Taxation Theory Practice and Law pdf

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Taxation Theory Practiceand Law
Table of ContentsINTRODUCTION...........................................................................................................................1TASK 1............................................................................................................................................1a. Block of Vacant Land.........................................................................................................1b. Antique bed........................................................................................................................2c. Painting...............................................................................................................................3d. Shares.................................................................................................................................4e. Violin..................................................................................................................................6TASK 2............................................................................................................................................7a Advise Rapid-Heat about FBT consequences....................................................................7b. Variation to answer if the Jasmine used 500000 as share investment................................8CONCLUSION................................................................................................................................9REFERENCES..............................................................................................................................10
INTRODUCTIONThe Taxation system has evolved over period of time as it is now much more developed andprogressive than regressive. The tax paid by individual citizens to the government is being usedby the concerned government for the purpose of development as well as growth of the nation inthe long run. As a Tax consultant within New Southwales, Australia, the different types of assetswhich are being bought and sold by the client during the tenure will be discussed below in detail.In the First part, different types of assets along with their capital gains will be argued and in theSecond part an advisory will be given to concerned client for the purpose of taxation in aneffective way.TASK 1The taxation System in Australia is quite developed. New South Wales is an AustralianState in which the taxation policies of the government are applicable. The various cases that arebeing discussed here are based on the provisions of the law applicable on this particular region.There are various types of Taxation like Direct or Indirect Taxation that prevails in Australia andthe cases that are being discussed underneath comes under the purview of Direct Taxation. Theclient here is an individual and is not having an established business as such. Therefore, the rateof tax that will be applied is based on the individual tax rates that prevails in the concernedregion.a. Block of Vacant LandFacts Related to Case:The client, here is an investor as well as an antique collector, whohas decided to sell a block of land that is possessed by him since 2001. He purchased the same ata rate of $1,00,000 and incurred $20,000 as a local council tax thus his total cost in that yearturned out to be $1,20,000. Now the client wants to sell the same at a rate of $3,20,000.Relevant Law:As per the provisions of Law, Capital gain tax will be attracted to client incurrent case. The law states that any immovable property sold at a higher price than at which itwas purchased then capital gain liability is attracted, if the same is sold on profits. The differencebetween the cost price and sale value is regarded as profits and attracts tax liability based on theprevalent rate in law. As per Australian Taxation Office Vacant Land is a capital asset like anyother property and hence tax liabilities are also attracted on the same. The expenses that areincurred by the client in making the purchase can be claimed as a deduction while makingcalculation of tax liability.1
Calculation of Capital Gain/ Loss on Amount Received from Sale of LandDateParticularsAmountJanuary, 2001Purchase of Land$1,00,000Local Council Tax$20,000Total Cost of Land$1,20,0003rd, June, 2017Contract Price of Sale of Land$3,20,0003rd, June, 2017Less: Advance Deposit$20,0003rd,Jan,2018Balance Payment Received$3,00,000Capital Gain$200,000Taxable Capital Gain @10%$20,000Tax Rate19 cents per dollar over andabove $18,201Net Tax Liability$342Interpretation:Capital Gain arises when a capital asset is being sold at a price which ishigher than the cost at which it was acquired. The tax is calculated on difference amount. Hencein this case in order to arrive at capital gain the cost incurred on purchasing land has beendeducted from the contract price. The amount is then taxed based on the relevant law, There isno tax liability on capital gain which is below $18,201 and on the above amount tax rate of 19%is charged on every dollar. Hence in this case the net amount is 20,000-18,201= $1799 on which19% Tax is charges which is equal to $342.b. Antique bedFacts Related to the Case:Under this case, The Client had purchased a antique bed for$5,000 in July,1986 that was including all the expenses. This can be regarded as a capital asset,but due to certain conditions the asset was stolen from her house. The value of Asset at that timewas $25,000 based on the valuation made at that time. In November of the current tax year, thebed was stolen and she has filed a claim for the same with insurance company in January for$25,000. The Insurance Company rejected the Claim on the Ground that it does not come underthe definition of specified Item of Policy. Though She was Paid $11,000 in the month of JanuaryItself.2
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