Taxation Law Assignment: CGT, Depreciation, and Tax Implications

This taxation assignment addresses two key issues: the CGT implications of various transactions for Jasmine and the treatment of the cost of a CNC machine as a capital allowance for John. The first part analyzes the sale of a house, car, business, furniture, and paintings, determining the CGT consequences, including exemptions, cost base calculations, and the application of discounts. The second part examines whether the cost of a CNC machine, including import costs, inspection trips, and installation, qualifies as a depreciating asset. The assignment references the Income Tax Assessment Act 1997 and provides detailed explanations of relevant tax principles, including CGT event A1, the exemption for a main residence, and the calculation of depreciation. It helps students understand and apply tax law concepts to real-world scenarios.

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

1TAXATION
Answer 1
Issue
Whether any of the transactions that has been provided herein would inflict any CGT
implication upon the assessable income of Jasmine.
Rule
CGT asset: a CGT asset may include a property, any legal right or even any equitable
right as has been provided in ITAA97, s. 108-5. Only events with respect to assets which has
been purchased or devolved with after 20-09-1985 referred to as a post-CGT asset would be
considered under CGT regime and not events with respect to a pre-CGT asset. The event arising
from a pre-CGT event would not be considered for CGT consequences.
CGT event A1: any CGT event when accompanies the sale of a CGT asset for disposing
it off would give rise to CGT A1. However, the event needs to alter the ownership of the owner
and transfer the same to another person for the purpose of the same. A change of legal ownership
to confer a beneficial ownership will not count for this event.
Cost Base: the cost base of an item in CGT computation needs to be calculated in
adherence to the provision of ITAA97, s. 110.25. There are five elements that bundle up to
compose the cost base of a CGT asset.
Element 1 includes the value of money that the taxpayer has spent for buying the asset
and avail ownership upon it as mentioned in ITAA97, s. 110.25(1). When the owner has
purchased the property by giving up another property, the market value of the property given up
is to be construed as this element.

2TAXATION
Element 2 includes the outgoing that has been incidental with respect to the incidence of
purchasing the asset in question.
Element 3 includes the outgoings that has been suffered by the taxpayer as a consequence
of owning such an asset. the inclusion of this element within the cost base is only necessary
when the asset has a date of purchase subsequent to 28 of August 1991. When payment of
interest has been made by the taxpayer for the loan he has received for purchasing the given asset
is to be included within the cost base under this element. Similarly interest on loan for making
certain alterations of capital nature towards the acid in question along with any repairs and
maintenance expenditure would also be included in this element. However collectible would not
be included with this element while computing their cost base.
Element 4 includes the expenses suffered by the taxpayer for ensuring the preservation of
the asset and also covers the cost of any enhancement that has been made towards the acid for
making the asset more valuable.
Element 5 includes the expenses that the taxpayer has been subjected to establishing any
title over the assets or defending the title of the same. This include the expenses incurred in the
legal proceeding affecting the same.
Cost Proceed: cost proceed received by a taxpayer by virtue of disposing of a CGT asset
is required to be computed as under ITAA97, s. 116.20. This amount will include all the
monetary gain that the individual paying the tax has availed while disposing of that property.
When the owner has purchased the property by giving up another property, the market value of
the property given up is to be construed as this element.

3TAXATION
Exemption of Main Residence: any proceeds from the disposal of the CGT assets which
has been used as principal residence would be exempted from being computed on their CGT
computation under ITAA97, s. 118-20.
Discount: a discount of 50% will be allowed upon the CGT gain on holding the asset for
more than 12 months as per ITAA97, s. 115.
Application
Sale of the following,
House - the house has been acquired subsequent to CGT and hence is a post CGT asset
which requires computation under CGT. Again, any proceeds from the disposal of the CGT
assets which has been used as principal residence would be exempted from being computed on
their CGT computation under ITAA97, s. 118-20. Hence the proceeds from the sale of the house
is required to be treated as an exempt from CGT.
Car - the car has been acquired for $31000 which is having a recent value of $10,000.
This has the effect of a CGT event A1. This requires a computation to be carried out by
detecting the cost base from cost proceed. As this transaction has incurred a loss for the taxpayer
the cost base is to be taken as a reduced cost base which would not include depreciation cost
included in third element. Thus, the capital loss that has been accrued from the transaction is
$21,000. However as a car depicts a personal use asset the loss from the is required to be
construed as being disregarded from the tax computation with respect to the given taxation.
Business - the business has been sold for 125000 dollars by Jasmine. The equipment
belonging to the business has been sold for $65,000 which has a cost of 75000 dollars. She also
sold the Goodwill of the business for a price of 60000 dollars. The sale of the business requires

4TAXATION
Jasmin to avail small business entity concession. The seal of the business equipment is A1
category of capital event. The sale of the business goodwill points towards capital gain event C2
including the legal fee that has been required to be included for effecting the contract. The cost
base would include owning cost and the acquisition price. The networth will be increased by the
concession allowed below the threshold of 6 million dollars. A 50% discount will also be
available as the asset has been held for more than 12 months.
Furniture
The furniture has been sold by Jasmine for a price of 5000 dollars and not a single one of
the furniture has a value exceeding $2000. the personal use items belonging to the system of
capital gain is to be disregarded when the value of the same has fallen below the threshold of
$10,000. Therefore this needs to be disregarded.
Painting
The total cost that has win received by the taxpayer that is Jasmine is $35,000 for selling
the paintings belonging to her. Each of the paintings when valued separately does not exceed the
amount of $500 as all of them has been bought by Jasmine from a second hand shop along with
other markets. As paintings are classified as collectibles and the value of each of these paintings
has fallen below the amount of $500 these would not be included while computing the capital
gain. however there has been a painting which has been sold for 5000 dollars. The painting has
been originally purchased for 1000 dollars. Hence this painting would accrue to the taxpayer
capital gain amounting to $4,000. However a discount amounting to 50% would also be imposed
upon such a capital gain and would be able to Jasmine for the purpose of reducing her capital
gain liability to $2000.

5TAXATION
Conclusion
Hence it can be concluded that the transactions that has been provided herein would
inflict any CGT implication upon the assessable income of Jasmine as discussed above.
Answer 2
Issue
Whether the cost of CNC machine would be treated as capital allowance while
computing the same.
Rule
Any asset which has an effective life and this capable of declination in its value along
with the effective life is required to be referred to as depreciating asset as under ITAA97, s. 40-
30.
For the purpose of included within the computation of depreciating asset the asset needs
to have a limited effective life as provided in ITAA97, div.40.
The initiation of the declination in the value of the asset that depreciates need to be
referred to as the start time. The value that has been declining is to be computed as a constant
percent over the cost of the asset as for the prime cost method.
Computation
Decline in value = cost of asset * (days held / 365) * (100% / effective life)

6TAXATION
Start time of an asset that is the time of initiation of the value of decline is the exact point
of time when the acid has been implemented for being used as can be conceived from ITAA97,
s. 40-60.
Cost base belonging to a depreciating asset is required at treatment having two elements
as in ITAA97, s. 40-175.
The expenditure that the holder of the asset has undergone is to be computed as under
ITAA97, s. 40-185.
Application
John has made the purchase of the CNC machine by way of import of the machine from
Germany with cost of the machine amounting to 300000 dollars. This would point towards the
first element and would be there for us would be referred to as the purchase price amounting to
300000 dollars. Before acquiring the machine John has inspected the same. for making the
inspection by going to the factory. John has incurred a cost of $12000 while taking a trip for
visiting Germany for the purpose of inspecting the machine. John has suffered the expenditure
that has been provided even before the acquisition of the machine which points towards the non
inclusion of the expense in the cost belonging to the asset. The element that comes second is
required a treatment from the time when it has been owned by the holder. All the expenses that
the holder experiences would be required to be included within in relation to the assessment of
the monetary benefit that the taxpayer has accrued with. All the expenses that the taxpayer
suffers for bringing the acid at the present state would also be included within the section. This
would also include an installation cost of $25,000. There has been guiding rod installed by the
taxpayer amounting to $5000. This amount is required to be compiled with the machine cost.

7TAXATION
The machine has been effectively used on 1st of February and hence the start time needs to be
referred to as have occurred in first of February.
Conclusion
The cost pertaining to that machine amounts to 330000 dollars and the start time is 1st
February.

8TAXATION
Reference
The Income Tax Assessment Act 1997 (Cth)
Woellner, R., Barkoczy, S., Murphy, S., Evans, C. and Pinto, D., 2016. Australian Taxation Law
2016. OUP Catalogue.