Taxation: Capital Gains Tax Consequences, Income from Personal Exertion, Tax Implications for Lender

TAXATION
STUDENT iD:
[Pick the date]

Question 1
For the scenario presented, Helen is the taxpayer. She has liquidated some of her
capital assets as she needed capital for her fashion designing business. Any capital
gains tax (CGT) consequences for these transactions have to be outlined.
Capital Asset - Antique Painting
It is known that the painting under consideration has been bought in February 1985
and liquidated on December 1, 2018. The cost price is $ 4,000 while the sale price is
$ 12,000.
The key concept to be indicated with regarded to the given asset is pre-CGT asset
which would refer to those capital assets which were purchased in an era when
capital gains were not subject of any CGT. This would refer to the time period before
September 20, 1985. The pre-CGT assets have been highlighted in ss. 149-10 (ITAA
1997) and their significance stems from the fact that any capital gains realised on the
liquidation of such assets would be exempt from CGT purview (Austlii, 2019). The
painting was bought by father of taxpayer in the time period when CGT was not
applicable and hence this is a pre-CGT asset which would be immune from CGT
application.
Capital Asset: Sculpture
It is known that the sculpture under consideration has been bought in December
1993 and liquidated on January1, 2018. The cost price is $ 5,500 while the sale price
is $ 6,000.
A class of asset is defined in ss. 108-10 which is named “collectibles” and contains
antique, painting, works of art, books, sculpture etc. The sale of the given asset
would lead to trigger for CGT computation in the form of A1 CGT event (s. 104-5)
and the suggestive approach to achieve the same is outlined in s. 104-10. This has
been implemented for the given asset as illustrated below (Nethercott, Richardson
and Devos, 2016).
The above capital gains would first be offset with any capital losses that may arise.
Afterwards, discount method under s. 115-25 ITAA 1997 may be applied to minimise
the taxable CGT gains (Barkoczy, 2018).
Capital Asset - Antique Jewellery
It is known that the jewellery under consideration has been bought in October 1987
and liquidated on March 29, 2018. The cost price is $ 14,000 while the sale price is $
13,000.
A class of asset is defined in ss. 108-10 which is named “collectibles” and contains
antique, painting, works of art, books, sculpture etc. The sale of the given asset
would lead to trigger for CGT computation in the form of A1 CGT event (s. 104-5)
and the suggestive approach to achieve the same is outlined in s. 104-10. This has
been implemented for the given asset as illustrated below All requisite information in
relation to the asset has been summarised as exhibited below (Gilders et. al., 2016).
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The capital losses that have resulted for this asset would be adjusted against the
capital gains available on other collectible asset disposal such as sculpture. Only if
the current year capital gains do not suffice would the capital losses be shifted to the
next year. However, these would not be adjusted against revenue receipts for Helen
(Krever, 2017).
Capital Asset: Picture
It is known that the picture under consideration has been bought in March 1987 and
liquidated on July 1, 2018. The cost price is $ 470 while the sale price is $ 5,000.
Picture also belongs to the collectible asset type. A particular requirement for levying
of CGT on capital gains derived from liquidation of collectible asset is that the
underlying cost base must be higher than $ 500 in line with ss. 118-10(1). Thereby,
for a collectible asset with cost base lesser than $ 500 would not attract any CGT
(Woellner, 2014). This is the case with the underlying asset whose purchase price is
$ 470 and hence irrespective of the capital gains, these would be 100% exempted
from ambit of CGT.
Total capital gains/(losses)
Only two assets namely sculpture and jewellery have capital gains(/(losses) with
CGT consequences. While sculpture has a capital gain of $ 500, the capital losses
associated with disposal of jewellery would be $ 1,000, thereby leading to the capital
loss of $ 500. Assuming that there are no other collectible assets that were liquidated
during the year, this loss is forwarded to the next tax year to be offset (Deutsch et.
al., 2016).
Question 2
The current situation corresponds to Barbara who is a commentator besides being
an economic researcher. As per the facts, she has written a book titled “Principles of
Economics” after she got a writing offer from a publisher. Owing to acceptance of
this offer, she completed the book and has been able to obtain various proceeds.
One of these relates to proceeds in relation to writing along with copyright of the
content. Another payment received by Barbara relates to proceeds in regards to
manuscript sale. Finally, there is a payment received on account of the interview
manuscript sale. In wake of these payments, the key issue is to outline if any of
these would be categorised as income from personal exertion.
In reference to s. 6 ITAA 1997, personal exertion related proceeds can only be
derived if the taxpayer not only engages in a particular activity but the same leads to
commercial value being created in the process. Mere involvement in the activity in
the absence of value creation would not lead to proceeds being linked to personal
exertion (Coleman, 2016). Further, there are certain situations when a particular
activity is undertaken in order to facilitate the transfer of asset which existed even
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