Tax Law 2018/19: Janice Brown's Net Capital Gain Calculation

This document presents a comprehensive solution to a tax law assignment focused on calculating Janice Brown's net capital gain for the 2018/19 income year. The assignment involves analyzing various capital gains and losses from the sale of assets like a Jet Ski, painting, rare book, investment house, Telstra shares, Rainbow Bay property, and Springwood property. The solution meticulously calculates the capital gains and losses, considering factors such as cost base, main residence exemption, indexation, and the discount method. It also accounts for carried-forward capital losses and determines the final net capital gain to be included in Janice's assessable income, in addition to her salary and dividends. The analysis follows the relevant tax law provisions and provides a detailed breakdown of each transaction and calculation.

Tax Law
30 June 2019
Seminar Number 7
Question 1
You are required to just calculate Janice Brown’s “net capital gain” for the 2018/19 income
year. Assume Janice is not entitled to use any of the small business concessions in Division 152
ITAA 1997.
In addition to the transactions listed below, Janice also received salary income of $150,000 in
the 2018/19 and an unfranked divided of $3,000 from BHP shares. Janice also has carried
forward capital losses from:
 the sale of a coin collection of $3,500, and
 the sale of shares in Rio Tinto of $10,000
Janice had the following capital gains and/or losses (prior to considering any capital losses,
indexation method or discount method
 Initial capital loss of $7,000 on Jet Ski (acquired 3 March 2014; disposed 12 June 2019);
 Initial exempt capital gain of $1150 on a Painting (acquired 19 May 1990; disposed 12
June 2019);
 Initial capital gain of $1,200 on Rare Book (acquired 5 April 2003; disposed 12 June
2019); and
 Initial capital gain of $159,900 on Investment House (acquired 16 October 2010;
disposed 12 May 2019)
 Initial capital gain of $340,000 on Telstra Shares (acquired 16 July 2016; disposed 6
April 2019).
Rainbow Bay Property
Janice signed a contract to purchase a house (on 0.2 hectares) at 19 Finders Street Rainbow
Bay on the Gold Coast on 15 August 2008 for $350,000. Ownership transferred to her on 15
September 2008. Janice lived in Rainbow Bay Property as her home from the 15th September
2008 until to 20th November 2014.
On 21st November 2014, Janice decided to move to Brisbane so that her children could attend
an exclusive private school. She rented the Rainbow Bay house to tenants from the 21st
November 2014 and received approximately $35,000 per year in rent. The family moved into an
apartment at Kangaroo Point which they rented through a local real estate agent.
In April 2019 Janice decided that her family had settled well into the Brisbane lifestyle and as a
result she would buy a home in Brisbane. As a consequence, she had to sell the Rainbow Bay
house to fund the purchase. She placed the property on the market and sold the Rainbow Bay
house for $800,000 under a contract dated 13 June 2019. In relation to the sale, she paid a
$16,000 commission to the real estate agent and $2,500 in legal fees to her lawyer. The
ownership of the Rainbow Bay house transferred to the new owner on 13 July 2019.
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Tax Law
30 June 2019
Springwood Property
On 10 January 1984 Janice Brown purchased a block of land for $20,000 in
Springwood on which to build a house. After receiving many quotations, Janice signed a
contract on 21 April 1988 with Construct with Us Pty Ltd to construct the house. The
house construction began on 1 July 1988 and was completed on the 31st October 1988 at
a cost of $95,000.
Instead of moving into the house, Janice rented it out to tenants. She continued to do this
until she eventually sold the property for $720,000 under a contract dated 11 June 2019
with the ownership transferring on 11 July 2019. An independent valuation revealed that
the land was worth $550,000 at the time of sale. (Hint! Could the house be considered
as separate asset to the land?)
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Tax Law
30 June 2019
G 1
Rainbow Bay Property - Refer to the set of CGT events from last weeks seminar to answer for the property. Ensure
that you are discussing the correct type of CGT Asset with regard to the house. Be mindful of any rules than apply for
exemption.
1 –
CGT event?
.A-1 Disposal of a CGT asset . Here the rainbow bay property have sold its property and cease to be its owner . The
event leads to a position where the action can lead to capital gain and capital loss.
2 –
CGT asset?
Tax gain will be applicable on all the assets purchased on and after 20th September 1985. The indexation will be
applicable accordingly to compute capital gain or capital loss. CGT can be computed in this case with reference to the
main residence at its exception.
3 –
Exemption?
Consider main residence exemption here:
(1) are an individual;
(2) have treated the dwelling as their main residence throughout the ownership period; and
(3) did not inherit the property.
(4) It is an personal belongings
(5) Living with family
(6) The seller is the resident of Austrlia
4 – Rollover? N/A
5 –
Initial
CG or CL
Capital proceeds: $_8,00,000______
less Cost base $_491472__ ( 350000 * 68.7 / 92.7 ) +18500
Capital gain $_308527____
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Tax Law
30 June 2019
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Tax Law
30 June 2019
G 2
Springwood Property - Refer to the set of CGT events from last weeks seminar to answer for the property. Ensure
that you are discussing the correct type of CGT Asset with regard to the house. Be mindful of any rules than apply for
exemption.
1 –
CGT event?
A-1 Disposal of a CGT asset . Here the rainbow bay property have sold its property and cease to be its owner . The
event leads to a position where the action can lead to capital gain and capital loss.
2 –
CGT asset?
Are there two
separate
assets? (check
section 108-
55(2))
CGT – Depends on the date analysis acquired.
CGT is considered when assets bought On or after 20-09-1985, - post tax
CGT is considered when assets bought Before 20-09-1985 – pre tax
In this case the aspect of a taxpayer has pre-CGT aspect for the land acquisition
Where as it builds the house plot on a post-CGT, therefore as to rule the s108-55(2) it will be considered as an
addition or rather an separate CGT or individual.
asset.
Hence , for the case of springwood property land acquired as pre CGT land, and build was done as an post GST TAX
for 1985, so there are considered as an two separate assets.
3 – Exemption?
4 – Rollover? N/A
5 –
Initial
CG or CL
Think about the treatment of the proceeds received for the sale. How do you separate the value for the land and the
house.
Capital proceeds $___720,000______
less Cost base $_115,000________
Capital gain $ _605,000________
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Tax Law
30 June 2019
Springwood Property
Can Janice use
the indexation
method?
If so what is the
indexed cost
base?
Janice acquired the house in the ____4th_____quarter and disposed of it on ___11 July 2019______ so she has held
the asset for more than _34 Year s________. She acquired it before 11:45am EST _1999_________________, but
disposed of it after that time. So she can use either the _indexation_ or the _discount (but not both) to calculate the
capital gain, and choose whichever method gives her the best result: s 114-10(1); s 115-15, and s 115-25.
If she chooses the indexation method, she will need to calculate the indexed cost base. To use the indexation method
we need to index the cost base.
Cost base –
1st element costs – Acquisition costs
Acquisition cost$_386500________ s __110-25(1)_______
Janice Brown acquired the house in the __4th_______quarter. The CPI index number was __40.5_______
She disposed of the property __11th JUly_______, which is in the 3rd quarter. However indexation
_not exists on 2019_so the September 1999 CPI index number will apply, which is __68.7_______.
In accordance with s _960-275(2)_the indexation factor is determined by:
index number for the disposal date quarter
index number for the quarter the cost was incurred
___60.7______ = _1499____ (rounded to __3___ decimal places: s 960-275(5)_____)
……40.5………
Indexed acquisition (1st element) costs: $_386500____ x _1.499____= $579969.50_____
There are no other elements to the cost base.
Capital proceeds $_140000____ s 116-40
less indexed cost base ($_95420____) s 114-1
Indexed capital gain $ 44580____
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Tax Law
30 June 2019
We would want to consider if the discount method is available and whether gives better result.
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Tax Law
30 June 2019
Calculating Janice’s net capital gain:
First need to consider the eligibility requirements in Division 115 for each current year capital gain. The discount method is not relevant to these
CGT assets as they did not result in a capital gain (as either capital loss or exempt capital gain):
 capital loss of $7,000 on Jet Ski
 exempt capital gain of $1,150 on Painting
 exempt capital gain of $431,500 on Rainbow Bay Property
Div 115 eligibility
criteria
Rare book (from set of 3) $159,900 on Investment
House
$340,000 on Telstra
Shares
$75,000 Springwood
Property (House only)
Eligible taxpayer? Yes – s115-15 Yes – s115-15 Yes – s115-15 Yes – s115-15
CGT event happened
after 11:45am EST 21
September 1999: s
115-15
Yes – Disposable -12 June
2008
Yes – Disposable -12
May 2008
Yes – Disposable - 3
May 2008
Yes – Disposable – 10 June
2008
Did not use indexation
method to work out
capital gain: s 115-20
Method NA – Acquisition
After Time = 11.45 am
EST 21 September 1999
Method NA – Acquisition
After Time = 11.45 am
EST 21 September 1999
Method NA –
Acquisition After Time =
11.45 am EST 21
September 1999
Method NA – Acquisition After
Time = 11.45 am EST 21
September 1999
CGT asset acquired by
entity at least 12
months before CGT
event: s 115-25
Acquisition is more than 12
months.
Acquisition is more than
12 months.
Acquisition is more than
12 months.
Acquisition is more than 12
months.
(From 8 May 2012) Not
a foreign or temporary
resident s 115-105
Not he is not a Foreign
Resident – Completely
ordinary Resident
Not he is not a Foreign
Resident – Completely
ordinary Resident
Not he is not a Foreign
Resident – Completely
ordinary Resident
Not he is not a Foreign
Resident – Completely
ordinary Resident
ENTITLED TO USE
DIV 115?
Yes Yes Yes Yes
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Tax Law
30 June 2019
Calculating Janice’s net capital gain:
Losses:
Janice has carried forward capital losses from sale of Rio Tinto Shares of $10,000 this would be regarded as an ‘ other asset’, and
from sale of a coin collection of $3,500 (this would be regarded as collectables capital loses).
Note –
 The $3,500 of losses from collectables can only __offset against collectable 108 -10(1)_________________________________:
______.
Rare book
(from set of 3)
$159,900 on
Investment
House
$340,000 on
Telstra Shares
$ 720000
Springwood
Property (House
only)
Total
Current year capital gains $_1200____ $_159900____ $__340000___ $ ___140636.50__
less current year capital losses $___3500__ $__0___ $_10000___ $__0___
less carried forward capital
losses
($_____0) ($___0__) $___0__ $0
Balance $_____-2300 $_159900____ $_330000____ $_140636.50____
Apply 50% discount Div 115 _1150____ ($____0_) ($____0_) ($__0__)
Apply small business
concessions Div 152
N/A N/A N/A N/A
Net capital gain $__-1150__ $ 159900_____ $_330000____ $_140636.50____ $629386.50
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