Taxation Theory, Practice & Law

Taxation Theory, Practice &
Law

Contents
Question 1...........................................................................................................................................................3
Question 2...........................................................................................................................................................6
Question 3:..........................................................................................................................................................7
Conclusion..........................................................................................................................................................8
References..........................................................................................................................................................9

Question 1
Capital gain tax incurs at the time of sale of any capital asset in the current year which is
purchased by an asessee in previous year (ATO, 2016). The variation in the selling and
purchasing price of capital asset is known as capital gain or loss. The tax which is liable to
pay on capital gain, termed as capital gain tax and must be paid in its current financial year.
There are different laws and regulations which are applied to assess capital gain tax in
Australia. Any capital assets which were purchased after 20th September 1985 are covered
under the capital gain tax regime (Faccio and Xu, 2015). Helen, who is a fashion designer,
seeking some advice related to capital gain tax consequences, as she has made some
transactions in her business. Provisions related to the capital gain are covered under this. The
Rate for capital gain tax is defined in the Australian tax regulatory is 23.5% but this is
applicable when an asset is captured by the assessee for twelve months or more (Evans,
Minas and Lim, 2015). The other provision is that there should be availed 50% discount on
the assets which are purchased by the assessee after 21st September 1999. Indexation
method is applied on the capital assets which are purchased before 21st September 1999 but
for the assets which are purchased after 21st September, 1999, in that case, both method can
be used by the assessee and chose any of them which could give least capital gain tax
(Edmonds, 2015).
As discussed the provisions and laws for the capital gain tax, all assets given in question 1
are purchased before 21st September 1999 and are treated under the Indexation method
(ATO, 2016). And for that purpose, there is a strong need to understand indexation method.
By using this method, assessee try to identify the purchasing cost of the capital asset in
present market in order to calculate capital gain tax (Martin, 2019). For that purpose
indexation factor is calculated by using consumer price index (CPI). Formula to calculate that
is as follows:
Indexation factor = CPI of the time in which CGT occurred/ CPI of the time or quarter the
asset was purchased
1. CGT on Antique Panting bought in 1985-