Taxation Law Assignment: Holmes Institute, HA3042, T2 2019, Individual

This assignment solution addresses a taxation law case study, examining various aspects of capital gains and losses related to family income, car sales, business sales, future sales of personal furniture, and painting sales. It analyzes the application of the Australian Tax Office (ATO) guidelines and the ITAA 1997 to determine tax implications in each scenario. The solution also delves into issues concerning the cost and initiation date of a CNC machine, considering travel expenses, installation costs, and the purchase of a guiding rod. The analysis identifies primary and secondary cost elements and discusses relevant tax laws. The document provides detailed calculations, indexation factors, and explanations to clarify the tax consequences of each situation, offering a comprehensive understanding of the tax principles involved.

Taxation Law
Name of the Student
Name of the University
Author Note

Table of Contents
ANSWER NUMBER 1:..................................................................................................................3
THE CAPITAL GAINS RELATED TO FAMILY INCOME....................................................3
CAPITAL GAIN RELATED TO CAR:......................................................................................4
CAPITL GAIN OR CAPITAL LOSSES FROM BUSINESS SALES:......................................5
CAPITAL GAINS OR CAPITAL LOSSES RELATED TO THE FUTURE SALES:..............6
CAPITAL GAINS OR CAPITAL LOSSES ASSOSIATED WITH PAINTINGS SALES:......7
ANSWER NUMBER 2...................................................................................................................8
IDENTIFYING AS WELL AS DISCUSSING THE ISSUES:...................................................8
COST OF MACHINE ALONG WITH OTHER ACCOMPANYING COST (PRIMARY
ELEMENT):................................................................................................................................9
COST OF MACHINE AS WELL AS OTHER ACCOMPANYING COST (SECONDARY
ELEMENT):..............................................................................................................................10
LAWS RELATED WITH THE INITIATION DATE OF CNC MACHINE:..........................11
CONCLUSION:............................................................................................................................12
REFERENCES..............................................................................................................................13

ANSWER NUMBER 1:
THE CAPITAL GAINS RELATED TO FAMILY INCOME
In the detailed assessment of the case study, Jasmine faces series of issues related to the
accommodation she has bought for $40000 in the year 1981. She wanted to sell her residence
and the asset’s as total values in the current time as $650000. At present, she wanted to return to
the United Kingdom (UK) so she wanted to sell her residence. Jasmine has found an enthusiastic
person who was willing to buy the residence from her. Before beginning with the procedures of
sale some calculations needs to be performed, that is related to the value of the Consumer Price
Index (CPI) of the accommodation.
After selling the residence, there are chances of capital gains or capital losses. According to the
Australian Tax Office (ATO), if the residence has been purchased on 21st September in the year
1999, then the indexation method will be applicable. Two factors that must be examined in this
particular case needs to include the ‘CPI factor 1881’ and the ‘CPI factor 1999’. This is decided
after examining CPI factors and methods of indexation application. Based on these two factors,
the factors of indexation are calculated. Hence with a $40000 deposited sum, the calculated sum
is adjusted. However, in this process, there is no need of cost involvement. The value of
transferred deposits must be examined based on cost. Since earning have been analyzed to
$650000 and after the deduction of the value of cost base from this $650000 amount can help to
obtain the net gain. Under the section 100.45 and 100.40 of ITAA 1997 this calculation has been
performed. This deals with capital gains and capital losses (Rubin and Segal 2015).
Method of Indexation Amount ($)
Indexation factor 1.796833773
Deposit * Indexation factor 71873.35092
Cost Base 71873.35092
Capital Proceeds 650000
Cost Base 71873.35
Net Gain 578126.65

CAPITAL GAIN RELATED TO CAR:
In the current scenario, 2011, she had purchased a car and she wants to sell this car. The present
value of the car is $10000 AUD. The value of the car has been depreciated in the last five years
to $31000 AUD. According to Australia’s Capital Gain Tax (CGT), the assets or property that
were purchased after 20th September of the year 1999 is to calculate the asset’s capital gain or
capital loss. Thus, the method of discounted CGT must be followed. Therefore, in this scenario,
the method of indexation has followed since the car was purchased after 20th September in the
year 1999 (Classic.austlii.edu.au. 2019).
Therefore, for this purpose, there is a need to followed two indexes. Thus, one of the indexes is
concerned with passing year and another one is concerned with car’s selling year. After the
calculation of the indexation factor, it must be balanced with the value that is deposited. The
relative cost of the car has not been mentioned in this purpose, so the deposited value must be
considered as the value of the base cost. In the given case, capital begins with $10000 and has
been given by subtracting this value from the base cost. However, according to section 100.45 of
the ITAA 1997, the car sold by her has not incurred capital gain but instead has a capital loss.
Method of Discounting Amount ($)
Indexation Factor 1.443465492
Deposit * Indexation factor 44747.43025
Cost Base 44747.43025
Capital Proceeds 10000
Cost Base 44747.43
Net Loss -34747.43

CAPITL GAIN OR CAPITAL LOSSES FROM BUSINESS SALES:
In the present situation, Jasmine owns a cleaning business and she wants to sell the business
deliberately. Therefore, she searches for an appropriate buyer. The sales business such as the
balance of goodwill and balance concerned with the equipment of the business. In the present
case, $75000 has added to these balances (Dimmock et al., 2018) so her business includes some
factors that are helpful at the time of calculating the overall gains of Jasmine’s proceedings of
business sales. According to ITAA, 1997, overall sales proceeding includes the value of goodwill
as well as the value of sales that is subtracted from the cost of equipment that will help to
calculate the total gain of her business. Furthermore, as per ITAA, 1997, under section 100.45,
relevant costs treated by the sales from businesses, but the based on asset’s personal selling the
value has to be calculated. According to Jasmine’s determination the goodwill sum is calculated
as $60000.
Particulars Amount($)
Sale Proceeds 65000
Goodwill 60000
Total Sales Value 125000
Cost of Equipment 75000
Net Gain 50000

CAPITAL GAINS OR CAPITAL LOSSES RELATED TO THE FUTURE SALES:
In this case, Jasmine has sold her personal furniture for an amount of $5000 but this cost is not
less than $2000. According to section 122.50 of the ITAA 1997, for calculating capital gains or
capital losses, the personal furniture is not taken. In the current situation, Jasmine sold her
furniture but it will not be taken into consideration at the time of calculating her capital gains or
capital losses. Therefore, in this case, she cannot be directed to apply the furniture sale for her
capital gain calculation. As stated in the rules of the Australian Tax Office (ATO), at the time of
calculating capital gains, personal furniture and their depreciation cannot be taken into
consideration (John and Phillips-Fein 2017). Therefore, in this case, this part of sales is
considered as extra income of the payer from different sources because; CGT is not included in
this proceeding of sales. So, at the time of calculating capital gain or losses, if the furniture is
used for business purpose then it must be considered, but if the furniture is used for personal
purposes, then it cannot be taken into consideration (Evans, Minas and Lim 2015). For the
furniture used by business objective or personal objective, there are different provisions
followed. Therefore, at the time of calculating gains from the capital, furniture used for personal
reasons is not considered.

CAPITAL GAINS OR CAPITAL LOSSES ASSOSIATED WITH PAINTINGS SALES:
In this particular case, Jasmine had purchased various paintings from second-hand material
selling shops for an amount of $1000. One of the paintings was purchased from the artist directly
and sold at $5000. Other paintings are ready for sale at their related price but not less than $500.
Therefore, there is also a question raised about the calculation of capital gain or losses. So, based
on the selling value of these paintings, the capital gains are calculated. According to the section
102.225 ITAA, 1997, for analyzing the capital gains or capital gains of a particular individual,
there is a need to take the sales amount of the paintings (Burkhauser, Hahn and Wilkins 2015).
Thus, in this current situation she purchased the painting at an amount of $1000 and sold it for
$5000. This reveals that the proceedings of sales amounted to $35000. In this particular case,
other various associated facts regarding the cost have not been shown. Therefore, the overall
sales value has been calculated to the amount to $35000, but the main cost of painting is $5000.
Hence, for calculating the total capital gain the difference in the overall sales and cost of painting
is used.
Particulars Amount($)
Sales Proceeds 35000
Total Sales Value 35000
Cost of Painting 5000
Net Gain 30000

ANSWER NUMBER 2
IDENTIFYING AS WELL AS DISCUSSING THE ISSUES:
In the current case, according to ITAA, 1997, crucial issues are identified. These are as follows:
 Whether the value related to numerical device of a computer, have all relevant expenses
associated to the machine.
 Whether the cost associated with the machine installation had been added in the value
associated with the total machine.
 Whether the cost of the machine included cost of the guiding rod used at the time of
operating machines.
 Whether the total cost of the machine included expenses related to travel (Feld et al.
2016).
The procedures used to identify these particular issues were related to the ITAA, 1997 as well as
the provisions of ATO. It is crucial to calculate the time of initiation of the machine CNC
because it helps in analyzing whether a machine is the reason for minimization of the asset value.
Based on the given data, after purchasing of buying rod, it can be confirmed that the machines
were prepared for producing. Therefore, it can be considered at the time of initiation of the CNC
machine. Furthermore, there are various identified issues that is required to be discussed because
these issues affect the result of the machine associated with its base of cost.
Calculation of CNC Machine’s Cost:
Method of Discounting Amount($)
Factor of Indexation 1.548762737
Deposit * Indexation factor 464628.821
Trip Cost 18585.15284
Installation Cost 38719.06841
Guiding Rod Cost 7743.813683
Cost Base 529676.86

COST OF MACHINE ALONG WITH OTHER ACCOMPANYING COST (PRIMARY
ELEMENT):
In this case, the machine was purchased on 1st November 2014, for $3000000. In this situation,
the important issue is whether several associated costs are required for consideration. As per
ITAA 1997, under section 109, 60, the relevant cost must be taken into consideration with the
cost of the machine if these particular costs are related to the machine. Therefore, in this
situation, the cost related to travel can be used as the relevant cost, because, expenses on travel
happen due to the objective of purchasing the machine. Before buying the machine, the buyer
had visited Germany to see the machine’s condition (Jones 2016). Further, there are installation
charges that the company provides for the establishment of the machine. According to ITAA
1997, under section 110.25, general rules, the overall machine expenses of machine CNC must
include the expenses of a machine’s installation. Therefore, in this present situation, expenses of
travel and expenses related to the installation of the machine are directly related to the machine
CNC. Therefore, they must be treated as the primary element of the CNC machine (Ingram
2018).

COST OF MACHINE AS WELL AS OTHER ACCOMPANYING COST (SECONDARY
ELEMENT):
In this case, identifying the elements of secondary nature plays a crucial role related to the
expenditure of the machine. There is a need to evaluate the problems that are discussed above.
After finding out these particular issues, it is clear that the second important element associated
with machine CNC is due to buying of a guiding rod. For establishing a machine, installation is
an essential procedure and the continuation of the machine’s operation is the second thing.
Therefore, for operating the machine, a guiding rod is positively needed and an expense
associated with it is considered as the second component of the machine. In the absence of the
guiding rod, preparing the machine’s operation becomes highly difficult (Classic.austlii.edu.au.
2019). However, the guiding rod cost is treated as the other cost to the machine because it helps
to the operation of the machine. Therefore, the expenses related to the guiding rod must be
treated as a secondary element associated with machine CNC.

LAWS RELATED WITH THE INITIATION DATE OF CNC MACHINE:
The machine was purchased on 1st November of 2014 and installed on 15th January, in the year
2015. After the guiding rod was purchased on 1st February of 2015, the machine started its
operations. Therefore, all these stated factors caused conflict at the time of calculating the
machine’s time of initiation. This is because there were various dates involved in this process
(Davidson and Evans 2015). For removing these obstacles, there is a need to consider, ITAA
1997, section 110.25. Therefore, based on this, the date of the initiation at which the machine
had started operating is 1st February, 2015. After this date, the machine started its operation. So,
this particular date is considered as the date of initiation of the machine CNC (Huizinga, Voget
and Wagner 2018).

CONCLUSION:
According to this case after considering all the above-stated facts it can be concluded that
machine CNC was purchased in the year 2014, 1st November from Germany. Various issues
occurred towards the maintenance of this process. Hence, there was a need to finalize the issues
so that the issues can be minimized. These issues were related to the machine itself as well as
several elements. These stated issues were related to the ITAA 1997 provision. However, the
ideas for minimizing these issues clear from the ‘Income Tax Assessment Act 1997’. The
reasons for these issues have been analyzed and therefore, the associated solutions have been
formulated. Therefore, the purchase of the machine CNC led to several issues or problems that
are resolved with the help of the Income Tax Assessment Act, 1997.