Australian Taxation Law: Capital Gains Calculation and Asset Treatment

This assignment provides a detailed analysis of Australian taxation law, specifically focusing on capital gains tax (CGT) calculations. The solution begins by calculating the net capital gain for an individual, Duncan, who holds various capital assets, including a townhouse, Westpac bank shares, Woolworth shares, and an ultra-light aircraft. The assignment utilizes the indexation method to determine the indexed cost base for assets held for more than one year. The calculations include sales considerations, indexed cost bases, and capital gains or losses. The assignment also addresses CGT discounts and carry-forward losses. Furthermore, it explores exemptions related to personal assets, such as the ultra-light aircraft and a painting, and their eligibility for capital gains tax relief. The solution references relevant case laws, including Californian Copper Syndicate V. Harries, Federal Commissioner of Taxation V Whitfords Beach Pty Ltd, and Scottish Australian Mining C Ltd V FC of T, to support the analysis of capital gain tax liabilities. The assignment concludes with a list of references including online resources from the Australian Taxation Office.

AUSTRALIAN TAXATION LAW

TABLE OF CONTENTS
QUESTION 1.............................................................................................................................1
Calculate net capital gain and explain the treatment of all the items.....................................1
REFERENCES...........................................................................................................................6

QUESTION 1
Calculate net capital gain and explain the treatment of all the items
All the below mention capital assets are held by Duncan who is airline pilot for more
than one year starting from period range of 1995 to 2017. Being longer capital assets,
indexation method is used to determine the indexed amount of all the capital assets held by
the user. There are two provisions of indexation method used by an entity owner to calculate
the capital gain or loss held by the firm is mention below:
Asset held before 1999
Consumer price Index for the year of sale/CPI for the asset acquired
Assets acquire after 1999
CPI for 1999/CPI for sale year
Above these two provisions helps in determining the amount of indexed cost base
which play an important role in determining the capital gain loss incurred for all the assets
held by a users in a particular time period1.
Calculation of net capital gain
Particulars Amount
Capital gain(W.N1) 244133.1
Less: capital losses 25000
Net capital gain 219133.1
Working notes
Calculation of capital gain of Town house in Melbourne
Particulars Amount
Sales consideration 895000
Indexed cost base 650866.9
Capital gain 244133.1
1 Indexation methods, 2017. Available through: <https://www.ato.gov.au/General/Capital-
gains-tax/Working-out-your-capital-gain-or-loss/Working-out-your-capital-gain/The-
indexation-method-of-calculating-your-capital-gain/> [Accessed on 7th October 2017].
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Calculation of CGT discount using indexation methods
Particulars Amount
Cost of asset 836000
Expenditure 0
Cost base 836000
Indexation factor 0.778549
Indexed cost base 650866.9
Calculation of indexation factor
CPI for 1999 123.4
CPI for 2017 158.5
Indexation factor 0.778549
Calculation of net capital gain
Particulars Amount
Capital gain(W.N1) 1635.781
Less: capital losses 1635.781
Net capital gain 0
Working notes
Calculation of capital gain of Westpac bank shares
Particulars Amount
Sales consideration 22369
Indexed cost base 20733.22
Capital gain 1635.781
Calculation of CGT discount using indexation methods
Particulars Amount
Cost of asset 15200
Expenditure 0
Cost base 15200
Indexation factor 1.364028
Indexed cost base 20733.22
Calculation of indexation factor
CPI for 1995 116.2
CPI for 2017 158.5
Indexation factor 1.364028
Calculation of net capital gain
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Particulars Amount
Capital gain(W.N1) -6485.33
Less: capital losses
Net capital loss -6485.33
Carry forward loss of shares 10364.22
Working notes
Calculation of capital gain of Woolworth shares
Particulars Amount
Sales consideration 6750
Indexed cost base 13235.33
Capital loss -6485.33
Calculation of CGT discount using indexation methods
Particulars Amount
Cost of asset 17000
Expenditure 0
Cost base 17000
Indexation factor 0.778549
Indexed cost base 13235.33
Calculation of indexation factor
CPI for 1995 123.4
CPI for 2017 158.5
Indexation factor 0.778549
Calculation of net capital gain
Particulars Amount
Capital gain(W.N1) 1821.767
Less: capital losses 1821.767
Net capital loss 0
Carry forward loss on personal assets 5178.233
Working notes
Calculation of capital gain Ultra light aircraft
Particulars Amount
Sales consideration 13500
Indexed cost base 11678.23
Capital gain 1821.767
Calculation of CGT discount using indexation methods
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Particulars Amount
Cost of asset 15000
Expenditure 0
Cost base 15000
Indexation factor 0.778549
Indexed cost base 11678.23
Calculation of indexation factor
CPI for 1995 123.4
CPI for 2017 158.5
Indexation factor 0.778549
Exemptions are mentioned in the Australia act regarding capital gain exemptions in which
certain assets gets relived from the obligation of the capital gain tax is given below:
Personal assets are excluded from the tax liability which includes boats, furniture,
electrical goods and household items2. A condition is imposed on the personal assets whose
purchase cost of the assets is less than $10000 or less will get the exemption from paying the
capital gain tax obligations.
In the case of Duncan, Ultra light aircraft capital asset held by a user falls under the
category of personal assets but this does not qualify for the exemption under the act as the
cost of the asset is $15000 and the exemption slab is $10000. On the another hand, painting
of ken is also personal assets that qualify the capital assets exemptions both in the terms of
items covered in the capital asset and exemption slab amount. Total restrictive amount limit
is $10000 or less as paintings by Ken done. Cost of painting is $7500 the cost slab is $10000.
The case laws used in explaining the condition of capital gain tax liabilities imposed on
different capital assets held by an entity for a particular span of time3. Different case laws
used in this assignment covering various sections such as section 25(1) related to determining
2 Capital assets and exemptions, 2017. Available through: <
https://www.ato.gov.au/general/capital-gains-tax/cgt-assets-and-exemptions/?
anchor=Personal_use_assets#Personal_use_assets> [Accessed on 7th October 2017].
3 Californian Copper Syndicate V. Harries 1904 5 TC 159 ISSUE
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profits from transactions carry out by an entity in the external business4. This also includes
assessable income on the sale of land or property held by users5. By determining the
assessable income, the tax payer liabilities can be identified by the management6.
4 Scottish Australian Mining C Ltd V FC of T (1950) 81 CLR 188 ISSUES
5 Full High Court: Gibbs CJ, Mason. Murphy and Wilson JJ
6 Federal commissioner of Taxation V Whit fords Beach Pty Ltd., Full high Court (1982)
150 CLR 355; Full Federal Court 83 ATC 427 ISSUE
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REFERENCES
Books and journals
Californian Copper Syndicate V. Harries 1904 5 TC 159 ISSUE
Federal commissioner of Taxation V Whit fords Beach Pty Ltd., Full high Court (1982) 150
CLR 355; Full Federal Court 83 ATC 427 ISSUE
Full High Court: Gibbs CJ, Mason. Murphy and Wilson JJ
Scottish Australian Mining C Ltd V FC of T (1950) 81 CLR 188 ISSUES
Online
Capital assets and exemptions, 2017. Available through: <
https://www.ato.gov.au/general/capital-gains-tax/cgt-assets-and-exemptions/?
anchor=Personal_use_assets#Personal_use_assets> [Accessed on 7th October 2017].
Indexation methods, 2017. Available through: <https://www.ato.gov.au/General/Capital-
gains-tax/Working-out-your-capital-gain-or-loss/Working-out-your-capital-gain/The-
indexation-method-of-calculating-your-capital-gain/> [Accessed on 7th October 2017].
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