Tax Law Assignment: Capital Gains Tax Analysis and Scenarios

This tax law assignment analyzes capital gains tax (CGT) implications under various scenarios. It examines the application of indexation and discounting methods for calculating CGT, considering factors like the purchase date of land and buildings. The assignment explores how the timing of property acquisition affects CGT liability, distinguishing between pre-CGT assets and those acquired after the CGT introduction. It presents detailed calculations using both the indexation and discounting methods, comparing the resulting CGT amounts. The analysis includes scenarios where buildings were constructed at different times, impacting the eligibility for certain tax calculation methods. The assignment references relevant sections of the Income Tax Assessment Act 1997 and provides a comprehensive overview of CGT principles. Finally, the assignment addresses the relevant position on the land pre-CGT asset for the income tax legislation.

Running head: TAX LAW
Tax Law
Name of the Student:
Name of the University:
Author’s Note:

TAX LAW 2
Table of Contents
Question 1:.......................................................................................................................................3
1. The capital gain tax for the current year under normal circumstances:.......................................3
2. The change in capital gains tax if the land was purchased before 1984 October 20th:...............4
3a. Identifying the change in capital gains tax if the building was built on 20th May 2003:...........5
3b. Identifying the impact of if the building was built on 20th May 2017:......................................7
Question 2:.......................................................................................................................................8
Providing relevant position on the land pre-CGT asset for the income tax legislation:..................8
References and Bibliography:........................................................................................................10

TAX LAW 3
Question 1:
1. The capital gain tax for the current year under normal circumstances:
Particulars Discount Method Indexation Method
Proceeds from Sale $300,000 $300,000
Land cost $50,000 $51,422
Building cost $100,000 $100,881
Total Cost $150,000 $152,303
Capital Gains $150,000 $147,697
Less: 50% Discount $75,000 $0
Net Capital Gain $75,000 $147,697
Under normal circumstances Rosemary has body land and build the building before the
augmentation of CGT. This mainly allows Rosemary to use both discounting and indexation
method for driving the relevant capital gains tax for the property sold in current year. The first
method that could be used by Rosemary is the indexation method, which directly helps in
identifying the capital gains tax of an individual. The relevant information about the indexation
method is provided under Income Tax Assessment Act 1997, Division 960-General, Subdivision
960-M, and Section 960-2751. With the help of indexation method the capital gains tax came to
$147,697.
1 "Legal Database." Ato.gov.au. N. p., 2017. Web. 9 Sept. 2017.

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The second method is discounting method that may allow Rosemary as the property has
been held for more than 12 months, which are the essential criteria for discounting method to be
implemented by an indication. Therefore, Rosemary could use relevant discounting method to
derive adequate capital gains tax which could be paid to Australian authority. Under the Income
Tax Assessment Act 1997, Division 115, Subdivision 115-A, and Section 115-15, it is clearly
mentioned about the relevant measures that need to be conducted by individuals using
discounting method2. With the help of discounting method the capital gains tax came to $75,000.
2. The change in capital gains tax if the land was purchased before 1984 October 20th:
Particulars Indexation Method Discount Method
Proceeds from Sale $300,000 $300,000
Less: Sale price of Land $100,000 $100,000
Building Net Selling Price $200,000 $200,000
Less: Building cost $100,881 $100,000
Capital Gain from Sale $99,119 $100,000
Less: 50% Discount $0 $50,000
Net Capital Gain $99,119 $50,000
The above table mainly helps in identifying the relevant capital gains tax of Rosemary,
where the land was purchased before 1984. This mainly changes the overall capital gains tax of
2 Townend, Judith. "The United Kingdom: The impact of charity and tax law/regulation on not-
for-profit news organizations." The impact of charity and tax law/regulation on not-for-profit
news organizations (2016).

TAX LAW 5
Rosemary as the proper land was purchased before the event of CGT. Under the division 100 and
section 100-45 is mainly mentioned in the Income Tax Assessment Act 1997. However, any
property that was water before CGT is accepted from capital gains tax, where else only the
building, which was built after CGT will be considered under capital, gains tax3.
The property was mainly sold for $300,000, which is 33% of the overall cost determined
for buying the Land before CGT. Therefore, Only 67% of the overall sales value of the property
will be used for calculating the capital gains tax. For the more Rosemary could use both
discounting and indexation method as the property has been held for more than 12 months.
Under the discounting method Rosemary could be us capital gain tax of $50,000, whereas under
the indexation method the CGT will rise to $99,1194.
3a. Identifying the change in capital gains tax if the building was built on 20th May 2003:
Particulars Indexation Method Discount Method
Selling Price of Land $100,000 $100,000
less Land cost $51,422 $50,000
Capital Gains (Land) $48,578 $50,000
Less: 50% Discount $25,000
Net Capital Gain (Land) $48,578 $25,000
Building sales price $200,000 $200,000
3 Deutsch, Robert L. "Australian Tax Handbook 2006." (2014).
4 Sharkey, Nolan. "Coming to Australia: Cross border and Australian income tax complexities
with a focus on dual residence and DTAs and those from China, Singapore and Hong Kong-Part
1." Brief 42.10 (2015): 10.

TAX LAW 6
Less: Building cost $100,000 $100,000
Capital Gain $100,000 $100,000
Less: 50% Discount $50,000
Net Capital Gain (Building) $100,000 $50,000
Total Capital Gain on Property $148,578 $75,000
In this situation, the overall building is built in 2003, which directly allows Rosemary to
include both indexation method and discounting method for calculating the capital gains tax.
There is relevant tax ruling GSTR 2003/3 that states the relevant method for calculating CGT for
the property developed in 2003. Therefore, the land can be calculated on both indexation and
discounting method, where the building could only be calculated on the basis of discounting
method for calculating the capital gains tax. Therefore, the use of indexation method could only
put a relevant tax of $148,570 whereas the discounting method portrays a capital gains tax of
$75,000. Consequently, the use of indexation method is much viable option for Rosemary, as it
depicts the lowest capital gains tax that needs to be paid5.
3b. Identifying the impact of if the building was built on 20th May 2017:
Particulars Indexation Method Discount Method
Land sale price $100,000 $100,000
Less: land cost $51,422 $50,000
Capital Gain (Land) $48,578 $50,000
5 Becker, Johannes, E. Reimer, and A. Rust. Klaus Vogel on Double Taxation Conventions.
Kluwer Law International, 2015.

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Less: 50% Discount $25,000
Net Capital Gain (Land) $48,578 $25,000
Building selling price $200,000 $200,000
Less: Building cost $100,000 $100,000
Capital Gain (Building) $100,000 $100,000
Total Capital Gain (Property) $148,578 $125,000
The situation mainly states that building was built on 2017 May, where is the land was
purchased on normal circumstances. This mainly changes the capital gains tax that needs to be
paid by Rosemary, as land could be calculated by both indexation and discounting method.
However, the building cannot be considered under both indexation and discounting method, as
the building was not 12 months old. Hence, the overall calculation of land capital gains tax could
be conducted by using both indexation method and discounting method6. Therefore, from the
evaluation of the above table it could be identified that use of discounting method would allow
Rosemary to reduce the CGT to $125,000, whereas under indexation method could increase the
CGT to $148,578.
Therefore, under the Income Tax Assessment Act 1997, the overall CGT that needs to be
paid by Rosemary amounted to $125,000.
6 Evans, Alexandra Claire Margaret. "What is a conceptually possible flow through design for an
alternative vehicle in the private context in domestic income tax legislation? With an applied
case study on the Australian business trust." (2016).

TAX LAW 8
Question 2:
Providing relevant position on the land pre-CGT asset for the income tax legislation:
There is certain criteria’s that needs to be met by properties that has been acquired before
and post CGT. The procedure to identify capital gains directly indicates that any kind purchase
conducted during that period is exempted from tax. Therefore, after the CGT any kind of
property that was bought comes under both indexation and discounting method, which makes
them taxable in nature. The TD 97/3, Income Tax Assessment Act 1997 Part 3-1 and Part 3-3,
mainly states the relevant measures that could be taken by an individual for paying the relevant
capital gains tax. Hence, it is stated that relevant measures needs to be maintained by the
individuals, which could in turn help in deriving the adequate capital gains7.
Hence, under Income Tax Assessment Act 1997, Division 100-A, and Section 100-25
individuals are mainly able to detect the overall CGT of individuals, which could in turn help
individuals to identify the least payment that needs to be paid after sales of property. Therefore,
individuals with the help of valuation method could directly detect the most liable method from
indexation method and discounting method to detect the adequate tax that needs to be paid after
sale of property8.
7 Burkhauser, Richard V., Markus H. Hahn, and Roger Wilkins. "Measuring top incomes using
tax record data: A cautionary tale from Australia." The Journal of Economic Inequality 13.2
(2015): 181-205.
8 Hopkins, Bruce R. The Law of Tax-Exempt Organizations+ Website, 2016 Supplement. John
Wiley & Sons, 2016.

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References and Bibliography:
"Legal Database." Ato.gov.au. N. p., 2017. Web. 9 Sept. 2017.
Becker, Johannes, E. Reimer, and A. Rust. Klaus Vogel on Double Taxation Conventions.
Kluwer Law International, 2015.
Bradica, Anthony, and Andrew Carter. "Budget measures to close tax loopholes." Keeping Good
Companies 65.7 (2013): 435.
Burkhauser, Richard V., Markus H. Hahn, and Roger Wilkins. "Measuring top incomes using tax
record data: A cautionary tale from Australia." The Journal of Economic Inequality 13.2 (2015):
181-205.
Deutsch, Robert L. "Australian Tax Handbook 2006." (2014).
Evans, Alexandra Claire Margaret. "What is a conceptually possible flow through design for an
alternative vehicle in the private context in domestic income tax legislation? With an applied
case study on the Australian business trust." (2016).
Hopkins, Bruce R. The Law of Tax-Exempt Organizations+ Website, 2016 Supplement. John
Wiley & Sons, 2016.
Lanis, Roman, Ross McClure, and Mark Zirnsak. "Tax aggressiveness of alcohol and bottling
companies in Australia." (2017).
McLachlan, R. (2013). Deep and Persistent Disadvantage in Australia-Productivity Commission
Staff Working Paper.

TAX LAW 10
Schuster, R., Law, E. A., Rodewald, A. D., Martin, T. G., Wilson, K. A., Watts, M., ... & Arcese,
P. (2017). Tax Shifting and Incentives for Biodiversity Conservation on Private
Lands. Conservation Letters.
Sharkey, Nolan. "Coming to Australia: Cross border and Australian income tax complexities
with a focus on dual residence and DTAs and those from China, Singapore and Hong Kong-Part
1." Brief 42.10 (2015): 10.
Townend, Judith. "The United Kingdom: The impact of charity and tax law/regulation on not-
for-profit news organizations." The impact of charity and tax law/regulation on not-for-profit
news organizations (2016).