Taxation Law Assignment - CGT, Shares, and Property Law

This taxation law assignment addresses Capital Gains Tax (CGT) under the Australian tax law, specifically focusing on CGT event A1, which is triggered by the sale of a CGT asset. The assignment explains the conditions for a CGT event, the timing of such events, and relevant case law, such as FCT v Sara Lee Household & Body Care P/L (2000) and McDonald v FCT (1998). It then analyzes a case study involving an Australian resident, Harrison, who sells an investment property and shares, calculating potential capital gains and losses. The assignment applies relevant sections of the ITAA 1997 to determine the tax implications of the transactions, including the timing of CGT events and the treatment of capital losses, along with reference to discount and indexation methods. The provided solution offers a comprehensive overview of CGT principles and their practical application in property and share transactions.

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 Part 1:........................................................................................................................2
Answer to Part 2:........................................................................................................................3
References:.................................................................................................................................6

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Answer to Part 1:
Under the “sec 104-10 ITA Act 1997” the “CGT event A1” comes into the act if the
taxpayer sells the CGT asset. A taxpayer sells the CGT asset if the ownership changes
happens from the taxpayer to the another entity, whether it is due to some act or event or by
the operation of law (Skapinker 2018). It must be noted that change in ownership do happen
if the taxpayer ceases to be the lawful owner of the asset however continues to be its
beneficial owner. The time of the CGT event is;
a. The time when the taxpayer forms a contract of selling the asset
b. If there is no contract, it involves the time when the changes in ownership happened.
The legislative reference of CGT states that capital gains or loss happens only when
the CGT event occurs. It mainly involves the transfer of CGT asset such as shares, land or
business, unless there is any kind of exemption is applicable, rollover relief defers the capital
gains or provision which prohibits the loss. For example, the time when the CGT event takes
place or transfer of CGT asset constitute a time when any changes in assets ownership occurs
at the time of settlement. At the time of ascertaining the CGT event reference to case of
“FCT v Sara Lee Household & Body Care P/L (2000)” is made (Tucker 2018). The law
court held that time of CGT event A1 amounts to a stage when a contract is entered into by
an individual person or when there is an occurrence of changes in ownership. A sale only
happens upon the ownership change due to some act or events by the operation of law.
While ascertaining the time when the CGT event took place, there are certain factors
that needs to be taken into account. These are as follows;
a. The applicable agreement of sale characterizes the source of obligation to carry-out
the transfer of asset that amounts to relevant sale.

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b. When the disposal includes more than one contracts for sale as the source of
obligation to constitute transfer, a verdict is required to determine which contracts is
rightly seen as source of obligation to create an effect on the sale (Khour 2014).
c. If it is found to be difficult in recognizing the sole contract under which the sale
happens, then the time is when the ownership of asset changed.
d. A taxpayer may engage in sale or get into a contract despite the fact that the transferee
is not regarded as the party to the contract.
It is noteworthy to denote for the taxpayer that where a relevant contract is signed
prior to 30 June, the CGT event and liability for CGT would be payable in regard to the year
ended 30 June. In another notable example of “McDonald v FCT (1998)”, an oral contract
for purchase, whether enforceable or not would ascertain the day of acquisition.
Answer to Part 2:
During the year Harrison an Australian resident purchased an investment property that
had the market value of $800,000. The taxpayer here, Harrison decided to sell the asset. In
the year 2018 on 14th June the property was sold for a market value of $1.3 million.
Accordingly, a CGT event A1 happened under “sec 104-10 ITAA 1997” when Harrison
disposed the investment property. Referring to the case facts of “McDonald v FCT (1998)”
the sales proceeds derived from sale of investment property is a taxable capital gains (Pinto,
Kendall and Sadiq 2018). With reference to the “sec 102-5 ITAA 1997” the amount will be
included in the assessable income of Harrison and will attract CGT for the year 2018.
In the later part of the year Harrison also reported the acquisition of 10,000 shares in
the Star Entertainment Ltd. The shares were purchased by him in October 1985 and will be
categorized as “Post-CGT Asset”. Furthermore, on 20th June 2018, Harrison signed the share
transfer document and the transfer as well as the share script was handed to stock exchange

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on 20th June 2018. Referring to “FCT v Sara Lee Household & Body Care P/L (2000)” there
was an exchange of ownership on 20th June when Harrison transferred the share script to
stock exchange (Sadiq 2018). Hence, the timing of the “CGT event A1” under “sec 104-10
ITAA 1997” will be 20th June 2018 because the title of asset was disposed on the
aforementioned date.
Harrison in 2018/19 reported a capital loss of $65,000. Consequently, there is no other
capital gains reported in the year of 2018/19. Therefore, it is advised to Harrison that the
capital loss needs to be carried forward to subsequent years.
Discount Method:

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Indexation Method:
For the year ended 2019:

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References:
Khoury, D, 2014. Widening the availability of deductions under Australian taxation law. Tax
Specialist, 14(4), pp.207–211.
Pinto, D., Kendall, K. and Sadiq, K., 2018. Fundamental tax legislation 2018 Twenty-sixth.,
Sadiq, K. et al., 2018. Principles of taxation law 2018 11th ed.,
Skapinker, D, 2018. Property: 2018 NSW contract for sale and purchase of land and the 'GST
at settlement' measure. LSJ: Law Society of NSW Journal, (45), pp.76–79.
Tucker, J, 2018. Tax changes for developers of new residential property. BULLETIN (LAW
SOCIETY OF S.A.), 40(2), p.41.