HA3042 Taxation Law Assignment: CGT and Depreciation Analysis

This assignment solution addresses two key taxation law issues. The first part analyzes the consequences of Capital Gains Tax (CGT) for various transactions made by an individual, Jasmine, including the sale of a house (pre-CGT asset), a car, a small cleaning business (with consideration of business concessions), furniture, and paintings (collectibles). The analysis is grounded in the Income Tax Assessment Act 1997, covering CGT asset definitions, disposal events, cost base calculations, capital proceeds, and relevant exemptions and discounts. The second part focuses on the depreciation of a CNC machine, determining its cost for capital allowance purposes and the starting time for calculating its value decline. This involves interpreting the Act's provisions regarding depreciating assets, cost calculation, and the commencement of depreciation, including incidental costs and installation expenses.

Running head: TAXATION LAW
TAXATION LAW
Name of the Student:
Name of the University:
Author Note:

1TAXATION LAW
Answer 1:
Issue:
Issue here is what will be the consequences pertaining to CGT for the given transactions
made by Jasmine.
Rules
The present case of Jasmine is to be elaborated in the light of the Income Tax Assessment
Act 1997. According to Section 108.5 of the Act, the definition of CGT asset is obtained. It is
actually a type of property or it is a right legal or equitable which is not property. This section
also provides that CGT assets include part of or interest of any asset, interest or goodwill in the
asset, interest present in the partnership asset. Some examples of CGT assets are land, building,
shares of a company, units in unit trust; debts owed, options, a right of enforcing any contractual
duty and even foreign currency.
However this is to be kept in mind that an asset cannot be considered as a CGT asset if it
was acquired after 20 September of 1985. Any such asset acquired succeeding the said date is
denoted as a post CGT asset. Similarly any asset which is required before that date is considered
as a pre CGT asset and it will not be considered under the scheme of CGT.
Section 10 4.10 of the Act denotes the CGT Asset disposal which is regarded as the A1
CGT event. It states that this particular event occurs when any CGT asset is disposed of. Such
disposal happens when ownership changes from one person to another either by some transaction
or by the act of law. But this change will not be considered if the tax payer stops being the asset's
legal owner.

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Section 110.25 of the Act enumerates the rules regarding the cost based in general. It
states that CB of any CGT asset comprises of mainly five elements.
Element one is the money paid for acquiring the Asset and it is the market value of the
property given by the taxpayer for acquiring it. In case any property is exchanged with another
property and there is no money transaction then in such case element one will be the market
property value which is exchanged.
Element 2 refers to the incidental cost incurred during the property acquisition.
Element 3 refers to the cost for owning any CGT asset and it includes the interest on the
money that has been borrowed for acquiring the Asset, cost of repairing, maintenance or insuring
the property. But cost base of collectible does not include it.
Element 4 refers to the expenditure incurred for the reason of increasing or preserving the
asset’s present value and it refers to the cost of installation or moving it.
Element 5 refers to the capital expenses incurred for proving preserving for defending the
title of the owner of the Asset or the right on such asset.
Section 116.20 of the Act enumerates the rules regarding capital proceeds. It states that
CP comprises of the money received related to the event occurring and also the market value of
any property received related to such event occurring. Instances of various events have been
provided under this section. When a properties exchange for another without any monetary
transaction then the money incurred is computed according to the present Property value in
market.

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Section 115.25 of the Act provides that the capital gain will be subjected to 50% discount
in case the property is held by T.P for a period exceeding 12 months.
Section 11 8.20 of the Act provides that capital gain will be excluded if the asset is a
house used by the taxpayer as his main place of residing.
Application
House selling
Hear the house was purchased in 1981. Hence it is a pre CGT asset. Moreover it has been
used by Jasmine as her main residence so when the house is sold by her then it will be excluded
from the effect of CGT. This can be supported by Section 11 8.20 of the Act that provides that
capital gain will be excluded if the asset is a house used by the taxpayer as his main place of
residing.
Car sale
A car was bought by Jasmine on 2011 for 31,000 dollars and it’s present value is 10,000
$. The sale of the car will attract the CGT A 1 event. Capital gain can be calculated by capital
proceeds minus cost base. As the calculation shows that a loss has occurred there will be a
replacement of the cost base by reduced cost base which will exempt the depreciation cost
pertaining to the element 3. The selling price of the car is 10000 $ which shows that there is a
capital loss of 21,000 $. But since the car denotes an item of personal usage so it will be not be
considered during the calculation of tax for the particular year.
Selling of ‘small cleaning business'

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Jasmine started a small business now planning to sell it off for 125000 dollars. This
selling price of 125000 dollars include 65,000 $ for business equipment, 75000 $ and also
goodwill cost. Jasmine can avail the concession available to sale of small business entity. The
business equipment sale will come under the category of CGT a 1 event. The compensation
allowed we increase the price of the Asset of value less than 6 million dollars. As the asset was
held for A period exceeding one year 50 percent rebate is available to Jasmine. This is given
under Section 115.25 of the Act which provides that the capital gain will be subjected to 50%
discount in case the property is held by the taxpayer for a period more than 12 months.
Selling of furniture
Jasmine sold her furniture for 5000 Dollars. Not a single furniture offered possesses sale
cost more than 2000 Dollar. If any CGT asset is held for personal purpose then it will be
disregarded as the value is less than 10000 dollars. So this transaction will not be taken into
consideration.
Selling of painting
Jasmine owned many paintings which she was selling for $ 35,000. She had purchased
these paintings from second hand shops or local markets and she did not spend more than $ 500
on none of the paintings. However there is one exception where she bought a painting directly
from an artist by paying 1000 dollars. This particular painting is sold by her for $ 5,000.
Here the paintings are considered as collectible according to Section 108.10 of the Act
and since its value is less than 5000 dollars they will be not considered during CGT calculation.
The painting which was sold for $ 5000 only will be considered during the calculation of the

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capital gain and the capital gain will be $4000 in this case. Moreover 50% discount will also be
applied on it making the capital gain reduced to $ 2000.
Conclusion
The consequences pertaining to CGT for the transactions made by Jasmine will according
to the discussions made above.
Answer 2:
Issue
The issue here in this case scenario is what will be the CNC machine cost in order to
compute the capital allowance and what will be the starting time in order to calculate the decline
in the Asset value.
Rules
The present case study has to be analysed in the light of the provisions enumerated under
INCOME TAX ASSESSMENT ACT 1997.
Section 40.30 under the said Act contained in this act provide the definition of the
depreciating asset which is treated as an asset having Limited life which is effective and is
reasonably expected that such effective life will decline in value over passing of time when it is
used.
Division 40 of the said Act of the act provides that the value of declining of the
depreciating Asset in relation to the year of taxation has to be calculated according to this
provision.

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The time when the decline in the value of the depreciating asset begins is considered as
the starting time and it is calculated in the following manner by using the set formula.
Formula:
Declining value pertaining to the asset= cost of the asset * (no of days being held/ 365)*
(100%/ effective life of the asset)
Section 40.60 under the said Act enumerates the time when the depreciating Asset begins
to decline its value. Usually it is calculated by means of the start time which denotes the time
when it is for the first time it is used for got installed for any purpose.
Subdivision 40C under the said Act enumerates the method of calculating the cost of the
Asset which is undergoing depreciation.
Section 40.175 under the said Act of the said act enumerates that the depreciating Asset
cost comprises of mainly two elements.
Section 40.185 of the Act enumerates that it is applied to the taxpayer when he had paid
for holding the depreciating Asset. This is usually computed from the time when the holder
started holding the said asset. It will include each and every expenses made by the holder in
relation to the economic benefits that are arising due to the acquisition of such asset in order to
you bring it in the current form together with the current location in the span of the time of
beginning to hold it.
Application
In the present situation It is seen that John bought 1 CNC machine which was imported
from Germany in the year of 2014 on 1st November. He paid 300000 dollars for purchasing it.

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This purchasing cost forms the element one. John made a visit to the factory of CNC machine
and inspecting the Machines he placed the order. This Germany trip cost him about $ 12000. The
CNC machine was required to be installed by experienced and specialized persons and such
installation was done on 15th January for about $ 25,000. After this installation when John started
using it he found out that the machine needed 1 guiding rod additional e for making it more
effective. Such rod was attached to the machine for about 5000 Dollars and it was affected on 1st
February.
Here it is seen that the cost of trip offer about $ 12,000 is incurred before the machine
was purchased by John. Hence it cannot be included in the cost price of the Asset. The element 2
to off the Asset has to be computed from the moment the asset is held by the person. It will be
including all the expenses made by the holder for getting the economic benefit which arises from
the asset acquisition in order to make it come to the present state of working. This will include
the cost of installing the machine which is $ 25,000 and it forms the element 2 of the Asset cost.
Moreover the cost of attaching the guiding rod offer about $ 5000 is also required to be
added to the machine cost hence the nation could be effectively used from February 1st and it
denotes the starting time. Thus the beginning time for computing decline in 1st February.
Conclusion
CNC machine cost is computed to be 330000 $ and the starting time in order to calculate
the decline in the Asset value is 1st of February.

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References:
Income Tax Assessment Act 1997 (Cth)