Taxation Law Report: Analyzing Tax Implications of Business Sale

This report analyzes the tax consequences of Michael's mechanical workshop sale, addressing the implications of capital gains tax (CGT) and small business CGT concessions. The report examines the sale of goodwill, fittings and fixtures, trading stock, and building premises, considering their respective tax treatments under Australian taxation law. It assesses Michael's eligibility for various exemptions, including the 15-year exemption, 50% CGT reduction, and retirement exemption, based on the provided market values, adjusted values, and cost bases of the assets. The analysis includes calculations of net capital gains or losses for each asset and concludes with recommendations regarding potential tax savings and compliance with relevant tax regulations. The report references key sections of the Income Tax Assessment Act 1997 and ATO guidelines to support its findings.

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

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Table of Contents
Answer to question 1..................................................................................................................2
Issue:......................................................................................................................................2
Rule:.......................................................................................................................................2
Application:............................................................................................................................3
Conclusion:............................................................................................................................4
References:.................................................................................................................................5

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Answer to question 1
Issue:
Whether the taxpayer is permitted to obtain the exemption from the capital gains tax
and rollovers which is accessible under small business CGT concessions?
Rule:
As stated by the ATO, exemptions relating to capital gains tax and rollovers are available
to the taxpayers. As per the “section 152-35 and 152-40” a CGT asset which satisfies the
eligibility test of active asset is allowed to obtain the concessions (Sadiq 2019). As per
section “section 152-10 & 152-15” CGT exemption is available to any business taxpayers
that results in net amount of CGT asset of not higher than $6 million. The types of small
business concessions includes;
a. 15 year exemption as per subdivision 152-B
b. Reduction of 50% in CGT under subdivision 152-C
c. Retirement exemption from capital gains under subdivision 152-D
d. Rollover relief from the asset replacement under the subdivision 152-E
While disposing the active asset the taxpayers can avail the above stated concessions and
any criteria that is given below
a. The small business of the taxpayer has the yearly turnover of not less than $2 million
b. The asset was completely used and connect to the business
c. The net asset value should not be more than $6 million
As stated by ATO, a taxpayer while selling the depreciating asset, they should consider
making balancing adjustment in order to take into account the differences among the adjusted

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value and terminal value (Morgan and Castelyn 2018). The taxpayer can include the amount
either into the taxable income or can obtain deduction.
Application:
Michael with reference to “section 152-10 and 152-15” can obtain the small business
CGT concession for the goodwill, since the total market value of the asset is less than $6
million. The sale of furniture results in CGT event under “section 104-A”. For furniture and
fixtures being a depreciating asset which is used by Michael entirely for assessable purpose
and the value of the asset has been adjusted for the taxation purpose and yet gives rise to
capital gains. However, no rollover relief is available for the furniture and fixed as there is no
replacement for the asset available.
For trading stock capital gains or loss is not taken into account because the treatment
of trading stock is done under “division 70, ITAA 1997”. Similarly, for building and
premises Michael can obtain exemption under 50% small business concession or retirement
exemption. However, no rollover relief is applicable for Michael because there is no
replacement of the asset.
Furthermore, as Michael ages below 55 years he can obtain the active asset reduction
from the capital gains under “Subdivision 152-D” of retirement exemption. The exemption
amount obtained by Michael must be paid into the retirement or complying superannuation
funds.
Calculation of Net Capital Gains or Loss
In the Books of Michael
For the year ended 2019
Particulars Amount ($)
Goodwill (Capital proceeds - cost base) 50000
Furniture & Fixtures 1250
Building & Premises 37500
Net Capital gains 88750

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Conclusion:
Conclusively, with respect to “subdivision 152-D” Michael can get the small business
concession to reduce the amount of capital gains to zero.

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References:
Morgan, A. and Castelyn, D., 2018. Taxation Education in Secondary Schools. J.
Australasian Tax Tchrs. Ass'n, 13, p.307.
Sadiq, K., 2019. Australian Taxation Law Cases 2019. Thomson Reuters.