Taxation Law Report: CGT Event Timing, Harrison's Tax Return Analysis

This report addresses the timing of Capital Gains Tax (CGT) events and their implications on Harrison Carter's tax return. Part 1 explains the timing of a CGT event with reference to relevant sections of the Income Tax Assessment Act 1997 (ITAA 1997) and case law such as FCT v Sara Lee Household &...Read More

Running head: TAXATION LAW
Taxation Law
Name of the Student
Name of the University
Authors Note
Course ID

1TAXATION LAW
Table of Contents
Answer to Part 1:........................................................................................................................2
Answer to Part 2:........................................................................................................................3
References:.................................................................................................................................6

2TAXATION LAW
Answer to Part 1:
The taxpayers are required to denote that “capital gains or loss” takes place when the
transfer of asset or the CGT event happens in regard to the CGT asset. The notable instances
of CGT asset contains the land, shares or business unless there is any kind of exemption that
is applicable for the “rollover relief”, deferring the capital gains or any legislation that rejects
the loss (Sadiq 2019). As given in “sec 104-10 (3) ITAA 1997” the timing of the “CGT
event” on handover of the “CGT asset” represents the that the taxpayer has entered in the
agreement with the objective of transferring the asset or given that there is no agreement,
when the assets ownership changes during the settlement. At the time of deciding the time of
the “CGT event”, reference to the case of “FCT v Sara Lee Household & Body Care P/L
(2000)” is made;
a. The relevant contract is that when the obligations relating to the source is performed
by transferring the asset that constitutes its sale.
b. On noticing that there are more than two contracts which forms the source of
obligations to carry out the transfer, there is need for judgement as which sale
agreement needs to be seen properly as the obligation that creates an impact on the
disposal (Barkoczy 2016).
c. On finding that it is not possible to find the single contract based on which the sale
happens, then it is essential to known when the change in the ownership of the asset
happens.
d. The day when the asset is sold and the day when the asset is purchased if found to be
same then the “CGT asset” may not be identical and does not needs to be concurrent.
e. The appropriate time involves when the contract is made and not when the taxpayer
enters in the contract or the contract becomes specifically enforceable.

3TAXATION LAW
f. The sale agreement may be entered by the taxpayer in spite of the fact that
“transferee” is not regarded as the “party to the contract”.
When it is found that the “heads of agreement”, dependent agreement or subsequent
variations agreements is signed, ascertaining the appropriate agreement of sale is
problematic. When the relevant deal for sale is signed prior to the 30 June, the “CGT event”
and the obligation to pay the CGT would be payable in regard to the year ended 30 June.
Answer to Part 2:
The case study of Harrison provides that a property for investment purpose was
purchased by him which carried a market value of $800,000. In the relevant tax year,
Harrison decided to dispose the property and derived sale value of $1.3 million. In the current
scenario the investment property would be regarded as the CGT asset within the legislative
provision of “section 108-5 ITAA 1997”. When Harrison undertook the decision of selling
the investment property a “CGT event A1” occurred. Reference to decision of “FCT v Sara
Lee Household (2002)” must be referred to explain that CGT event occurred when Harrison
decided to sell the property (Freudenberg et al. 2017). Upon its disposal the ownership or
investment property was eventually transferred by Harrison. As a result, the sales revenue
which is earned amounts to statutory income. Within the “section 116-20 ITAA 1997” the
net value of capital gains which is made from sale must be declared in his taxable incomes.
After selling the investment property, Harrison had reported an acquisition of 10,000
shares in Star Entertainment Ltd during 1985 October. The shares were sold by Harrison on
20th June 2018 when he signed the transfer document. The shares which was under the
ownership of Harrison should be viewed as CGT asset within the “section 108-5 ITAA
1997”. Furthermore, the shares were purchased by Harrison following the introduction of
CGT regime and should be viewed as post-CGT asset which would attract CGT liability.

4TAXATION LAW
When the transfer document of shares was signed by Harrison, “CGT event A1”
happened within “section 104-10 (1)”. Denoting “FCT v Sara Lee Household (2002)” the
time of CGT event is 20th June 2018 (Payne 2018). This is because, Harrison has entered into
the agreement and signed the transfer document on the aforementioned date. Consequently,
the capital gains derived from selling the shares will be held taxable in the year 2017-18.
Beside this, Harrison in the following year posted a capital loss of $65,000. The
taxpayers are only required to dispose the capital loss from the capital gains that is made by
them during the same year. On noticing that no capital gains have occurred in the same year
then the loss needs to be carried forward. Similarly, in case of Harrison, the capital loss must
be carried forward to subsequent years because he did not report any capital gains for 2018-
19.
Discount Method:

5TAXATION LAW
Indexation Method:
The total amount of capital gains tax payable under the discount method stands
$290,000 while under the indexation method it stands 245,553. Therefore, it is recommended
that Harrison should follow the indexation method.

6TAXATION LAW
References:
Barkoczy, S., 2016. Foundations of Taxation Law 2016. OUP Catalogue.
Freudenberg, B., Chardon, T., Brimble, M. and Isle, M.B., 2017. Tax literacy of Australian
small businesses. J. Austl. Tax'n, 19, p.21.
Payne, K., 2018. Taxation: Fix it up or trade up?. Company Director, 34(6), p.52.
Sadiq, K., 2019. Australian Taxation Law Cases 2019. Thomson Reuters.