Australian Taxation Law Assignment: CGT and Property Sales

This assignment delves into Australian Taxation Law, specifically focusing on Capital Gains Tax (CGT) calculations and their implications. It analyzes a case study involving property sales, considering scenarios where the land was purchased before 1984, and buildings were constructed at different times (2003 and 2017). The assignment computes CGT using both discount and indexation methods, comparing their outcomes. It addresses the impact of pre-CGT assets and improvements, referencing relevant sections of the Income Tax Assessment Act 1997. The commissioner's position on land acquisition and CGT is also discussed. The assignment aims to provide a comprehensive understanding of CGT rules in Australia, enabling students to calculate and analyze the tax implications of property transactions under various circumstances. The assignment includes detailed calculations, comparisons of different methods, and references to relevant legislation and literature. This provides valuable insights into the practical application of CGT principles.

Running head: AUSTRALIAN TAXATION LAW
Australian Taxation Law
Name of the Student:
Name of the University:
Author’s Note:

AUSTRALIAN TAXATION LAW 2
Table of Contents
Question 1:.......................................................................................................................................3
1. Capital gain tax computation for the current year:......................................................................3
2. Mentioning the impact of the land was purchased before 1984 October 20th:...........................4
3a. Mentioning the impact if the building was built on 20th May 2003:..........................................5
3b. Mentioning the impact if the building was built on 20th May 2017:.........................................6
Question 2:.......................................................................................................................................8
The commissioner’s position in the income tax legislations for the land acquisition pre-CGT
assets:...............................................................................................................................................8
References and Bibliography:..........................................................................................................9

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Question 1:
1. Capital gain tax computation for the current year:
Particulars Discount Method Indexation Method
Proceeds from Sale $300,000 $300,000
Land cost $50,000 $51,422
Building cost $100,000 $100,881
Total Cost $150,000 $152,303
Capital Gains $150,000 $147,697
Less: 50% Discount $75,000 $0
Net Capital Gain $75,000 $147,697
The above table mainly states the relevant calculation of net capital gains with discount
method and indexation method. Relevant vacant land was mainly purchased beefier 1997
October 20th, while the construction of building was commenced on 1999 May 20th. Therefore, it
could be understood that both construction and purchase of the property was conducted before
1985 September 20th. Under the discounted method, the overall discount of 50% is provided if
the capital is held for more than 12 months (Russell 2016). In addition, Rosemary has held the
property for more than 12 months, which enables her to get a 50% on the capital gains generated
from sale of the property. The discounting method is mainly listed under Income Tax
Assessment Act 1997, Division 115, Subdivision 115-A, and Section 115-15, where relevant

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measures needs to be conducted by the individual in calculating the capital gain tax under
discounted method (Ato.gov.au 2017).
The second method that is used in the valuation of the capital gain tax is the indexation
method, which could directly help in identifying the capital gain tax paid by the individuals. The
indexation method mainly comes under Income Tax Assessment Act 1997, Division 960-
General, Subdivision 960-M, and Section 960-275, which depicts the relevant use of the method
for calculating the taxable amount (Ato.gov.au 2017).
However, from the evaluation of the table, payment conducted in discounting method
could eventually help in paying the least capital gains tax of $75,000. On the contrary, the
indexation method mainly calculates the capital gains tax to be at $147,697.
2. Mentioning the impact of the land was purchased before 1984 October 20th:
Particulars Indexation Method Discount Method
Proceeds from Sale $300,000 $300,000
Less: Sale price of Land $100,000 $100,000
Building Net Selling Price $200,000 $200,000
Less: Building cost $100,881 $100,000
Capital Gain from Sale $99,119 $100,000
Less: 50% Discount $0 $50,000
Net Capital Gain $99,119 $50,000

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Relevant capital gain tax after the CGT is mainly calculated where the both indexation
and discounting method could be used to calculate the tax on Post-CGT improvements.
However, any capital gains Pre-CGT is mainly exempted from tax, which directly states that
capital gains on improvement will mainly be imposed. Therefore, Division 100 and Section 100-
45 is mainly mentioned in the Income Tax Assessment Act 1997. The sections mainly help in
identifying the relevant measures, which could be used by an individual for conducting relevant
CGT (Ato.gov.au 2017). This relevant measure could directly help in identifying the minimum
amount, which could be used in identifying the CGT paid in capital gains.
The property is mainly sold of $300,000, where the cost is determined to be at 33% and
67%. Therefore, tax needs to be paid only on the 67% of the sales value of the property.
Moreover, with the help of discounting method a 50% discount is mainly conducted on the
property sales value, as Rosemary held the property for more than 12 months. The relevant
indexation method could also be used by Rosemary, which could help in depicting the tax paid
on capital gains (Sembrano et al. 2017).
Therefore, with the discounting method Rosemary needs to pay $50,000, while the
indexation method could raise the CGT to $99,119.
3a. Mentioning the impact if the building was built on 20th May 2003:
Particulars Indexation Method Discount Method
Selling Price of Land $100,000 $100,000
less Land cost $51,422 $50,000
Capital Gains (Land) $48,578 $50,000
Less: 50% Discount $25,000

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Net Capital Gain (Land) $48,578 $25,000
Building sales price $200,000 $200,000
Less: Building cost $100,000 $100,000
Capital Gain $100,000 $100,000
Less: 50% Discount $50,000
Net Capital Gain (Building) $100,000 $50,000
Total Capital Gain on Property $148,578 $75,000
The above table mainly depicts the CGT, when Rosemary builds the building on 20 May
2003. This mainly helps in identifying the relevant tax that needs to be paid by Rosemary for
both building and land sale. There is relevantly no CGT for building, as it was built in 2003,
where only discounting method needs to be conducted by Rosemary. However, for the land both
indexation method and discounting method could be used, as the land was acquired before 1999.
The tax ruling of GSTR 2003/3 states the relevant measures that could be used by individuals for
deriving the CGT on the property developed on 2003 (Ato.gov.au 2017). Therefore, from the
evaluation of above table relevant capital gains on the property under discounting method is
mainly at $75,000, while under the indexation method the overall tax is mainly at $148,578.
Hence, use of discounting method could eventually allow Rosemary to minimize the
overall tax that needs to be paid after the sale of the property (King 2014).

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3b. Mentioning the impact if the building was built on 20th May 2017:
Particulars Indexation Method Discount Method
Land sale price $100,000 $100,000
Less: land cost $51,422 $50,000
Capital Gain (Land) $48,578 $50,000
Less: 50% Discount $25,000
Net Capital Gain (Land) $48,578 $25,000
Building selling price $200,000 $200,000
Less: Building cost $100,000 $100,000
Capital Gain (Building) $100,000 $100,000
Total Capital Gain (Property) $148,578 $125,000
The above table mainly depicts whether the building was build on 2017 May, and
property was purchased on 1997. This mainly indicates that Rosemary could use relevant
indexation and discounting method for deriving the relevant CGT after the sale of the property.
However, the building that was built in 2017 does not come under the discounting method, as it
is relevantly less than 12 months. Thus, the above table mainly states that relevant tax on
property is derived from the calculation, which is relevantly at $125,000 for discounting method
and $148,578 under the indexation method. Therefore, under capital gains tax use 2017 relevant
CGT calculations could in identifying the overall sales of property (Lawrence and Bennett 2017).
Therefore, sales of the property under the CGT directly allow Rosemary to detect the
relevant tax burden, which needs to be paid under the Income Tax Assessment Act 1997
(Ato.gov.au 2017).

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Question 2:
The commissioner’s position in the income tax legislations for the land acquisition pre-
CGT assets:
The evaluation of the case study of Rosemary mainly indicates the relevant implication of
Pre and Post CGT on the property sales conducted in 2017. The relevant land was purchased on
1997, while the capital improvement was conducted on 1999. The property purchased before the
advent of CGT is mainly exempted under the taxation law. However, the case mainly states the
both the land purchase capital improvement was mainly conducted after the advent of CGT.
Therefore, under the TD 97/3, Income Tax Assessment Act 1997 Part 3-1 and Part 3-3, relevant
measures that needs to be taken into consideration could directly allow individuals to generate
the required level of CGT (Ato.gov.au 2017).
Therefore, it is identified that major improvements on property after the augmentation of
CGT is been conducted, where both gains generated from pre and post CGT will be included in
determining the total tax paid by individuals. Moreover, for instance if the property value is not
disclosed then the market value is used in determining the CGT. Moreover, under Income Tax
Assessment Act 1997, Division 100-A, and Section 100-25, relevant CGT measures that needs to
be conducted by individuals are adequately depicted (Ato.gov.au 2017).

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References and Bibliography:
Ato.gov.au. (2017). Home page. [online] Available at: https://www.ato.gov.au/ [Accessed 7 Sep.
2017].
Burgess, M., Lucke, T. and Polkinghorne, L., 2014. The Clark decision: possible consequences
for CGT event E4?. Taxation in Australia, 48(10), p.575.
Campbell, S., 2015. A mater of trusts: CGT issues when creating and dealing with
UPEs. Taxation in Australia, 50(6), p.332.
Chang, J., 2016. Foreign resident CGT withholding. Taxation in Australia, 50(11), p.664.
Evans, C., Minas, J. and Lim, Y., 2015. Taxing personal capital gains in Australia: an alternative
way forward.
King, A., 2014. CGT discount for non-residents: More complex than you think!. Taxation in
Australia, 49(1), p.14.
Lawrence, S. and Bennett, M., 2017. Image rights in Australia: Fair game or foul ball?. Taxation
in Australia, 51(9), p.487.
Russell, T., 2016. Trust beneficiaries and exemptions from CGT: Reflections on the Oswal
litigation. Taxation in Australia, 51(6), p.296.
Sembrano, J.N., Truong, W.H., Ledonio, C.G.T. and Polly Jr, D.W., 2017. Skeletal Anomalies
Associated with Esophageal Atresia. In Esophageal and Gastric Disorders in Infancy and
Childhood (pp. 135-153). Springer Berlin Heidelberg.

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Series, F.A.A.I., 2014. A More Precise Way To Measure After-Tax Performance: FTSE ASFA
Australia Index Series.
Series, F.A.A.I., 2015. A More Precise Way To Measure After-Tax Performance: FTSE ASFA
Australia Index Series.
Somers, R. and Martins, P., 2016. A matter of trusts: Case study: Litigation settlements and CGT
SBC. Taxation in Australia, 51(4), p.208.