Australian Taxation Law Report: Case Studies of Jasmine and John

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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 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

Introduction
Australia has comprehensive calculation of capital gain tax (CGT) since 20 September 1985. The
laws and legislations are applied on the people that are resident of Australia but are allowed to
stay in different countries. There are different privileges and exemptions that benefit individual
for making purchase or sell of the asset. Tax is concerned as the main source of revenue for
government that is handled by statutory agency that is mainly the Australian taxation office
(ATO). The governing body is generally responsible for collection of income tax and tax levied
on goods and service tax. Current report is about application of law concepts, suitable tax laws
and principles. In the current report, case studies of Jasmine and John would be studied and
accordingly laws and legislations would be applied.
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Question 1
What is capital gain or loss?
In any individual sells a capital asset, if the sale price is more than the actual cost, the profit
attained is the actual capital gain on which the tax is levied. In the case of loss, the condition is
vice versa. But on capital loss generally no tax is being levied. The capital gain is mainly added
to assessable income and this increase the tax needed to be paid (Dixon and Nassios, 2016).
There are some of the assets that are exempted from the tax depending on specific conditions.
Moreover, if an individual face loss, it cannot be claimed on the other income but it can be
helpful for reduction of the capital gain. The below is the case analysis of Jasmine that has
performed transactions with the selling of the assets.
A. The capital gain in relation to the family home
As per the case, Jasmine is selling the residential home that was purchased on 1981 that worth
$650000. And the home was actually purchased for $40,000. Jasmine generally used the house
for personal purpose and wants to sell the house as she is shifting to UK. The total profit raised
from selling house is generally $610000.
As per ATO, all the assets acquired on or after 20 September 1985 can start their capital gain and
on which CGT is levied. In this case, the asset was purchased in 1981 on which tax cannot be
levied. According to ATO, tax is exempted from most personal assets that include home, car,
furniture, etc (Australian taxation office, 2018). In such case, tax would not be levied on profit
attained by Jasmine as the house is used for personal purpose. Along with that, the profit can be
used by Jasmine for the personal purpose.
B. Capital gain or loss made from the car
As per the case, jasmine purchased a car for personal use at $31000 and is now worth around
$10000. The net loss can be observed because the car is sold at fewer prices in which it was
purchased. The capital loss is observed to be around $21000.
As per the ATO, Jasmine used the car for personal purpose on which the tax is exempted.
Moreover, as per CGT laws, if the asset is worth $10,000 or less, it is the condition on which tax
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is exempted (Harding, 2013). Here, as per the case, Jasmine faced loss with selling her personal
car. Moreover, the car is full tax free as it has the net worth of $10,000 on current date of selling.
Also as per the Australian norms, generally tax is not charged on the capital loss (Australian
taxation office, 2018). Hence, the CGT laws and standard of ATO are effectively followed to
give solution with the particular case.
C. The capital gain in relation to the sale of the business
From the case, it can be analysed that Jasmine have the running cleaning business. She is selling
the business for $125,000 that includes the business equipments of net worth $65,000. The
equipments generally cost $75,000. Along with this, it also includes goodwill cost around
$60,000.
From the case, it can be assessed that business equipments are generally sold at the capital loss of
$10,000 ($75,000-$65,000). Overall the expected total cost of business must be ($75,000+
$60,000= 135000). As the equipments are sold for 10,000 losses the business is sold at $125,000.
The capital loss occurred is generally tax exempted in the Australian norms. In addition, suitable
privilege is also applied in the case that includes if individual is above the age of 55 and the
business is active for last 15 years (Lanis and Richardson, 2011). Here, Jasmine is already 65 and
the business is also running from past 15 years. Moreover, the business ownership can be
effectively transferred from Jasmine to the New party as the business is running in Australia
itself.
D. The capital gain in relation to selling the furniture
As per the case, Jasmine is selling personal furniture for $5000 and item is not cost more than
$2000. Generally, the furniture that is used for the personal purpose is generally exempted from
tax under ATO (Evans et.al. 2015). Another fact that can prevent from charging tax is the net
worth of asset is less than $2000. The capital gain can be expected as $3000. Exemption of tax is
generally the benefit for owner if the asset cost is less as per the Australian norms and conditions
of ATO. Most personal assets are exempted from CGT (Braithwaite and Reinhart, 2019).
E. The capital gain in relation to selling the paintings
This question is regarding the selling of collectable goods that are paintings. These collectable
goods are generally used for purpose of enjoyment. Individual can attain suitable profit or less
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with selling the collectable items. According to the case, Jasmine is selling the paintings for
$35000. The painting she has purchased from is generally from the second hand shops and cost
of painting is noted to be not more than $500. Also Jasmine had one more painting that cost
$1000. This painting is sold for worth of $5000.
As per ATO, the collectable items that includes artworks that cost equal or less than $500 is
generally exempted from the tax. And on the exception painting the capital gain is around $4000
and on such sale tax is levied (Taylor and Richardson, 2014.). Jasmine has generally obtained
different tax benefits and during most of the transactions, the tax is exempted.
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QUESTION 2
Issue:
As per the accounting standards, the basic principles of the taxation are concerned with
designing and implementing a taxable concept. Some of the basic legal principles of the taxation
are concerned with adequacy, broad basing, compatibility and convenience. In the current case,
there is issue regarding proper implementation of the machinery. According to the scenario, John
has purchased machinery of industrial numerical control (CNC). The associated problem with
the case is that machine requires additional cost after the process of installation. However, the
depreciation would be charged also on the additional cost of the machinery.
Law and Application (1st element of cost):
According to the case, the first element of the cost is concerned with the actual cost of CNC
machine purchased by the John. Generally legal principle of taxation is concerned with following
convenience that facilitates the voluntary compliance to the maximum extent possible
(Australian trade and investment commission, 2018). The machinery by the John was purchased
on 1st November, 2014. As per the Australian taxation standards, the tax on the machinery is
levied and is generally taxable. In addition, CNC machinery is cost of $300000 that is purchased
from the Germany. John has generally followed the laws concerned importing machinery from
overseas as the part of activities. It only requires John to be aware of government regulations,
duty taxes, permits, etc. Imports that meet with the Australian regulations can be seized by the
Australian department of Immigration.
Law and Application (2nd element of cost):
The second elements are concerned with following depreciation levied on machinery after the
process of installation. The Australian government generally have number of policies that seek
and assist Australian businesses to involve in the international trade (Australian trade and
investment commission, 2018). Depreciation is concerned as the declining value of the asset on
the suitable rate. In order to handle the accounting procedures and taxation, the depreciation on
the machinery is charged yearly (Rahman, 2013).
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As per the case, the machinery was installed on 15 January 2015. Now depreciation of the asset
have started on overall cost of the machinery that includes the actual cost of machinery and the
cost of installation. As per the accounting standards, depreciation on the machinery is charged
when the machinery is available for use on the actual premises. Moreover, 15 January would be
the start time of declining value of the asset where the depreciation is charged. Now John’s
machinery is available to use. This means depreciation would be mainly levied on the amount
325000 (300000+25000). Moreover, accounting standards of Australia and norms are kept in
considering for calculating the actual cost of machinery on which the mandatory depreciation
would be charged (Rahman, 2013).
Law and Application (3rd element of cost):
After the process of installation, John analysed that machinery is working ineffectively. To
overcome such problem, John decision was based on implementing a guiding rod to increase the
efficiency of the machinery. As per the case, the guiding rod cost around $5000. According to
the international accounting standards depreciation on the machinery cost around the actual cost
incurring all the expenses. The machinery is now at the stage of put to use where the actual
production can be started by John. But the decline on value has already started on 15 January
2015. But after the implementation of the guiding rod, Tax would be charged on overall amount
of $330000.
Total cost of machinery:
Purchase price of CNC machinery $300,000
Cost of installation +$25000
Cost of guiding rod +$5000
Total cost of machinery +$330000
It is effective for John to use adequate machinery because the value of declining day by day and
would be treated as long term asset in the accounting procedures. Hence, for the calculation
Australian accounting standards and norms are kept in consideration to evaluate accurate value
of machinery.
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Conclusion
From the analysis of question 2, it can be concluded that John is trying to effectively manage and
test the operations of the machinery. It can be also concluded that depreciation is need to be
levied on the machinery that is available to use. As per the accounting standards, machinery will
start its time to depreciate the value and future cost would be reduced. There are different
standards of accounting that helps to calculate the depreciated value of the particular asset.
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Conclusion
As per the analysis of the report, it can be concluded that capital gain is one of the effective
concept through which individual can gain profit with selling personal or capital assets.
Moreover, the profit obtained on the capital gain is taxable as per the accounting standards. It can
be concluded that application of legal concepts, laws and legislations are effective for
management of profits and loss on assets. Report has lead to effective development of
knowledge regarding legal laws and legislations. In the report, both the cases of John and
Jasmine and appropriate legislations and norms are being applied.
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References
Books and Journals
Braithwaite, V. and Reinhart, M., 2019. The Taxpayers' Charter: Does the Australian Tax Office
comply and who benefits?. Centre for Tax System Integrity (CTSI), Research School of Social
Sciences, The Australian National University.
Dixon, J. and Nassios, J., 2016. Modelling the impacts of a cut to company tax in Australia.
Centre of Policy Studies (CoPS), Victoria University.
Evans, C., Minas, J. and Lim, Y., 2015. Taxing personal capital gains in Australia: An alternative
way forward. Austl. Tax F., 30, p.735.
Harding, M., 2013. Taxation of dividend, interest, and capital gain income.
Lanis, R. and Richardson, G., 2011. The effect of board of director composition on corporate tax
aggressiveness. Journal of Accounting and Public Policy, 30(1), pp.50-70.
Rahman, A.R., 2013. The Australian Accounting Standards Review Board (RLE Accounting):
The Establishment of its Participative Review Process. Routledge.
Taylor, G. and Richardson, G., 2014. Incentives for corporate tax planning and reporting:
Empirical evidence from Australia. Journal of Contemporary Accounting & Economics, 10(1),
pp.1-15.
Online
Australian taxation office, 2018 [Online] [Accessed through]
<https://www.ato.gov.au/General/Capital-gains-tax/> [accessed on 20th September, 2019]
Australian trade and investment commission, 2018 [Online] [Accessed through]
<https://www.austrade.gov.au/International/Invest/Guide-to-investing/Running-a-business/
Understanding-Australian-business-regulation/Australian-export-and-import-laws> [accessed on
20th September, 2019]
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