Taxation Law Assignment: Tax Consequences of House Property Sale

This assignment analyzes Australian taxation law, specifically focusing on capital gains tax arising from the sale of a house property. The paper addresses the tax consequences for an individual, John, who sold his house. It covers key aspects such as the calculation of capital gains tax, considering factors like the portion of the property used for business purposes, allowable deductions (cost of purchase, interest on loans), and exemption claims when the property is partially used for business. The assignment includes a detailed calculation of the tax liability, demonstrating the application of relevant tax laws and regulations. The conclusion summarizes the key findings, emphasizing the importance of understanding taxation laws for accurate tax payment. The assignment references relevant books and journals to support its analysis.

Taxation law

Table of Contents
INTRODUCTION...........................................................................................................................1
QUESTION 2.................................................................................................................................1
Advising John for tax consequences and calculation of income tax liability for sale of house
property......................................................................................................................................1
CONCLUSION...............................................................................................................................2
REFERENCES..............................................................................................................................3

INTRODUCTION
The term taxation law refers to a set of rules and regulations that makes a company, an
individual or any other person of the country to pay tax on several earnings generated by them
during a specific period 1. The present study shows calculation of amount of tax to be paid by an
individual for the sale of house. The analysis of the present study is based on various clauses of
the taxation law of Australia and case laws as well.
QUESTION 2
Advising John for tax consequences and calculation of income tax liability for sale of house
property
Capital gain tax
As per the Australian taxation system, if an individual or a company or any other person
of the country sales their house property , they would need to pay tax against the value
generated by it from the sale of house.
In the present case study, John has sold his house and gained a sum from the sale. In
this regard, he would be liable to pay tax on the income from sale of house 2. The major facts
and clauses to be consider while calculating the tax liability are as under:
Portion of property used for business purpose
generally the income from gain of property used for the residential purpose are usually
exempted from tax. Although, In case, an individual sales the house property which is being
partially used for business purpose, the amount of property used for the business purpose
would be included in the amount of capital gain tax.
Cost allowed for deduction
While calculating net amount of capital gain tax, the cost incurred for the acquisition of
the property will be able to claim as a deduction against the capital gain 3. Further, decline in the
value of asset used for business purpose cam also be claimed as deduction in case part of
property is used for business purpose.
1 Carrington, S. J., Li, B. and Larkin, M. P., 2019. The Role of Tax and Subsidy Policy in
Driving Australian House Prices. Economic Record.
2 Guide, G. P., 2019. Property in Portugal| Portuguese Real Estate Investment.
3 Running your business from home. 2019. [Online] Available through :
<https://www.ato.gov.au/General/Property/Property-used-in-running-a-business/
Running-your-business-from-home/>
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In the present case, cost of purchase, interest on loan paid by John, can be treated as
cost of acquisition and hence, deductions can be claimed against them.
Exemption claim
in case property is partially used for business purpose, at the time of calculating capital
gain, the value of property used for private purpose, can be claimed as exemption. In this case,
85% of the value of house can be claimed for exemption.
calculation of amount of tax to be paid on sale of house
Particular Amount
Sale proceed from sale of house 1855000
Less: Cost of purchase 1250000
Interest on loan 34000
Net gain 571000
Less: Exemption (85%) 485350
Net short term capital gain 85650
CONCLUSION
From the analysis of above project, it can be concluded that the taxation law provides
guide to pay the appropriate amount of tax against the income. Income from the sale of house
property are to taxable under the capital gain head tax under the Australian taxation law.
Further, when the property is partially used for business purpose, portion of property used for
personal purpose can be claimed for the exemption under the capital gain head while
calculating net capital gain from the sale.
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REFERENCES
Books and Journals
Carrington, S. J., Li, B. and Larkin, M. P., 2019. The Role of Tax and Subsidy Policy in Driving
Australian House Prices. Economic Record.
Guide, G. P., 2019. Property in Portugal| Portuguese Real Estate Investment.
Online
Running your business from home. 2019. [Online] Available through :
<https://www.ato.gov.au/General/Property/Property-used-in-running-a-business/
Running-your-business-from-home/>
3