Taxation: Capital Gains and Personal Exertion Income

TAXATION
STUDENT iD:
[Pick the date]

Question 1
The given case pertains to Helen (taxpayer) who has sold some assets in the given
tax year. Even though the proceeds from the sale of these assets would be capital
receipts and not taxable, but the capital gains tax (CGT) may be applicable on any
potential capital gains that are derived by the taxpayer on these assets sale.
1) Asset Antique Painting
All requisite information in relation to the asset has been summarised as exhibited
below.
 Purchase month is February 1985
 Sale date is 1st December 2018
 Purchase price for this asset is $ 4,000
 Sale price for this asset is $ 12,000
 Holding period : Greater than one year
It is noteworthy that the current CGT came into existence only on September 20,
1985. As a result, for assets which have been purchased before this date are termed
as pre-CGT asset and are exempt from the burden of CGT as per ss. 149-10 Income
Tax Assessment Act (ITAA) 1997(Austlii, 2019). Referring to the relevant data
summarised regarding this asset, it becomes evident that painting was bought the
CGT came into existence. As a result, the painting is termed as a pre-CGT asset and
would not attract any liability on account of CGT.
2) Asset: Sculpture
All requisite information in relation to the asset has been summarised as exhibited
below.
 Purchase month is December 1993
 Sale date is 1st January 2018
 Purchase price for this asset is $ 5,500
 Sale price for this asset is $ 6,000
 Holding period : Greater than one year
Sculpture as an asset would be subject to CGT and belongs to a wider class of
assets highlighted in ss. 108 -10 which is known as “collectibles”. The sale of the
sculpture would result in asset disposal which constitutes the capital event A1. In
accordance with ss. 104-10, the capital gains computation would involve subtraction
of cost base from the selling price of the asset (CCH, 2013).
The holding period exceeds an year and hence discount method can be applied in
order to further lower the above capital gains. Alternatively cost indexation method
may also apply for reduction of the above capital gains (Barkoczy, 2018).
3) Asset: Antique Jewellery Piece
All requisite information in relation to the asset has been summarised as exhibited
below.
 Purchase month is October 1987
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 Sale date is 29th March 2018
 Purchase price for this asset is $ 14,000
 Sale price for this asset is $ 13,000
 Holding period : Greater than one year
Antique as an asset would be subject to CGT and belongs to a wider class of assets
highlighted in ss. 108 -10 which is known as “collectibles”. The sale of the sculpture
would result in asset disposal which constitutes the capital event A1. In accordance
with ss. 104-10, the capital gains computation would involve subtraction of cost base
from the selling price of the asset (Gilders et. al., 2016).
It is noteworthy that the above capital losses cannot offset revenue receipts that
Helen would earn from her profession. Further, as per ss. 108-10(1), capital losses
arising from collectible asset class must be adjusted only against the capital gains
arising from collectible asset class. If the same is not available in requisite quantity in
the present tax year, these are carried forward to future year (Krever, 2017).
4) Asset: Picture
All requisite information in relation to the asset has been summarised as exhibited
below.
 Purchase month is March 1987
 Sale date is 1st July 2018
 Purchase price for this asset is $ 470
 Sale price for this asset is $ 5,000
 Holding period : Greater than one year
In line with the discussion of previous assets, picture is also a type of collectible
asset. In regards to capital gains of these assets, a key requirement outlined in ss.
118-10(1) is that the asset should have been bought for a price not lower than $ 500.
For a collectible which violates the above condition, no CGT would be levied
irrespective of the capital gains or losses (Reuters, 2017). The picture fails to meet
the minimum purchase price threshold of $500 and thereby would not attract any
CGT.
Net capital gains/(losses) for Helen
Picture and painting sale do not lead to any taxable capital gains or losses. Amongst
the remaining asset, the sculpture has resulted in capital gains to the tune of $ 500.
Further, the antique jewellery piece leads capital loss of $ 1,000. Thereby, in total a
capital loss of $ 500 is realised which would be carried forward to the next year to be
offset against possible capital gains available through collectible assets sale.
(Deutsch et. al., 2016).
Question 2
Facts & Issue:
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