Taxation

Running head: TAXATION
Taxation
Name of the Student
Name of the University
Author Note

1TAXATION
1)
The issue arising from the present situation is the determination pertaining to the tax
implications of Chris Matthews under the category of capital gain.
For the purpose of incurring a liability relating to capital gain tax, there needs to be an
existence or presence of an event pertaining to capital gain as provided under section 104.5 of
the ITAA 971. Under section 104.10 of the ITAA 972, a person who disposes or transfers his
property needs to be brought under the purview of CGT event A1. The exact point of time
where the event arises is the time when the instrumentation of the contract is affected by way
of a signatures. The computation of the capital gain tax involves the deduction of the capital
proceeds, that is the price that has been incurred from the sale of a property, with the cost
base, which has been incurred in relation to the acquisition and maintenance related to the
property. Under section 110.25(1) of the ITAA 973, the cost base includes the cost of
acquiring the property, which involves the purchase price and the cost that has incurred from
the conveyance fees paid and the stamp duty paid. Section 115.5 of the ITAA 974 renders all
the properties purchased after the 29th of September of the year 1999 to be applied with a
50% discount. In case of main residence of a person an exemption can be availed by such
person from the sale proceeds of such property under section 118.110 of the ITAA 975.
However, this examination will not be available to the taxpayer, if the same has partly
contributed to the incoming yielding process. The computation of the capital gain, that has
been accrued for the part of the property used for the process of income generation, is
required to be multiplied by the total capital gain, that has been accrued by the area of the
1 Income Tax Assessment Act 1997 (Cth) s 104-5.
2 Income Tax Assessment Act 1997 (Cth) s 104-10.
3 Income Tax Assessment Act 1997 (Cth) s 110-25.
4 Income Tax Assessment Act 1997 (Cth) s 115-5.
5 Income Tax Assessment Act 1997 (Cth) s 118-10.

2TAXATION
property in percentage that has been utilised for the process of earning income and the
percentage of time for which this area has been used for such of purpose.
In the instant situation, Chris has medicine of his house and this sale can we contribute to
wear CGT event categorised as A1. The sale of the house has earned a sell proceed of
$1000000. The cost base that has been included in the cost price amounting to $400000,
stamp duty amounting to $20,000 and a conveyance fee amounting to $8000. The capital gain
would be capital proceeds minus cost base. On the other hand, the taxation would only be
imposed upon that part of the house of the Mr Matthews that has been used for business
purposes. The total area, in this case, is 200 metre square metre and the part of business is
only 10 metre square. Hence, the percentage of the house that has been used for business
purposes was 5%. Again, the house has been purchased in 1999 and the sale has been
affected in 2018, but the business started in 2004. Hence, the percentage of time will also be
required to be taken into consideration. For the purpose of business, the time will be divided
by 1447/7050 (days) * 100 = 20.52%. The CGT computation for Mr Matthews is as follows:
PARTICULAR
S
AMOUN
T
AMOUN
T
CP 1000000
CB
E 1 400000
E 2 (conveyance fees) 8000
E 2 (Stamp Duty) 20000
Total CB -428000
Area used commercially
(572000*0.20.52*0.05)
5870