HI6028 Taxation Report: Capital Gains Tax Implications

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HI6028 TAXATION
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Table of Contents
Question 1........................................................................................................................................3
1. The application of Tax gain with relation to the painting........................................................3
2. Capital gain Tax with respect to the sculpture.........................................................................4
3. Tax for Capital gain for selling the jewellery..........................................................................5
4. Taxation for capital gain from selling the picture....................................................................5
Consequences of Capital gain Tax...............................................................................................6
Question 2........................................................................................................................................7
1. Discussion about the Income of Barbara.................................................................................7
2. Evaluation of income of Barbara.............................................................................................7
Question 3........................................................................................................................................8
Investigation of arrangement for collection of income................................................................8
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Question 1
1. The application of Tax gain with relation to the painting
In the provided scenario, an incident took place where Helen needs to sale some of her family
assets in order to fund her business on fashion designing. According to the scenario, Helen has to
sale an antique piece of painting at the price of $12000 in the year 2018. This painting was
bought by the father of Helen in the year of 1985. From the provided transaction that was made
by Helen, it can be noticed that Helen had received significant amount of profit through selling
the picture that was bought by her father. As opined by McCluskey and Franzsen, (2017)
According to the legislation of Australia, buying as well as selling of any products comes under
the capital gain Tax laws for this country. According to Clark et al. (2015) As per the rules of
Capital Gain Tax, the assets that are noted as collectable and also collected before the year of
1985, September are excluded from the Capital Gain Tax laws of Australia. Additionally, things
that are purchased after the year of 1985 are consider under the GST rules and regulations of
Australia. From some of the specific study, Capital Gain Tax is included in the section of 104-
230 of the income Tax act 1997 in the legislation of Australia (Australian Taxation Office,
2018). From this case scenario which has mentioned about selling of antique painting, Helen has
paid 28% as the GST with respect to Capital gain Tax of this country. The calculation has been
provided below to get a proper understanding.
Applicable rate for Tax 28%
Particulars about the payments
Price for selling the painting $12000
Initial value of that item (less) $4000
Capital gain from selling $8000
GST @28% $2240
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Total gained profit from the selling of the painting $5760
Table 1: Net applicable Capital Gain Tax for Helen
(Source: Given by researcher)
From the above analysis, it can be noted that Helen has to lend some amount because of
Legislation of Australia. The total gain of capital was $8000 which is directly related to the net
Tax which is amounted about $2240. Net profit that was gained by Helen is $5760. This is
achieved by Helen from raising the fund from her business.
2. Capital gain Tax with respect to the sculpture
In order to raise the fund for business, Helen also sold a sculpture in the price of $6000 in 2018.
The asset that has been sold was brought in the year 1993 at the price of $5500. As opined by the
Legislation of Australia, Helen understood that she can sell the item in online and get higher
price rather than if she sell it in physical way. All the assets that are purchased by a person of
Australia before 1995 and if the price of that product is below $500 then those items will be
considered as liable product as per the Capital Gain Tax within the Australia (Australian taxation
office, 2019). In the year of 1999, the Government of Australia has stated that they will provide a
50% discount on the income tax on the income of each person of Australia who belongs to
working class (Australian taxation office, 2019). As opined by Coleman, (2016) this helps them
to improve the loyalty among the citizen of Australia towards the income tax regulations of that
country. On the other hand, it can be evaluated that Helen has to pay the loyalty tax of 28%
which is stated by legislative system of Australia. In addition to this, a proper calculation of total
Tax has been provided here
Tax rate that is applicable in this product 28%
Particulars of selling and Taxation Amount
The price in which the sculpture has been sold $6000
The price in which this sculpture has been brought $5500
Net gain of capital from the sale process $500
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Capital Gain Tax @28% $140
Net gain from this selling for Helen $360
Table 2: Capital Gain Tax with respect to the selling of sculpture
(Source: Given by the researcher)
From the above evaluation procedure it can be stated that Helen has to pay an amount as Capital
Gain Tax in contrast of selling that sculpture in the Australia. In addition to that, it also can be
said that total amount of gain from this selling process is $500. Therefore net capital gain after
the whole selling the historical sculpture has worth to $360 and also the context of the Tax is
$140.
3. Tax for Capital gain for selling the jewellery
In addition to the selling of the family painting and sculpture, Helen has also sold an antique
piece of jewellery. Helen has brought that antique piece of jewellery at the price of $14000 in the
year of 1987. In order to gain more money for the business purpose, Helen has also sold this item
at the price of $13000 in the year of 2018. As commented by the legislative authority of
Australia taxation of total capital gain of this country for all the things that are bought before the
year of 1995 and cost of those products are below $500 are basically considered as liable product
in Australia ( Nechaev and Antipina, 2016). Therefore, it has been noted that Helen has faced a
huge loss in this time for selling this product in the market because of liabilities of capital under
the rules and regulation of legislation of Australia (Green, 2016). Therefore because of this
factor, Helen cannot get reasonable value from the selling of jewellery in the year of 2018.
4. Taxation for capital gain from selling the picture
In order gain funding for her business, Helen has also sold a picture that was brought by her
mother in 1987 at an amount of $470. From the case scenario it can be noticed that Helen has
sold that product in the year of 2018 at a price of $5000. From the study it can be seen that Helen
has got significant amount of profit during the sale process of this picture. This helps her
noticeably in order to gain funding for the business. As commented by the legislative section of
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Australia, according to the Capital Gain Tax of Australia the item can be considered as liable
item which are brought before the year of 1995 and the price of that item is below $500 (Tan et
al. 2016). However, there are rules and regulations and as per the rules of Australian legislative
section an overall 10% of Goods and service Tax will be applied to the transaction process on
the base value of the item (Boadway and Tremblay, 2016). As the scenario that has been
provided here it shows that the item that has been collected by the mother of Helen in the year of
1995. Therefore this item is considered under the liability according to the Capital Gain Tax of
Australian legislation (Sadiq and Marsden, 2015). From the provided data it has been seen that
Helen has got the total profit of $4530 with relation to the selling of the picture brought by her
mother in the year of 1987.
Consequences of Capital gain Tax
Total capital gain Tax that is applicable for Helen
Particulars Price for
sales
Price of
purchase
Profit or loss Deduction for
Tax
Net profit or
loss
Antique piece
of painting
$12000 $4000 $8000 $2240 $5760
Sculpture $6000 $5500 $500 $140 $360
Jewelry $13000 $14000 -$1000 -$280 -$720
Net Capital
gain Tax to
be paid
$2100 $5400
Table 3: Total amount of capital Gain Tax for Helen
(SOURCE: Given by the researcher)
From the provided study it can be noted that Helen has to pay to amount as the liability Tax with
regarding to Capital Gain Tax. of Australia. In addition to that, Helen also has faced some issues
at the time of application of the Tax in Australia. From the study it has been found out that,
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Helen has made a huge amount of profit which is $5760. Also she has to pay an amount of Tax
which is $2240 to the Government of Australia. In contrary to that, Helen also faced a challenge
regarding to loss of $1000 while arranging funding for the business. Additionally, Australia has
faced a huge challenge regarding to the price of jewellery in the year of 2018. This is one of the
main reasons why Helen has faced this loss.
Question 2
1. Discussion about the Income of Barbara
As per the case scenario, Barbara is an economist and a commentator by profession. It has been
further noted that a publication organisation that is situated in Australia and named as the Eco
Books Ltd House of Australia has offered her to publish a book which is named as ‘Economic
Principle’. This book is mainly discussing various theories, concepts and principles of
economics. Also Barbara has signed the book at the price of $13400 with this publication
company which is situated in this country. Additionally this publication house has paid her
through cheque as she sign the offer. In addition to that, Barbara has sold the manuscript of the
book to the publisher at an amount of $4350. On the other hand, she also sold the interview
manuscripts which have been conducted at the time publication of those particular books. That
whole interview advices the writer to gather sufficient information regarding to the book. This
manuscript has been sold at the amount of $3200. In this country, the whole transaction that has
been took place here is under the clear observation of Capital Gain Tax of legislative department
of the country. From that part parties can maintain the 2.2 of Australian Contract Law, all
relevant rules and various regulations of Taxation policies. In order to get the profit of that
Australian publication house, a strong legal prospect is highly important to implement by the
Government of Australia.
2. Evaluation of income of Barbara
From the case scenario which is provided to get an understanding about the income of Barbara,
some challenges can arise if there is no legal documentation of whole procedure with the court
paper of Australia. However, there are various legal ways in order to get a reasonable amount of
profit for this publication organisation. This case is closely related to Glencore International AG
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& Ors v. Commissioner of Taxation of the Commonwealth of Australia & Ors [2018]. Here
defendants have some important documents that are held by the some overseas law practices. On
the other hand plaintiffs have stated that those documents are created for the sole purpose of
providing various different legal advices to the professionals. According to the reports of media
journalist have several copies of various legal documents which is held by the law practices of
Bermuda. However, defendant is allowed to retain as well as use those documents by the purpose
of s 166 of the Income Tax Act 1936 (Cth). On the other hand, plaintiffs have given a notice
regarding to the matter of Australian constitution. Additionally, no attorney general of this
country has provided any kind of notice in get involved in this case.
Question 3
Investigation of arrangement for collection of income
From the provided case study it has been found out that David who is son of Patrick lend a sum
of $52000 for investment reason in his business which is based on verbal communication.
However, David has stated that he will return the money to Patrick with additional 5% of interest
with the money he has taken as a loan. However, father does not want to take this interest
amount. From the case study it has been seen that Patrick has returned his loaned money to his
father with 5% interest within three years after he has taken the money as loan. There can be a
issues generated with respect to the legal contract which is followed by Fringe Benefits Tax
(FBT) (Australian taxation office, 2019). Patrick has to pay a sum amount of money including
interest to the income tax department of Australia after retrieved total sum from his son.
According to the income tax department of this country any sum under $37000 to $90000 is
considered here as tax payable under the rules and regulation of Australia. Therefore Patrick has
to pay a sum amount of money for this process to the government.
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References
Books
McCluskey, W.J. and Franzsen, R.C., 2017. Land value taxation: An applied analysis.
Abingdon: Routledge.
Clark, E., Griggs, L., George, C.H.O., Hoyle, A. and MCLAREN, J., 2015. Commercial and
economic law in Australia. Wolters Kluwer Polska.
Coleman, W. ed., (2016). Only in Australia: The history, politics, and economics of Australian
exceptionalism. Oxford: Oxford University Press.
Journals
Nechaev, A. and Antipina, O., 2016. Analysis of the Impact of Taxation of Business Entities on
the Innovative Development of the Country. European Research Studies, 19(1), p.71.
Green, J., 2016. Australia. In Angels without Borders: Trends and Policies Shaping Angel
Investment Worldwide (pp. 163-175).
Tan, L.M., Braithwaite, V. and Reinhart, M., 2016. Why do small business taxpayers stay with
their practitioners? Trust, competence and aggressive advice. International Small Business
Journal, 34(3), pp.329-344.
Boadway, R. and Tremblay, J.F., 2016. Modernizing Business Taxation. CD Howe Institute
Commentary, 452.
Online articles
Sadiq, K. and Marsden, S., 2015. The small business CGT concessions: Evidence from the
perspective of the tax practitioner. Revenue Law Journal, 24(1), p.6743.
Australian Taxation Office. (2018). Assessable Income. Available at:
https://www.ato.gov.au/Business/Income-and-deductions-for-business/Assessable-income/
[Accessed on: 12th March, 2019]
Australian taxation office. (2019). Capital Gains Tax. Available at:
https://www.ato.gov.au/General/Capital-gains-tax/ [Accessed on: 13th March, 2019]
Australian taxation office. (2019). CGT Assets and Exemptions. Available at:
https://www.ato.gov.au/general/capital-gains-tax/cgt-assets-and-exemptions/[Accessed on: 17th
March, 2019]
Australian taxation office. (2019). Fringe Benefits Tax (FBT). Available at:
https://www.ato.gov.au/General/Fringe-benefits-tax-(FBT)/ [Accessed on: 17th March, 2019]
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Cases
Glencore International AG & Ors v. Commissioner of Taxation of the Commonwealth of
Australia & Ors, [2018] Case S256/2018
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