The relevant facts related to the sales

Running head: TAX
Tax
Name of the Student
Name of the University
Author Note

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Table of Contents
Issue...............................................................................................................................2
Law.................................................................................................................................2
Application......................................................................................................................4
Conclusion......................................................................................................................7
Question 2......................................................................................................................7
Issue...............................................................................................................................7
Law.................................................................................................................................8
Application......................................................................................................................9
Conclusion....................................................................................................................10
References...................................................................................................................11

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Issue
Sophia has entered into various transactions on which CGT is applicable. Advice
is to be provided to her on the capital gains tax consequences of these transactions.
The income tax return is to be prepared on the basis of the tax applicable on these
transactions. The relevant facts related to the sales made by her as follows:
 The sale of land in Ninety mile beach occurred for $8, 00,000. This property was
purchases in 1991 by paying $1, 30,000. Stamp duty of $800 and legal fees of
$1,200 were also paid by her. A bank loan was secured and interest of $27,000
was paid on the loan. During her ownership she paid various local taxes worth
$18,500. In January 2008, $8,000 was paid to resolve a dispute with a
neighbour. In order to make the property saleable $1,500 was incurred on
improving it. Other relevant fees of $25,000 were paid to sell her land.
 Shares in ABC Company were sold for $32.20 per share. 1% brokerage was paid
on the sale. These shares were purchased in 1983 for $1.5 per share.
 A stamp collection was sold January 2018 for $23,000. The purchase value of
this collection was $33,000. $3,000 was paid as action fees.
 A bob Marley guitar purchased for $70,000 in 2003 was sold for $45,000.
Law
In Australia, CGT is levied on the net capital gains earned by an individual on the
sale of a CGT asset. As per s102-5 ITAA 1997, the income earned from the capital
gains is included as a part of the assessable income of an individual under statutory
income (Legislation.gov.au 2020). This income, along with the ordinary income under
s6-5 ITAA 1997 form a part of the assessable income of an individual. For a specific
taxation year. In order to levy CGT on an asset, it must meet the criteria of a CGT asset
defined under ITAA 1997. Along with it, they must have been procured on or after 20
September 1985 (Ato.gov.au 2020). Assets which were procured prior to this date are
not taxable under CGT on the basis of the guidelines prevalent in Australia. Capital
gains occur when the sale proceeds from an asset exceed the costs incurred in
obtaining the asset. The difference between both the amounts is charged to tax under

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CGT. Similarly, capital losses earned by an individual are used in reducing the overall
capital gains earned by the individual. The relevant laws in the case of the assets sold
by Sophia are as follows:
 The sale of the land is chargeable under the head business income and is a part
of the ordinary income of an entity if the business of the seller is related to
dealing in lands. The same was suggested in FCT v Hubert’s Island Pty Ltd
(Ato.gov.au 2020). If the sale is not in the ordinary course of the business by an
individual, the same would be constituted as a CGT asset and the tax would be
charged under CGT. In this case, there are also laws related to the cost base of
the asset. This cost base is to be deducted from the sale amount to calculate the
capital gains on the sale of the asset. Subdivision 110-A of ITAA 1997 suggests
that there the cost base of an element contains five major elements under
different heads (Ato.gov.au 2020). The first element includes the amount paid to
procure the actual asset. The second element consists of incidental costs like
stamp duty and legal fees paid to procure the asset under s110-35 ITAA 1997.
The third element consists of the costs of owning the asset. In this case, the
interest on a loan taken to purchase an asset is deductible only if the asset is
procured after 20 August 1991. The fourth element consists of the expenditure
incurred to increase or preserve the value of an asset under s110-25(5). The fifth
element consists of the costs incurred to establish, preserve or defend the title of
an asset under s 110-25(6) ITAA 1997. All of these costs are added up and then
deducted from the selling price of the asset. S108-10(2) ITAA 1997 defines a
collectable (Ato.gov.au 2020). According to it, a collectable is an artwork,