Taxation, Theory and Practices

TAXATION, THEORY AND
PRACTICES

Contents
INTRODUCITON......................................................................................................................................3
QUESTION 1.............................................................................................................................................3
1). Capital Gain Tax regarding antique impressionism painting.....................................................4
2). Capital Gain Tax regarding historical sculpture..........................................................................4
3). Capital Gain Tax regarding antique jewellery piece...................................................................4
4). Capital Gain Tax regarding picture...............................................................................................5
Question 2................................................................................................................................................6
1). Discuss Barbara ‘s income under the case scenario.................................................................6
2). Discuss Barbara ‘s income under the alternative scenario........................................................7
Question 3................................................................................................................................................8
Discuss the effect of these arrangement on the assessable income of Patrick...........................8
Conclusion...............................................................................................................................................9
REFERENCES........................................................................................................................................10

INTRODUCITON
This report is based upon taxation, theory and practice of Australian income tax Act. It
highlights the Australian accounting systems, concept of income form personal
exertions and adjustment of income.Here, three questions are given which are related
to the income tax provisions of Australia. First question emphasises upon the capital
gain provisions, while second is based upon the income from personal exertion and
their question is based on the adjustment of assessable income.
QUESTION 1
Income tax Act of the country have the provisions related to capital gain tax. CGT is the
tax which arise after selling movable or immovable asset at a price more than the
purchase price (Smith, 2015). According to Australian Income Tax Act, this is rightly
said that the CGT is calculated via two methods which are namely: discounted method
and indexation method. However, Australian tax authorities does not prescribe the CGT
rate for capital gain (Income tax: residency status of individuals entering Australia,
2016). In the cited case, Helen dispose off its assets during current financial year. So,
any of the capital gain arise would be liable to pay tax in this year, or loss arise would
be set off for next assessment year. If the assesse retains the asset for at least 12
months or more then in that case, if assessee earn capital gain by dispose off that
asset, then he is liable to pay 23.5% tax (Minas, Lim and Evans, 2018). This rate is
applicable only when the discount method is applied and asset is purchased after 21st
September, 1999. Any of the asset which is purchased before aforementioned date,
then the indexation method is applied (Paolella and Durand, 2016). In the provided
case, all the assets were purchased before 21st September 1999 which simply means
that indexation method will be levied in order to calculate the capital gain tax (Consumer
price index, 2016). Indexation method is described as under:
Indexation method: This is the method under which techniques are used in order to link
prices and asset values due to inflation (Filatova, 2014 ). It is done by connecting
adjustments made to the value of a product, service or other metric, to a forecasted

index. This needs the recognition of a price index and whether a connection of value to
price index, would complete company goals (ATO Tax Calculator, 2016). This is often
used with wages at a high inflation environment.
The details of each transaction is mentioned hereunder:
1). Capital Gain Tax regarding antique impressionism painting
Helen purchased the asset before 21st September, 1985 that simply comes under the
Australian Income tax exemption list. She brought such asset on February, 1985 when
Australian income tax was not incorporated. Hence, on this asset no tax will be made
due to the exemption list.
2). Capital Gain Tax regarding historical sculpture
The historical sculpture was purchased before 21st September, 1999. Hence, the capital
gain is calculated by using indexation method. Capital gain/loss is calculated as under:
Particulars Amount $
Selling Price 6000
Purchased price 10120
Capital loss/gain (4120)
Working Note:
By using indexation method, brought up value is recognized so that the capital gain/
loss is easily identified. Buying cost is identified:
Cost of buying assets: 6/61.2= 1.838*5500=10120
The asset were brought at $5500 on 1993 which was raised to $10120 by using
indexation method. Hence, this selling price is less than the price of purchase assets
after indexation thus the loss of the $4120 is occurred.
3). Capital Gain Tax regarding antique jewellery piece
Helen brought Jewellery at $14000 during October, 1987. Hence indexation method is
applied due to the asset purchased before 21st September, 1999. The calculation is
mentioned as under: