Australian Taxation Report: Capital Gains Tax Analysis

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Australian Taxation

TABLE OF CONTENTS
Introduction......................................................................................................................................1
Question 1........................................................................................................................................2
A. The capital gain in relation to the family home......................................................................2
B. Capital gain or loss made from the car...................................................................................2
C. The capital gain/loss in relation to the sale of the business....................................................3
D. The capital gain in relation to selling the furniture.................................................................3
E. The capital gain in relation to selling the paintings................................................................3
QUESTION 2..................................................................................................................................5
Issue:............................................................................................................................................5
Law and Application (1st element of cost):..................................................................................5
Law and Application (2nd element of cost):.................................................................................5
Law and Application (3rd element of cost):.................................................................................6
Conclusion...................................................................................................................................6
Conclusion.......................................................................................................................................7
References........................................................................................................................................8

Introduction
Taxation in Australia is generally managed by the Australian statutory agency that is also one of
the main sources of revenue for the Australian government. The agency is mainly the Australian
taxation office (ATO) that handles the taxation system. Generally the agency collects income
tax, federal taxes and goods and service tax. Current report is based on applying effective
understanding of the taxation considering the case of Jasmine and John. Generally reports deliver
the understanding of capital gain tax (CGT) and its associated legislation. Report presents
suggestions concerned with effective management of capital gain tax and its effective
calculations to overcome future losses to occur.
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Question 1
What is capital gain tax?
The term capital gain refers to the achieving profit with selling of the capital asset and the tariff
charged on profit achieved is capital gain tax. The selling of asset might lead owner to generate
profit or loss depending on the value of the asset. The sale of asset is recorded at the time of
filling the income tax return (Evans et.al. 2015). The gain achieved from the profit is added
computable income and on this tariff amount is needed to be paid. In addition, as per ATO, the
loss cannot be covered off from the gain. In addition, there is some of the exemption under the
ATO on which the tax is not required to be paid (Taylor and Richardson, 2012).
Capital tax generally applies to the people that are resident of Australia but they can stay at any
place in the world (Burkhauser et.al. 2915). Moreover, the asset that is used in Australia and is
sold in Australia comes under ATO through which gain and loss can be incurred.
A. The capital gain in relation to the family home
As per the case, Jasmine purchased home in 1981 for $40,000 and now the worth is $650,000.
According to the ATO, the capital gain arises when the sale price of cost is more than actual cost
of the asset. There are some of the assets on which tax is exempted that includes the single asset
which is bought before on or after September 20, 1985 (Harding, 2013). Generally capital gain is
occurred in such situation as the house of sold at a capital gain of $160,000. In addition, the
assets which are used for the own consumption is excluded from the CGT (Green, 2016). These
include some of the assets that includes private car, furniture, own house, etc. However, Jasmine
acquired the house and it is used for the core residence purpose. It is generally exempted under
ATO.
B. Capital gain or loss made from the car
According to ATO, the assets used for personal purpose are exempted from tax (Dixon and
Nassios, 2016). In case of vehicle, gain usually arises and is exempted from tax when the car has
capacity of nine travellers and weight of 1 tonne or less. As per ATO, asset that have value equal
to $10,000 or less than this is acquired for personal purpose is generally exempted from tax
(Burkhauser et.al. 2015). Moreover, as per the case, the car if fully tax free as it comply with the
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conditions of exemption of tax. Also the car is generally used for the personal purpose by
Jasmine that is generally tax free.
As per the case, jasmine purchased a car in 2011 for $31,000 and the value currently is around
$10000. However, the car has been sold at the capital loss of 21,000. However, as per the
Australian norms, the capital loss is exempted from the tax.
C. The capital gain/loss in relation to the sale of the business
As per ATO, there are certain conditions or privileges considered during the selling of the active
asset. Firstly, the owner that is selling business must be above the age of 55 and the business
must be alive from past 15 years. In such case, the profits that the owner might generate can be
fully tax exempted (Evans et.al. 2015). Secondly, the capital profit is generated with the selling
of working asset and this can be exempted if the value of asset is $500,000 and the age of owner
must be 55. As per the case, Jasmine is currently of the age 65 and it is selling business for
$125,000 (Equipment $65000+ goodwill $60000). This includes $65,000 for all of the business
equipment that cost for $75,000. The cost of goodwill in the business cost for $60,000.
IT can be assessed that equipments are sold for the loss of 10,000 ($75,000- $65,000). This cost
the overall loss for the business because equipments are sold at loss. The loss in the Australian
norms is generally exempted from tax (Harding, 2013). The business is sold at a loss of $10000
that is the cost of equipments. One more reason for tax exemption is the age of Jasmine that is
around 65.
D. The capital gain in relation to selling the furniture
As per the case, jasmine is selling the furniture that is used for personal purpose at $5000 that
usually cost $2000. As per ATO, the cost of asset that is less than $10,000 is generally exempted
for the purpose of tax (Green, 2016). Overall Jasmine is receiving a capital gain up to $3000. But
the furniture is generally used for the private purpose and it generally cost up to $10,000 that is
exempted from the tax.
E. The capital gain in relation to selling the paintings
Collectables are the goods that are precious and usually people store these items with themselves
for a long time for the purpose of enjoyment. These collectables also includes photographs,
drawings, paintings, sculptures, etc. The owner of such collectables can obtain gain or less by
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selling such items. Moreover, any of the collectable items that are cost for $500 is discharged
from the capital gain tax (Clark, 2014). As per the case, Jasmine is selling the paintings for
$35000. The paintings are generally purchased from the second hand shop. In the case it has
been stated that the paintings are around $500 or equal. So the paintings are being exempted
from the tax. But the capital gain can be achieved with selling the paintings.
Apart from this, Jasmine has single painting that is cost around $1000. Jasmine is selling
paintings for $5000. As per ATO, owner of painting can gain profit with the selling painting and
capital gain can be achieved of $4000. Thus, tax is levied from the sale of collectable goods.
The decisions of the jasmine to sell assets on capital gain are effective. The tax exemption is
benefit for Jasmine to sell assets at capital gain but with no tax.
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QUESTION 2
Issue:
As per the scenario, John has brought new machinery that is industrial computer numerical
control (CNC) for the purpose of performing automotive operations. The machinery has been
brought from Germany for effective operations. In the case, the machinery is expected to put in
use after the installation at the floor. But the concerned issue occurred with the John is
ineffective performance of the machine. This requires John to invest in additional guiding rod
due to inefficiency of the machine. The main problem is the depreciation began at the time of
installation and additional depreciation increased because of installation of guiding rod.
Law and Application (1st element of cost):
Generally first element of the cost of CNC machine is associated when the machinery was
actually purchased at the cost of $300000 on 1 November 2014. As per the accounting standards,
the purchase of machinery is listed in the fixed asset of the business and is generally taxable. The
business considers such asset on which the depreciation would be charged after the effective
installation of the machine. Different accounting standards and principles are kept into
consideration to address the actual problem in the case. The first element generally covers the
actual cost of purchase of machinery that would be treated as the asset of the organisation.
Law and Application (2nd element of cost):
As per International accounting standards (IAS), the depreciation of an asset begins when the
machinery is available for use of when it is used at the location and situation. In this second
element of asset’s cost it is necessary to consider cost of machinery and actual installation (Chua
et.al. 2012). However, the total cost of machinery would be around $300000+$25000=$325000
(Cost of installation). The installation date is around 15 January 2015. As per the Australian
accounting standards, the depreciation would be allowed on to the basis of total cost of
machinery. Moreover, as per IAS the depreciation would be started and that is the actual start
time for calculating the decline value of CNC machine.
Depreciation is the reduction in the value of assets over time and that is mainly levied on fixed
assets. It is also one the accounting term for allocation of the cost that is mainly applied on the
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tangible assets. However, the business depreciates long term assets for both taxing and
accounting purposes (Petronijević et.al. 2012). The CNC machine is now treated as the fixed
asset for John’s manufacturing organisation. As per the accounting standards, the decline value
of the machinery starts from next day of installation of the machinery at the premises. The
machine is not available to use at the concerned premises. In the current calculation, the IAS and
accounting standards are effectively applied for calculating the cost of the actual machinery.
Law and Application (3rd element of cost):
As per the case, it has been assessed that machinery is not working properly. This requires John
to take decision regarding implementing guiding rod in the machinery for increasing its
effectiveness. The guiding rod generally cost around $5000. As per IAS, depreciation is charged
on the machinery exactly after it is available for use (Chua et.al. 2012). The below table shows
the accumulative cost of the machinery after all the elements:
Particulars Cost ($)
Purchase price of CNC machinery 300,000
Cost of installation 25000
Cost of guiding rod 5000
Total cost of machinery 330000
However, depreciation now would be charged after installation and implantation of guiding road.
This means the depreciation would be charged on 330000 because the machinery is now in the
condition with put to use. As per IAS, the decline value of machinery would be observed by
John.
Conclusion
From the concerned question 2, it can be concluded that it can be effective for John to check and
test the machinery available at the time of installation to overcome the future cost. Also report
concludes that IAS is the clear standards that will help in effective decision making in the
organisation. The deprecation is effective term and method that is levied on the overall cost of
the machinery. Standards of accounting help to ascertain knowledge and complete the
calculations to meet with the requirements of the report.
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Conclusion
It can be concluded from the entire report that capital gain is one of the significant aspects that is
needed to be studied carefully to having benefits of tax. In the current report, Australian
principles and related legislations are followed for conducting effective calculations. Moreover,
both the case studies of jasmine and John have been effectively studied to have application of
perspective legislation. In the current report, it can be analysed that it require business to have
effective planning of tax and calculation of cost of asset. Capital gain is one of the broader
aspects that can benefit individual to sell products for achieving profit. Moreover, enjoying the
aspects of tax exemption will help in achieving effective profits.
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References
Books and Journals
Burkhauser, R.V., Hahn, M.H. and Wilkins, R., 2015. Measuring top incomes using tax record
data: A cautionary tale from Australia. The Journal of Economic Inequality, 13(2), pp.181-205.
Chua, Y.L., Cheong, C.S. and Gould, G., 2012. The impact of mandatory IFRS adoption on
accounting quality: Evidence from Australia. Journal of International accounting
research, 11(1), pp.119-146.
Clark, J., 2014. Capital gains tax: historical trends and forecasting frameworks. Economic
Round-up, (2), p.35.
Dixon, J. and Nassios, J., 2016. Modelling the impacts of a cut to company tax in Australia.
Centre of Policy Studies (CoPS), Victoria Universit
Evans, C., Minas, J. and Lim, Y., 2015. Taxing personal capital gains in Australia: An alternative
way forward. Austl. Tax F., 30, p.735.
Green, J., 2016. Australia. In Angels without Borders: Trends and Policies Shaping Angel
Investment Worldwide (pp. 163-175).
Harding, M., 2013. Taxation of dividend, interest, and capital gain income.
Petronijević, P., Ivanišević, N., Rakočević, M. and Arizanović, D., 2012. Methods of calculating
depreciation expenses of construction machinery. Journal of Applied Engineering Science, 10(1),
pp.43-48.
Taylor, G. and Richardson, G., 2012. International corporate tax avoidance practices: evidence
from Australian firms. The International Journal of Accounting, 47(4), pp.469-496.
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