Tax Law Assignment: Capital Gains Tax Scenarios and Calculations

This tax law assignment provides a detailed analysis of capital gains tax (CGT) calculations for property transactions. It explores different scenarios, including the purchase date of the land and the construction date of the building, and the use of indexation and discount methods. The assignment calculates CGT under various circumstances, such as when the land was purchased before 1984, and when the building was built in 2003 and 2017, respectively. The student uses the Income Tax Assessment Act 1997 to support the analysis and compares the outcomes of both indexation and discount methods to determine the most beneficial tax approach. The assignment also includes references to relevant legal and tax resources. The student determines the most advantageous tax approach and recommends the best method for Rosemary to minimize her tax liability based on the specific circumstances of each scenario.

Running head: TAX LAW
Tax Law
Name of the Student:
Name of the University:
Author’s Note:

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Table of Contents
Question 1:.......................................................................................................................................3
1. Determining the Capital gain of the current year:.......................................................................3
2. Capital gains if the land was purchased before 1984 October 20th:...........................................4
3a. Calculating the capital gains if the building was built on 20th May 2003:.................................5
3b. Calculating the capital gains tax if the building was built on 20th May 2017:...........................6
References:......................................................................................................................................7

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Question 1:
1. Determining the Capital gain of the current year:
Particulars Indexation Method Discount Method
Sale of property $300,000.00 $300,000.00
Building cost $100,881.06 $100,000.00
Land cost $51,422.16 $50,000.00
Total Cost $152,303.21 $150,000.00
Capital Gains $147,696.79 $150,000.00
Less: 50% Discount $0.00 $75,000.00
Net Capital Gain $147,696.79 $75,000.00
Rosemary has mainly bought the land during 1997, while major improvement in the
property was conducted during 1999. Therefore, Rosemary could use both indexation and
discounted method for determining the relevant capital gains tax if the property was sold in the
current year. Moreover the property was held for more than 12 months which allows Rosemary
to get a 50% discount on the capital gains tax. Under the Income Tax Assessment Act 1997,
Division 115, Subdivision 115-A, and Section 115-15, relevant usage of discounting method are
depicted adequately (Ato.gov.au 2017). The relevant discounting method could directly generate
capital gains tax of $75,000.
However, the use of indexation method could also help in determining the capital gains
tax of Rosemary, which will amount to $147,696.79. Under the Income Tax Assessment Act

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1997, Division 960-General, Subdivision 960-M, and Section 960-275, relevant indexation
method is depicted (Campbell 2015). Before the evaluation of both the taxation method mainly
depicts that use of discounting method is more relevant for Rosemary, as it reduces the tax
amount to $75,000 from $147,696.79.
2. Capital gains if the land was purchased before 1984 October 20th:
Particulars Indexation Method Discount Method
Sale $300,000.00 $300,000.00
Less: Sale price of Land $100,000.00 $100,000.00
Building Net Selling Price $200,000.00 $200,000.00
Less: Building cost $100,881.06 $100,000.00
Capital Gain from Sale $99,118.94 $100,000.00
Less: 50% Discount $0.00 $50,000.00
Net Capital Gain $99,118.94 $50,000.00
The situation many changes where the land purchased by Rosemary was before 1984,
which directly makes the property Pre-CGT. , Division 100 and Section 100-45 is mainly
mentioned in the Income Tax Assessment Act 1997 mainly depicts the relevant measures that
needs to be conducted for calculating CGT. Therefore, it was depicted that any kind of capital
gains that was Pre-CGT is relatively exempted from tax. Hence, the calculation of CGT can be
conducted on both indexation and discounting method (Evans, Minas and Lim 2015). The
determination of the sales value is derived by deducting sales value from actual purchase value.
This portrayed the value of 67% for the overall sale of property, which would help in identifying

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the actual capital gains tax paid by Rosemary. In this situation also the use of discounting
method is viable, as it reduces the relevant capital gains tax of Rosemary.
3a. Calculating the capital gains if the building was built on 20th May 2003:
Particulars Indexation Method Discount Method
Sale of Land $100,000.00 $100,000.00
less Land cost $51,422.16 $50,000.00
Capital Gains (Land) $48,577.84 $50,000.00
Less: 50% Discount $25,000.00
Net Capital Gain (Land) $48,577.84 $25,000.00
Sale of Building $200,000.00 $200,000.00
Less: Building cost $100,000.00 $100,000.00
Capital Gain $100,000.00 $100,000.00
Less: 50% Discount $50,000.00
Net Capital Gain (Building) $100,000.00 $50,000.00
Total Capital Gain on Property $148,577.84 $75,000.00
There is relevant situation where the building was built on 2003, which directly states
that only discounting method will be used for calculating the building capital gains tax
(Lawrence and Bennett 2017). However, for the land both discounting method and indexation
method could be used for calculating the capital gains tax. Under the Taxation Ruling of GSTR
2003/3, relevant measures could be identified, which could be helped in identifying the relevant

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ruling for 2003. Therefore, the use of indexation method is much better choice for Rosemary, as
it only portrays a CGT of $75,000.
3b. Calculating the capital gains tax if the building was built on 20th May 2017:
Particulars Indexation Method Discount Method
Land sale price $100,000.00 $100,000.00
Less: land cost $51,422.16 $50,000.00
Capital Gain (Land) $48,577.84 $50,000.00
Less: 50% Discount $25,000.00
Net Capital Gain (Land) $48,577.84 $25,000.00
Building selling price $200,000.00 $200,000.00
Less: Building cost $100,000.00 $100,000.00
Capital Gain (Building) $100,000.00 $100,000.00
Total Capital Gain (Property) $148,577.84 $125,000.00
In this particular situation, It is stated that the building was built on 2017, which directly
Excludes the building cost from both discounting and indexation method. However, for the land
Both indexation method and discounting method could be used, as we purchase has been
conducted well before 12 months (Sembrano et al. 2017). However, the use of discounting
method is much beneficial for Rosemary, as it portrays total capital gains of $125,000, while the
indexation method depicts a CGT of $148,577.84.

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References:
Ato.gov.au. (2017). Home page. [online] Available at: https://www.ato.gov.au/ [Accessed 7 Sep.
2017].
Campbell, S., 2015. A mater of trusts: CGT issues when creating and dealing with
UPEs. Taxation in Australia, 50(6), p.332.
Evans, C., Minas, J. and Lim, Y., 2015. Taxing personal capital gains in Australia: an alternative
way forward.
Lawrence, S. and Bennett, M., 2017. Image rights in Australia: Fair game or foul ball?. Taxation
in Australia, 51(9), p.487.
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.