Tax Law Assignment: Janice Brown's Capital Gains Calculation (2018/19)

This assignment requires the calculation of Janice Brown's net capital gain for the 2018/19 income year, excluding small business concessions. It involves analyzing various capital gains and losses from the sale of assets like a Jet Ski, painting, rare book, investment house, Telstra shares, and two properties (Rainbow Bay and Springwood). The solution details the application of CGT events, exemptions (including the main residence exemption), and the choice between discount and indexation methods for calculating capital gains. It also accounts for carried-forward capital losses from a coin collection and Rio Tinto shares. The final calculation determines Janice's net capital gain, which is then included in her assessable income, and it also accounts for remaining collectable carried losses.

Tax Law
30 June 2019
Seminar Number 8 T1 2019
Question 1
You are required to just calculate Janice Brown’s “net capital gain” for the 2018/19 income
year. Assume Janice is not entitled to use any of the small business concessions in Division 152
ITAA 1997.
In addition to the transactions listed below, Janice also received salary income of $150,000 in
the 2018/19 and an unfranked divided of $3,000 from BHP shares. Janice also has carried
forward capital losses from:
 the sale of a coin collection of $3,500, and
 the sale of shares in Rio Tinto of $10,000
Janice had the following capital gains and/or losses (prior to considering any capital losses,
indexation method or discount method
 Initial capital loss of $7,000 on Jet Ski (acquired 3 March 2014; disposed 12 June 2019);
 Initial exempt capital gain of $1150 on a Painting (acquired 19 May 1990; disposed 12
June 2019);
 Initial capital gain of $1,200 on Rare Book (acquired 5 April 2003; disposed 12 June
2019); and
 Initial capital gain of $159,900 on Investment House (acquired 16 October 2010;
disposed 12 May 2019)
 Initial capital gain of $340,000 on Telstra Shares (acquired 16 July 2016; disposed 6
April 2019).
Rainbow Bay Property
Janice signed a contract to purchase a house (on 0.2 hectares) at 19 Finders Street Rainbow
Bay on the Gold Coast on 15 August 2008 for $350,000. Ownership transferred to her on 15
September 2008. Janice lived in Rainbow Bay Property as her home from the 15th September
2008 until to 20th November 2014.
On 21st November 2014, Janice decided to move to Brisbane so that her children could attend
an exclusive private school. She rented the Rainbow Bay house to tenants from the 21st
November 2014 and received approximately $35,000 per year in rent. The family moved into an
apartment at Kangaroo Point which they rented through a local real estate agent.
In April 2019 Janice decided that her family had settled well into the Brisbane lifestyle and as a
result she would buy a home in Brisbane. As a consequence, she had to sell the Rainbow Bay
house to fund the purchase. She placed the property on the market and sold the Rainbow Bay
house for $800,000 under a contract dated 13 June 2019. In relation to the sale, she paid a
$16,000 commission to the real estate agent and $2,500 in legal fees to her lawyer. The
ownership of the Rainbow Bay house transferred to the new owner on 13 July 2019.
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Tax Law
30 June 2019
Springwood Property
On 10 January 1984 Janice Brown purchased a block of land for $20,000 in
Springwood on which to build a house. After receiving many quotations, Janice signed a
contract on 21 April 1988 with Construct with Us Pty Ltd to construct the house. The
house construction began on 1 July 1988 and was completed on the 31st October 1988 at
a cost of $95,000.
Instead of moving into the house, Janice rented it out to tenants. She continued to do this
until she eventually sold the property for $720,000 under a contract dated 11 June 2019
with the ownership transferring on 11 July 2019. An independent valuation revealed that
the land was worth $550,000 at the time of sale. (Hint! Could the house be considered
as separate asset to the land?)
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Tax Law
30 June 2019
Rainbow Bay Property - Refer to the set of CGT events from last weeks seminar to answer for the property. Ensure
that you are discussing the correct type of CGT Asset with regard to the house. Be mindful of any rules than apply for
exemption.
1 –
CGT event?
.Sale of House property via a contract on 13th June, 2019
2 –
CGT asset?
Rainbow Bay House
3 –
Exemption?
Consider main residence exemption here:
(1) are an individual;
(2) have treated the dwelling as their main residence throughout the ownership period; and
(3) did not inherit the property.
Full exemption, as the property has been main residence.
4 – Rollover? N/A
5 –
Initial
CG or CL
Capital proceeds: $___800000-16000-2500= $781,500____
less Cost base $____350000______
Capital gain $____431500_
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Tax Law
30 June 2019
Group 2
Springwood Property - Refer to the set of CGT events from last weeks seminar to answer for the property. Ensure
that you are discussing the correct type of CGT Asset with regard to the house. Be mindful of any rules than apply for
exemption.
1 –
CGT event?
Sale of House under contract dated 11 June, 2019
2 –
CGT asset?
Are there two
separate
assets? (check
section 108-
55(2))
Consider the treatment of the land and house here, particularly in relation to the dates acquired.
Spring Wood Property, however land is exempt from tax as it is acquired before the commencement of capital gain
tax under the act. Also in terms of Section 108-55(2) of Income Tax Assessment Act land is separate to building if
acquired before 20th September, 1985 and the construction was carried on land on or after that day. Thus two CGT
event : sale of land and sale of buiding
3 – Exemption? Land is exempt from tax as it was acquired pre introduction of capital gain tax
4 – Rollover? N/A
5 –
Initial
CG or CL
Think about the treatment of the proceeds received for the sale. How do you separate the value for the land and the
house.
Capital proceeds $__170000_______
less Cost base $____95000_____
Capital gain $ _________75000
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Tax Law
30 June 2019
Springwood Property
Can Janice use
the indexation
method?
If so what is the
indexed cost
base?
Janice acquired the house in the _second_______quarter and disposed of it on ___second quarter of 2019______ so
she has held the asset for more than _______12 months__. She acquired it before 11:45am EST _______21st
September, 1999___________, but disposed of it after that time. So she can use either the _____discount
method____ or the __indexation method_______ (but not both) to calculate the capital gain, and choose whichever
method gives her the best result: s 114-10(1); s 115-15, and s 115-25.
If she chooses the indexation method, she will need to calculate the indexed cost base. To use the indexation
method we need to index the cost base.
Cost base –
1st element costs – Acquisition costs
Acquisition cost$___350000______ s _____110.25(2)____
Janice Brown acquired the house in the ___first______quarter. The CPI index number was __91.6_______
She disposed of the property ______in June_2019__, which is in the second quarter. However
indexation _________is limited to September, 1999_________so the September 1999 CPI index number will
apply, which is _____68.7____.
In accordance with s __960-275________________the indexation factor is determined by:
index number for the disposal date quarter
index number for the quarter the cost was incurred
______.75___ = ___.75__ (rounded to ___3__ decimal places: s _960.275(5)____)
……………
Indexed acquisition (1st element) costs: $_350000____ x 1.00_____= $350000_____
There are no other elements to the cost base.
Capital proceeds $_781500____ s 116-40
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Tax Law
30 June 2019
less indexed cost base ($_350000____) s 114-1
Indexed capital gain $ _431500____
We would want to consider if the discount method is available and whether gives better result.
Yes, we should consider as it shall give better benefit
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Tax Law
30 June 2019
Calculating Janice’s net capital gain:
First need to consider the eligibility requirements in Division 115 for each current year capital gain. The discount method is not relevant to these
CGT assets as they did not result in a capital gain (as either capital loss or exempt capital gain):
 capital loss of $7,000 on Jet Ski
 exempt capital gain of $1,150 on Painting
 exempt capital gain of $ 431500 on Rainbow Bay Property
Div 115 eligibility
criteria
Rare book (from set of 3) $159,900 on Investment
House
$340,000 on Telstra
Shares
$ 75000 Springwood
Property (House only)
Eligible taxpayer? Yes Yes Yes Yes
CGT event happened
after 11:45am EST 21
September 1999: s
115-15
Yes Yes Yes Yes
Did not use indexation
method to work out
capital gain: s 115-20
Yes Yes Yes Yes
CGT asset acquired by
entity at least 12
months before CGT
event: s 115-25
Yes Yes Yes Yes
(From 8 May 2012) Not
a foreign or temporary
resident s 115-105
Yes Yes Yes Yes
ENTITLED TO USE
DIV 115?
Yes Yes Yes Yes
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Tax Law
30 June 2019
Calculating Janice’s net capital gain:
Losses:
Janice has carried forward capital losses from sale of Rio Tinto Shares of $10,000 this would be regarded as an ‘ _capital_____
asset’, and from sale of a coin collection of $3,500 (this would be regarded as ___special___ capital loses).
Note –
 The $3,500 of losses from collectables can only ____________be set off against gain of collectables_______________________:
______.
Rare book
(from set of 3)
$159,900 on
Investment
House
$340,000 on
Telstra Shares
$
Springwood
Property (House
only)
Total
Current year capital gains $__1200___ $___159900__ $_340000____ $ __75000___
less current year capital losses $__0 $____7000_ $_____ $_____
less carried forward capital
losses
($___1200__) ($__10000___) $_____ $_____
Balance $___0__ $__142900___ $__340000___ $___75000__
Apply 50% discount Div 115 __0___ ($_71450____) ($___170000__) ($____37500_)
Apply small business
concessions Div 152
N/A N/A N/A N/A
Net capital gain $_0____ $____71450_ $___170000__ $___37500__ $___278950__
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Tax Law
30 June 2019
Net capital gain of $__278950___will be included in Janice’s 2018/19 assessable income: s _6.10____.
Note Janice will have a __Collectable___ carried losses still of $__2300___
Note in addition to her net CGT gain – Janice’s assessable income would also include her ____Salary______ and _______unfranked
dividend_____________
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