HI6028 Taxation Report: Analysis of Capital Gains Tax in Australia

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Table of Contents
Introduction................................................................................................................. 3
Question 1...................................................................................................................3
1.1 Capital gain tax with reference to painting.........................................................3
1.2 Capital gain tax in historical sculpture................................................................4
1.3 Capital gain tax in jewellery...............................................................................5
1.4 Gain tax of picture..............................................................................................6
Question 2...................................................................................................................7
2.1 Barbara income regarding scenario...................................................................7
2.2 Barbara income with alternative scenario..........................................................7
Question 3...................................................................................................................8
3.1 Effect of arrangement with respect to income of Patrick....................................8
Conclusion.................................................................................................................. 8
Reference list.............................................................................................................. 9
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Introduction
Taxation law is generally a practice that mainly relate to various payment of taxes. It
generally follows the legal and government rules for individuals and other
corporation. This assignment generally focuses on various taxation laws according to
Australian government. It focuses on to show income tax system in respect to
Australian rule and critical analysis of taxation legislation on how it is helping to solve
problems. The study also focuses on taxation issues and various concepts of income
and deduction according to case law. The assignment shows capital gain tax system
consequences with given various transactions. It focuses on to show gain tax of
capital in antique paintings, historical sculpture. The effect of various transactions
has also been focused in the study.
Question 1
1.1 Capital gain tax with reference to painting
In this given context it has been seen that Helen generally wants to fund her
business in fashion designing by selling some assets. Thus, Helen here wants to sell
an antique painting that her father bought in the year 1985 of the month February.
Thus this painting was bought by Helen father for $4000. Now Helen sold the
painting in 1st December at a price of $12000. Hence in the transaction it is clearly
seen that she has gained a huge profit by selling that antique painting in market.
Through the Australian legislation it is stated that selling and buying any good refers
to mainly come under Capital Gain Tax. Hence this type of transaction is generally
collected by Australian Taxation Office. Thus in capital gain tax the entire assets
are being collected before the year 1985 and are exempted from capital gain tax
(Evans 2015). It is seen that all other items that were purchased by Helen after year
of 1985 all are considered under GST act. Under the Income Tax Assessment Act
1936 it is seen that capital gain is being shown under the transaction. In the
assignment it is seen that Helen has to pay a tax of about 28 percent. The
calculation has been shown below:
Tax rate 28%
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PARTICULARS
Selling Price of painting 12,000
(Less) Initial value of painting 4,000
Capital gain 8,000
Tax @28% charged 2240
Net profit on sale of painting 5,760
Table 1: Capital gain Tax in context of Helen
(Source: Created by Learner)
Thus, from above transaction it has been seen that capital gain is mainly amounted
to $8,000 and with that a total tax has been charged amounting to $2,240. In the
above transaction net profit has been resulted that is about $5,760 that has helped
Helen to raise fund for its business. Due to this Helen has to lend an amount as per
Australian legislation.
1.2 Capital gain tax in historical sculpture
Thus in this context it has been seen that Helen for raising more fund in its business
focuses on to sell a historical sculpture of about $6,000 on 1st January 2018. Thus it
is seen that while purchasing online the price of asset is higher than the physical
selling of its product in market. It has been seen that she has purchased this piece in
the year 1993 at a price of about $5,500. Thus according to capital gain tax it has
been seen that items that are purchased before the year 1995 with price less than
$500 is being exempted from taxation office of Australia (Steyn et al. 2018). In above
context it has been seen that government of Australia has focused to announce a 50
percent discount of income tax in the year 1999 to improve faith among citizen and
provide a better income tax rating to every individuals. In the context it is seen that
Helen has to pay a loyalty tax of about 28 percent according to legislation of country.
The calculation of capital gain tax has been shown below:
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Applicable tax rate 28%
PARTICULARS
Amount (in
$)
Amount of sculpture that has been sold 6000
Amount of sculpture that was being acquired 5500
Gain of capital from sales 500
(Less) Capital gain tax @28% 140
Net gain of Helen by selling historical
sculpture 360
Table 2: Capital gain Tax of selling historical sculpture in context of Helen
(Source: Created by Learner)
Thus, in the above calculation it is seen that selling the historical sculpture Helen has
got a net gain of about $360 that will help in increasing fund for business. It is seen
that a total gain of about $500 has been seen by selling the painting. Capital gain
has been deducted with context to tax of $140.
1.3 Capital gain tax in jewellery
It is seen that selling above assets by Helen to raise fund for business now Helen
has focused to sell the antique jewellery piece that she has purchased in year 1987
of October at the rate of $14000. In 20th March, 2018 she has sold the jewellery item
for $13000. As said by Dabla-Norris et al. (2017), for gathering an extra income of
money she sold that antique jewellery set. According to Australian legislation it is
been clearly stated that those items that are being purchased before the year 1995
and has a costing of below $500 those are being exempted by country of Australia.
As during that time Australia has to face a decreasing tax rate of jewellery item within
their country. Due to this it has affected Helen in selling jewellery item at a loss in the
market. Thus, Helen had to face a loss because it was purchased before the year
1995. Therefore, she could not get the actual value of jewellery in year 2018.
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1.4 Gain tax of picture
In year 2018 of 1st July, Helen sold a picture that was bought by her mother. Due to
raising more fund for her business she sold a picture of about $5000 in the market.
That picture was bought by her mother in March 1987 amounting to $470. As said by
Genser and Holzmann (2016), it can be stated that in this transaction Helen has
made a lump sum amount of profit that has generally helped her in raising fund for
her business. According to Australian legislation it can be focused that a GST rate of
about 10 percent is charged on the transaction value. According to the context
picture that her mother bought was before year 1995. This is considered to be a
capital gain tax under Australian legislation. The gain tax of picture has been shown
below:
Total Capital Gain Tax Applicable for Helen
Particulars
Sales
price
Purchase
price
Profit/
loss
Tax
deduction
Net
profit/loss
Antique Painting 12000 4000 8000 2240 5760
Historical
sculpture 6000 5500 500 140 360
Antique Jewellery 13000 14000 -1000 -280 -720
Total CGT to be paid 2100 5400
Table 3: Total liability of capital gain for Helen
(Source: Created by Learner)
It is being seen from above transaction that Helen has gained a total of $4530 while
selling the picture in year 2018. As said by Picard et al. (2016), it has been seen that
while selling jewellery she has a faced a huge loss of $1000 because of some
consequences according to Australian legislation. However, she has paid an amount
of $2240 tax to government of Australia and made a high profit of about $5760 that
has helped in raising fund for her business.
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Question 2
2.1 Barbara income regarding scenario
It has been seen from given scenario that Barbara as by profession is economist
researcher and a commentator. Eco books Ltd of Australia a publication book
company has offered Barbara to mainly publish a book named called Principle of
Economics. As said by Keen and Slemrod (2016), it has been seen that she has
assigned the book’s copyright for a amount of $13,400 with publication house that is
Eco Books Ltd. The publisher after the book is published has paid Barbara the
amount by providing a cheque. Barbara is also focused on selling manuscripts to
library of Eco books at a price of $4,350. In addition to Barbara has focused to sell
those manuscripts interview at the time of publication of books. Thus other interview
in context to manuscript has focused to sell more funds to her. Thus the other
manuscript that she has collected while writing those economics was amounted to
$3,200. Thus according to Capital gain tax in Australia this overall transaction has
been exempted from and taxation is being collected by Australian Taxation Office.
It can be seen that Barbara has gained an extra income through the sale of those
manuscripts to publication house (Khaperskaya et al. 2016). An extra income has
also been seen while conducting the interview of Barbara for those manuscripts.
2.2 Barbara income with alternative scenario
In the above scenario it has been seen that Barbara can have some issue in legal
documentation of provided by Australian court. Thus various steps are there that
should be followed to avail profit from other publication house. A relevant case can
be focused that is generally related with given scenario. Company name called
Bolding Corporation in Australia that mainly creates plating decks for boats. Thus
this plating technique is followed by employees of Bolding corporation namely Mr.
Stark. As opined by Kouparitsas (2016), thus his ideas are being applied in the
business to increase selling of those plates in market. However, the main issue that
was faced by Mr. Stark is he did not register the main design of his platting for boat
and the instrument that was used to implement and create those platting on boat.
According to Design Act 1906 he mainly failed to prove government that it was his
design of craftsmanship. As mentioned by McGee (2016), during this concept
Australia government penalised for doing a copyright of that design from other place.
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Hence Australian court stated that any own design or setup must be legalised in the
court and has to be registered under Copyright Act 1968 and Personal Property
Act 2009. Thus this act will help to meet the requirement and design of the setup
and have a better market demand of product.
Question 3
3.1 Effect of arrangement with respect to income of Patrick
It has been seen from the study that David who is a son of Patrick mainly paid a
amount of $52,000 to provide a help for his new business setup. Thus it is seen that
David shall repay the whole amount of money to his father at the end of 5 years. As
opined by Millane and Stewart (2018), thus it also was included that Patrick shall pay
a interest of amount with that money of about 5 percent additional with the amount
that he has borrowed. Thus for the interest amount Patrick refused to take that
amount of money at the end of 5 years. Thus according to Fringe Benefit Tax,
David has to pay the amount to Patrick with respect to interest rate that is applicable
(Pearce and Hodgson, 2015). In Australian parliament transaction within $18,201 to
$37,000 is being considered as tax payable by individual. Hence, Patrick has to pay
a amount of tax according to the money that has been transacted.
Conclusion
It is being concluded that there are various taxation rules and regulation in Australia
that has to be followed for organisation. It is seen that for raising fund Barbara has
sold various items for having a profit in market. Hence it can be seen that capital
gain tax can be exempted if item is above $500 amounting. Thus selling and buying
any good can come under capital gain tax. Thus other exempted amount is being
taken by Australian Taxation office. It is concluded while selling sculpture the item
was mainly purchased before the year 1995 and has a price amount to less than
$500 so this was exempted by taxation office of Australia. It is thus seen that
regarding picture she has gained a good profit that has helped to raise fund for
business. Hence in the last context it is concluded that one must follow copyright act
to register and legalised own assets and other belongings.
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Reference list
Books
Dabla-Norris, M. E., Misch, F., Cleary, M. D., and Khwaja, M. (2017) Tax
administration and firm performance: new data and evidence for emerging market
and developing economies. International Monetary Fund.
Journals
Chardon, T., Freudenberg, B., and Brimble, M. (2016) Tax literacy in Australia: not
knowing your deduction from your offset. Austl. Tax F., 31, 321.
Evans, C., Minas, J., and Lim, Y. (2015) Taxing personal capital gains in Australia:
an alternative way forward. Austl. Tax F., 30, 735.
Genser, B., and Holzmann, R. (2016) The taxation of internationally portable
pensions: An introduction to fiscal issues and policy options. CESifo DICE
Report, 14(1), 24-29.
Keen, M., and Slemrod, J. (2016) Optimal tax administration(No. w22408). National
Bureau of Economic Research.
Khaperskaya, A., Pokrovskaia, N., Ivanov, V. V., and Bannova, K. (2016, May) The
scope of corporate profit tax consolidation: the effect of changing the CGT entry
threshold. In Information Technologies in Science, Management, Social Sphere and
Medicine. Atlantis Press.
Kouparitsas, M., Prihardini, D., and Beames, A. (2016) Analysis of the long term
effects of a company tax cut. Australian Treasury, Treasury Working Paper, (2016-
02).
McGee, R., Devos, K., and Benk, S. (2016) Attitudes towards tax evasion in Turkey
and Australia: A comparative study. Social Sciences, 5(1), 10.
Millane, E., and Stewart, M. (2018). Behavioural insights in tax collection: getting the
legal settings right. eJTR, 16, 500.
Pearce, P., and Hodgson, H. (2015). Promoting smart travel through tax policy. The
Tax Specialist, 19, 2-8.
Picard, R., Belair-Gagnon, V., Ranchordás, S., Aptowitzer, A., Flynn, R., Papandrea,
F., and Townend, J. (2016) The impact of charity and tax law and regulation on not-
for-profit news organizations. The Impact of Charity and Tax Law and Regulation on
Not-for-Profit News Organizations, Reuters Institute for the Study of Journalism.
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Steyn, T., Smulders, S., Stark, K., and Penning, I. (2018) Capital gains tax research:
an initial synthesis of the literature. eJTR, 16, 278.
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