Individual Taxation Law Assignment: HA3042 Analysis and Solutions

This assignment solution addresses various aspects of Australian taxation law, focusing on capital gains tax, capital losses, and depreciation. It analyzes scenarios involving Jasmine, an Australian resident, and her capital asset transactions, including the sale of a house, car, business equipment, and furniture, as well as collectibles. The assignment references the Income Tax Assessment Acts of 1936 and 1997, along with specific tax rulings, to determine tax liabilities and exemptions. Task 1 covers capital gains and losses, while Task 2 discusses depreciating capital assets and the methods for calculating depreciation. The solution provides detailed calculations and explanations based on the provided facts and relevant tax laws.

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Contents
INTRODUCTION...........................................................................................................................................3
Task 1..........................................................................................................................................................3
Capital Gain Tax-......................................................................................................................................3
Capital gain..........................................................................................................................................3
Capital loss...........................................................................................................................................3
Task 2..........................................................................................................................................................6
Conclusion...................................................................................................................................................7
References...................................................................................................................................................8
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INTRODUCTION
For the implementation of distinct taxes, there are numerous acts formed and these acts are
followed and according to the rules and provisions of this act, the taxes are levied. This
assignment majorly focuses on the Income Tax Acts which were formed in the year 1936 and
1997. The provisions of these acts are implemented while taking the solutions to the questions in
the report.
Task 1
Capital Gain Tax-
Capital gain is the difference between the cost of acquisition of an asset and the price at which
the asset is been transferred or disposed of. This gain that an assessee has earned is treated as the
income of the assessee in that financial year.
Capital loss- It is the difference in the price of sale and acquisition. The amount is treated as loss
if the sale price is less than the cost of acquisition. Losses are settled off from the account of the
income of same head. If there is no income in this head than this would be taken forward in the
upcoming financial years.
Taxes are attracted by the capital gains only and the losses do not attract the tax rather they
actually reduce the profits (Anon., 2019).
From the Income Tax assessments of the year 1936 and 1997, this assignment is solved.
The given question is given in distinct portions and the solution to each one is given section-
wise-
A. Jasmine is an ordinary resident of Australia and she is 65 years old. She was basically
born in the United Kingdom and now an Australian resident. She is on the stage of her
retirement and she has already planned that she wants to sell all his capital assets. All the
assets she was selling were of the nature of capital assets and the treatment for the
following is given.
In the year 1981, she purchased a house for the amount of $40,000. She possessed the
house since then and this $40,000 was the actual cost of acquisition of the house. Now in
this financial year she was planning to sell this house for an amount of $65,000.
There was a provision made in the law that if any of the assets which were acquired on or
before the date September 28, 1985 than these assets would not attract any of the capital
gain taxes over them and hence this gain will also not form part of the assessable income
of the assessee.
Keeping this provision in mind, this is concluded that there is no tax attracted by this sale
of Jasmine and hence she is not liable for any taxes over this income. (Anon., n.d.)
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One more rule of the Australian Taxation Office states that if a person is an ordinary
resident of Australia and he possesses any of the assets all around the world and then sells
that asset. This makes that assessee liable to pay tax in Australia no matter where the
asset is or where he is selling it.
By looking at all the given rules and provisions, it is clear that Jasmine here in this case
of sale of the house is not liable to pay any tax over this.
B. The section part of the question deals with the sale and purchase of the car. This question
states that there was a car purchased by Jasmine in the year 2010 for 11,000 dollars. The
sale of the same car was done for 10,000 dollars in the year 2011.
This car she had was completely used for her personal uses and not for any official use.
There are certain provisions in the Income-tax law related to the personal use assets. The
section number 102.5 of the ITA act is related with the personal assets only and this
section says that the assets which are bought for personal use are not liable for income tax
or we can say capital gain tax as these are completely used for personal use and not for
official use. (Anon., n.d.)
The profits from personal assets would not be liable for tax and if there are losses than
these would neither set off nor they will be carried forward.
Hence, there is a loss occurred from the sale of the car. There is a loss of 1000 dollars and
this is a loss on the sale of car which is for personal use. So, these losses would not be
settled and will not be carried forward too. We have reached this result as per the
provisions gave Section 120.5 of the Income Tax Act.
C. The third section of this question has detailed about the sale of business equipment.
The details given in this question says that there is Business equipment which was bought
for $75,000 and further this asset was sold by Jasmine for the amount $65,000.
Hence there was a loss of $10,000 which was faced by Jasmine in this transaction.
For the solution to this question, there is a tax ruling which we need to study.
Tax Ruling 1999/16 gave a general thought of Goodwill. Goodwill is an intangible asset
which attracts the tax. The implementation of the tax on goodwill is similar to that as of
other taxes. Goodwill is an asset which is distinct from other types of assets as it does not
exist in reality but its presence could be felt. (Anon., n.d.)
The Goodwill if sold at a price higher than the acquisition cost than this transaction
would also attract the capital gain tax.
This tax ruling further says that any depreciating equipment which is utilized for the
purpose of business does not attract capital gain tax and hence this income is not
considered as the part of assessable income of the assessee. Similarly, the losses
occurring from the same would not be taken forward and nor would be settled.
This gives the ultimate result that the losses which have been occurred would not be
considered anywhere neither in this financial year nor in any other year. Another thing
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that could be concluded is that the Goodwill will be chargeable to tax in the present
period.
D. The fourth part of the question states another sale made by Jasmine. This case involves
the sale of furniture by Jasmine.
Forgiving the result of this we would discuss the further provisions of the law stated by
the Australian Taxation Office.
The question further states that the furniture was used by her for personal use.
The act states that there would be no tax levied over the transaction if the sale is related to
personal assets.
Here, Jasmine would not be liable to any of the taxes if she has gained something from
this sale and nor she would be entitled to carry forward any of the losses if occurred in
this sale. The condition is the same in both the cases whether there is any gain or any
loss. (Anon., 2019)
E. Collectible is a good which is used for personal enjoyment and for personal use only.
This includes the drawings, paintings, jewelry, stamps and many more. This is a list
which has many items within it. The definition of the collectibles is given by the ITS act,
1997 in section 118 of this act. There are a number of provisions within this act which
gives further details about the collectibles. Whenever there is any transaction related to
the collectibles than all the provisions should be taken into the mind and then solution is
given.
If there are losses from the transaction of the collectibles than these would set off from
the gains that have occurred from transactions of the collectibles only.
The losses from these transactions could be carried forward and these can be carried for
an indefinite period as there is no time limit specified by the law.
The Australian government has given further points with which it could be decided that
these would be considered as collectibles or not. These points are-
 Price of the collectible is less than or equal to $500
 Before 16 December 1995,the acquired interest in any collectible $500 or less
 Purchase is less than $500 as in terms of the market price (Black, 2019)
In this question, Jasmine has made a purchase of less than $500 of the collectibles and the
same collectibles now are sold for the amount $30,000.
This transaction would not attract the capital gain case even there is the gain in this
transaction. This will not be attracted because the above three points are not satisfied and
hence these collectibles are outside the list of tax liability. (Black, 2019)
From the total collectibles, she purchased there was a painting worth 1000 dollars and
sale of this was made for the amount 5000 dollars. This will be liable for the payment of
the capital gain tax and therefore the tax will be calculated on the amount of $4000.
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Jasmine will just have to pay the tax over the $4000 and no other transaction of this case.
Task 2
There is a concept of depreciating capital assets. The definition of this is given in the Income Tax
Assessment Act, 1997. There are certain allowances for capital, expenses and depreciation for
the assets which are of capital nature are not given as the deduction from the asset in a single
year but are rather deducted from the value of the asset throughout the life of the asset in equal
proportions. (Black, 2019)
Depreciation of asset means the decrease in the value of an asset due to its regular wear and tear
and regular obsolesce. The depreciation is charged throughout the life of the asset.
There are certain assets which do not form part of the depreciating assets list and hence are not
the assets on which depreciation is charged. This means that the value of such assets is not
decreased. This list has included the trading land stock as well as the few intangible assets.
(Anon., n.d.)
Depreciation is calculated on the amount of the cost that the cost is taken as the base for the
calculation of depreciation. These purchase costs include the other relevant costs so that the
actual costs can be ascertained and actual depreciation could be calculated. Depreciation is
charged on the basis of the use of the asset that is whether they are utilized for personal use or for
business use. If the asset is used in the business for nearly about 60% and the rest 40% is utilized
for personal use than the depreciation will be charged only on the extent it is utilized in the
business purpose.
There is number of methods for the calculation of depreciation and several different
organizations can apply distinct methods suitable according to their needs and the size of
organization. The aggregate of 12 million dollars is taken with a deduction of 15% as the small
businesses could be claimed. The deduction could go up to 30% until the completion of the year.
(Anon., 2019)
Mr. John incurred a cost- $300,000
Additional costs incurred- $12,000
Installation Charges- $25,000
Additional rates- $5,000
This gives the total costs of the machine to amount to $342,000.
This calculation is done as per the ITA act, 1997.
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The rate of the depreciation starts to be charged from the date when the asset is put to use in the
business. The depreciation will start from the date when it is implemented in the business.
The following given are the two methods which can be used for depreciation and are the most
commonly used methods-
 Prime cost method
 Diminishing value method
From these methods, John can adopt any of the methods and the adopted method should be
continuously and constantly used by the organization so as to have an easily comparable account.
The machine that John has purchased was completely put to use in the organization on the date
of January 15. Whenever the machine is been completely installed this is the date and time from
which the machine has completely put to use and hence depreciation would be charged from that
date. (Anon., 2018)
The name of the machine was CNC.
As per the rules of the ITA act, it is stated that the simplified depreciation the payer should make
the one who needs to figure out the assets which are depreciable in nature and does not include
the assets which are specifically mentioned. The claim can be called off only for those assets or
those portions of the asset which are been utilized in the business and no claim would be made
on the asset which are utilized for personal use.
Conclusion
The above assignment gives complete study related to the Income Tax Assessment Act which
was made by the Australian Tax Office. The provisions and the rules of both the act of ITA that
is the act of 1936 and 1997 are taken into consideration.
These acts give ways according to which the tax is to charge and how it is to be calculated in the
business.
The first task was completely based on the transaction made by Jasmine and the most cases and
transaction she had were related to personal assets and it is studied in the provisions that the tax
is not been attracted by the assets which are of personal use.
The second task revolves around the transaction of John related to the machinery purchase. This
section gives the provision related to the depreciation of the assets. (Black, 2019)
References
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Anon., 2018. Taxation when ending or selling your business. [Online]
Available at: https://www.business.gov.au/registrations/change-or-cancel-registrations/cancel-your-tax-
registrations
Anon., 2019. A Complete Guide to Capital Gains Tax. [Online]
Available at: https://propertyupdate.com.au/a-complete-guide-to-capital-gains-tax/
Anon., 2019. Australian Capital Gains Tax (CGT). [Online]
Available at: https://www.exfin.com/australian-capital-gains
Anon., 2019. CALCULATING AND PAYING CAPITAL GAINS TAX. [Online]
Available at: https://www.nab.com.au/personal/life-moments/manage-money/money-basics/capital-
gains-tax
Anon., n.d. 6 depreciation and CGT facts. [Online]
Available at: http://www.apimagazine.com.au/property-investment/6-depreciation-and-cgt-facts
Anon., n.d. Capital Gains Tax and building depreciation. [Online]
Available at: https://www.bmtqs.com.au/maverick/mav-33-CGT
Anon., n.d. Taxation of capital gains. [Online]
Available at: http://comparativetaxation.treasury.gov.au/content/report/html/08_Chapter_6-07.asp
Black, E., 2019. What is Capital Gains Tax and how do I calculate it?. [Online]
Available at: https://www.realestate.com.au/advice/what-is-capital-gains-tax/
office, a. t., n.d. Capital gains tax. [Online]
Available at: https://www.ato.gov.au/General/Capital-gains-tax/
office, a. t., n.d. Changing, selling or closing your business – things to consider. [Online]
Available at: https://www.ato.gov.au/Business/Changing,-selling-or-closing-your-business/In-detail/
Things-to-consider/
office, a. t., n.d. Depreciation and capital allowances tool. [Online]
Available at: https://www.ato.gov.au/Calculators-and-tools/Depreciation-and-capital-allowances-tool/
office, a. t., n.d. Depreciation and capital expenses and allowances. [Online]
Available at: https://www.ato.gov.au/business/depreciation-and-capital-expenses-and-allowances/
office, a. t., n.d. Simpler depreciation for small business. [Online]
Available at: https://www.ato.gov.au/Business/Depreciation-and-capital-expenses-and-allowances/
Simpler-depreciation-for-small-business/
office, a. t., n.d. Taxation Ruling Income tax: capital gains: goodwill of a business. [Online]
Available at: https://www.ato.gov.au/law/view/document?Docid=TXR/TR199916/NAT/ATO/
00001&PiT=99991231235958
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office, a. t., n.d. What is a capital gains tax asset?. [Online]
Available at: https://www.ato.gov.au/Print-publications/Guide-to-capital-gains-tax-2012-13/?page=8
office, a. t., n.d. Working out decline in value. [Online]
Available at: https://www.ato.gov.au/Forms/Guide-to-depreciating-assets-2019/?page=7
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