Taxation Law Assignment: Capital Gains and Losses Analysis

This document presents a comprehensive solution to a Taxation Law assignment, addressing various aspects of capital gains and losses. The assignment analyzes a case study involving Jasmine, who is dealing with the sale of a house, car, furniture, cleaning business, and paintings, and calculating the capital gains or losses associated with each asset. The solution includes detailed calculations using the indexation method and CGT rules, referencing ITAA 1997. Furthermore, the assignment delves into the issues surrounding a CNC machine, identifying relevant costs, and determining its initiation date, including the application of relevant tax laws. The solution provides a thorough discussion of primary and secondary elements of the machine's cost and their impact on tax calculations.

Running Head: TAXATION LAW
Taxation Law
Name of the Student:
Name of the University:
Author Note

TAXATION LAW
Table of Contents
ANSWER TO QUESTION 1..............................................................................................3
THE IMPACT OF FAMILY INCOME IN CAPITAL GAINS:.....................................3
CAPITAL GAINS RELATED TO THE CAR:...............................................................4
CAPITAL LOSSES OR GAINS RELATED TO PERSONAL AND BUSINESS
FURNITURE SALES:.................................................................................................................5
CAPITAL LOSSES OR GAINS ASSOCIATED WITH BUSINESS SALES:..............5
CAPITAL GAINS OR LOSSES RELATED TO SALE OF PAINTINGS:...................6
ANSWER TO QUESTION 2..............................................................................................7
DISCUSSION AND IDENTIFICATION OF THE ISSUES:.........................................7
B) PRIMARY COMPONENT (MACHINE COST AND OTHER ACCOMPANYING
COST):.........................................................................................................................................8
C) SECONDARY ELEMENT (ASSOCIATED COST RELATED TO THE
MACHINE COST):.....................................................................................................................8
THE INITIATION DATE OF CNC MACHINE AND THE LAWS ASSOCIATED
WITH IT:.....................................................................................................................................9
CONCLUSION:..................................................................................................................9
REFERENCES..................................................................................................................10

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ANSWER TO QUESTION 1
THE IMPACT OF FAMILY INCOME IN CAPITAL GAINS:
Jasmine, the concerned person in this case bought a house in the year 1981 by paying $40000.
She has decided to sell her residence and the current value of the total asset is about $650000.
Jasmine is planning to return to UK and so she has decided to sell off the property. She found a
buyer, who wanted to buy the residence before the sale has been proceeded. Consumer price
index of the property needed to be computed to measure the value of the residence. The selling
of the property may cause capital gain or loss to the buyer and the seller (Blunden, 2016).
According the rules of Australian Tax Office, the properties that have been brought before
September 21, 1999 have to follow the indexation method while selling it off. In the present
study, the factors that need to be considered are the CPI factor of 1881 and 1999. These two
factors have taken into consideration after the utilization of indexation method and the
consideration of consumer price index. The two CPI factor helps to calculate the indexation
factor and the output after calculation is adjusted with the deposited amount of $40000. Apart
from this amount, there is no other amount involved in the calculation procedure. Hence, the
deposited value that is transformed is considered as the cost base of the property. The cost base
amount will deducted from the sales proceed amount of $650000 and this will help to acquire the
net gain. As per the sec-100.45 and sec-100.40 of ITAA 1997, the procedure of calculating the
property value is been conducted. Both of these acts are deals with the losses and gains related to
the capital.
Indexation Method 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

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CAPITAL GAINS RELATED TO THE CAR:
The present case depicts that Jasmine plans to sell her car that she brought in the year of 2011.
The car possesses a present value of $10000 whereas it has been brought with an amount of
$31000. The value of the car has been depreciated in the prior years. Likewise, the rules
regarding the residence, there are rules to measure the capital gains and losses related to an asset
(Spiro, 2018). According to the CGT or Capital gain Tax of Australia, the assets that were
purchased after September 20, 1999 have to follow the rule of CGT while calculating the capital
losses and gains related to the asset. The method of Indexation is also applicable in this context
as the car was purchased after 20th September in that year. Along with this method, two another
indexes need to be considered for the calculation (Classic.austlii.edu.au. 2019). The first one is
the passing year index and the second one is the index of the year in which the car is been sold.
After the calculation of the indexation factor, the calculated amount needs to be equitable with
the value that has deposited.
As the relative cost of the car is not provided in the case, hence the deposited value will be
assumed as the cost base value. The capital proceed amount of $10000 has been provided in this
context. The net loss related to the dealing can be obtained buy deducting the capital proceeds
amount form the base cost given. The deal of selling the car has incurred a capital loss. As per
ITAA 1997 sec-100.45 Jasmine did not incurred capital gain while selling the car.
Discounting Method Amount $
Indexation factor 1.443465492
Deposit * Indexation factor 44747.43025
Cost Base 44747.43025
Capital Proceeds 10000
Cost Base 44747.43

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Net Loss -34747.43
CAPITAL LOSSES OR GAINS RELATED TO PERSONAL AND BUSINESS
FURNITURE SALES:
Apart from selling the car and house, the concerned person in the case has also sold out her
furniture with an amount of $5000 that is higher by the amount of $2000. Based on ITAA 1997
the sec of 122.50, the calculation of capital gains and losses are not applicable in the sale of
personal furniture. In the present context, the personal furniture is been sold by Jasmine but she
cannot calculate the capital gains and losses related to it as it is not applicable in this case.
Therefore, Jasmine does not have the permission to calculate the capital gains based on the sale
of her personal furniture. The depreciation related to the furniture and the furniture itself is not
included for capital gain as per the rules of Australian Tax office. The Capital Gains Tax is not
included in the sales proceeding of this (Evans, 2019). Therefore, the sale of the furniture is been
considered as the extra income from other sources.
On the other hand, if the furniture has used for the business purpose then the capital gains and
losses will be calculated. In the case of personal use, the furniture cannot bring the capital gains.
There are independent provisions for both personal furniture and business furniture. Therefore,
the personal furniture will not be taken into consideration while calculating the capital gains.
CAPITAL LOSSES OR GAINS ASSOCIATED WITH BUSINESS SALES:
Jasmine, the discussed person in case has an intention to sell her cleaning business and searching
for a prospective buyer who can meet the expectations of her selling amount. The procedure of
sale involves both the balances related to the business equipment and good will of the company.
In the present context, these balances are added to the amount of $75000. Therefore, the cleaning
business of Jasmine encompasses all the factors that is required to calculate the overall capital
gains of the procedure. Based on ITAA 1997, the goodwill value and the sales value of the
business constructs the total sales proceedings. The subtraction of this from the equipment cost
helps to determine total gain. According to the sec-100.45 of ITAA 1997, the determined value
of the business has to be set by the person who possesses the business. Whereas, as per the rule,

TAXATION LAW
the sales achieved from business need to be treated as the relevant costs (Fry, 2017). Therefore,
the goodwill value is been determined by Jasmine and the amount is about $60000.
Particulars Amount $
Sale Proceeds 65000
Goodwill 60000
Total Sales Value 125000
Equipment Cost 75000
Net Gain 50000
CAPITAL GAINS OR LOSSES RELATED TO SALE OF PAINTINGS:
In this study, the concerned person brought both second hand and fresh paintings. She had
brought a painting cost $1000 from an artist and later sold it for $5000. The selling prices of
other paintings are kept at $500. Therefore, the capital gains and losses also depend on the sale
of these paintings. Accordingly, sec-104.225 of ITAA, 1997 the sale of the paintings contributes
in the determination of capital losses and gains (Greggi, 2017). The overall sales proceeding
amount of the paintings is $35000 and other relevant facts are not mentioned in the case. The
actual cost and the calculated sales amount of the paintings are different. Hence, the difference is
helpful to calculate Jasmine’s overall capital gain.
Particulars Amount $
Sale Proceeds 35000
Total Sales Value 35000
Painting Cost 5000

TAXATION LAW
Net Gain 30000
ANSWER TO QUESTION 2
DISCUSSION AND IDENTIFICATION OF THE ISSUES:
The major issues have been identified following the rules of ITAA, 1997. The issues are
mentioned below-
1. The cost of the guiding rod used for the operation in the machine needs to be included
with the cost of machine.
2. The cost related to the computer device should include the other relevant expenses to the
machine.
3. The travelling expenses should be included in the total cost of the machine.
4. The installation cost of the machine needs to be involved in the cost of total machine.
The provisions of Australian Tax Office and ITAA, 1997 helps to identify the issues regarding of
it. The estimated initiation time of CNC machine, assist to determine the responsible factor
behind the reduction of the asset value (Griffiths, 2016). After analyzing the data, we came to
know that the guiding rod made the machine ready for the production. Therefore, the guiding rod
has taken into consideration in this context. The other issues need to be discussed as they impact
the cost base of the machine.
Cost of CNC Machine Calculation
Discounting Method Amount $
Indexation factor 1.548762737
Deposit * Indexation factor 464628.821
Trip Cost 18585.15284
Installation Cost 38719.06841
Guiding Rod Cost 7743.813683

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Cost Base 529676.86
B) PRIMARY COMPONENT (MACHINE COST AND OTHER ACCOMPANYING
COST):
The cost of the machine in the time of purchase (1st November, 2014) was about $300000. The
associated costs of the machine need to be considered as the relevant costs as per the sec-109.60
of ITAA 1997. Therefore, the travelling expenses associated with the machine need to be taken
into consideration (Sippel, Larder and Lawrence, 2017). The buyer in this case went to Germany
to watch the state of the machine and this can be treated as relevant cost. Apart from the
travelling charges, the company has to bear machine installation charge that is another
accompanied cost. As per sec-110.25 of ITTA 1997, the installation charge of any machine
comes under the total expenses of the machine. Hence, the machine installation expenses and the
travelling expenditure have a direct relation with CNC machine (Heath, 2019). Therefore, these
costs need to be considered as the primary element of this machine.
C) SECONDARY ELEMENT (ASSOCIATED COST RELATED TO THE MACHINE
COST):
The secondary element of the machine also plays a great role along with the primary element. It
plays an important role beside the net expenditure of the machine. The issues discussed in the
previous need to evaluate with the help of proper assessment. After evaluating the issues, we
came to know that the expenses related to the purchase of guiding rod is the second important
element that is associated with CNC machine. However, the installation cost of the machine has
been considered as the primary and mandatory factor for machine establishment (Jia, Wang and
Fan, 2018). On the other hand, the continuation of the machine depends on the second element
that is the purchase of the guiding rod. Therefore, the expenses related to the maintenance of the
guiding rod have been considered as the second element. As the guiding rod plays a major role in
the operations of the machine, so without it the continuation of the operations became difficult.
Hence, it is an important factor for CNC machine. The expenditure related to the guiding rod
need to be considered as the second main element of the CNC machine (Oldham and Parkinson,
2017). Because, the cost of it is relevant to the associated machine cost and it is needed for
uninterrupted operations.

TAXATION LAW
THE INITIATION DATE OF CNC MACHINE AND THE LAWS ASSOCIATED WITH
IT:
The machine in this case was brought in the year of 2014 on 1st November. After that, it was sold
to a company that installed it on 15th January 2015. Following the installation of the machine, the
company brought the guiding rod to start the operation of the machine and has started the
operations from 1st February 2015. There are various dates in the procedure of the machine that
leads to the conflict while determining the initiation date of the machine. The several dates
associated with the machine proceedings is the main reason behind the conflict. Section 110.25
of ITAA 1997, has the capability to eliminate such problems. According to this section, the
initiation date of any machine is the first operation date of that machine (Sharkey and Murray,
2016). In this case study, the first operation date of the machine is 1st February 2015, hence it
will be considered as the initiation date of that machine.
CONCLUSION:
Lastly, considering all the factors we concluded that, there are many issues raised in the sales
procedures. The CNC machine mentioned in this case was brought on November 2014. The
raised issues were relevant to the machine and the primary and secondary elements related to it.
The Income Tax Assessment Act 1997 helped a lot to resolve the problems as the problems are
connected with the provisions of the ITAA. The solutions related to each problem have been
discussed in the above study. The ITAA act, 1997 plays a great role in resolving the issues
related to the purchase of CNC machine.

TAXATION LAW
REFERENCES
Blunden, H., 2016. Discourses around negative gearing of investment properties in
Australia. Housing Studies, 31(3), pp.340-357.
Classic.austlii.edu.au. 2019. INCOME TAX ASSESSMENT ACT 1997. [Online]
Classic.austlii.edu.au. Available at:
<http://classic.austlii.edu.au/au/legis/cth/consol_act/itaa1997240/> [Accessed 13 Sep.
2019].Classic.austlii.edu.au, 2019. [online] Available at:
<http://classic.austlii.edu.au/au/legis/cth/consol_act/itaa1997240/s110.25.html> [Accessed 13
Sep. 2019].
Evans, A.C., 2019. Why we use private trusts in Australia: The income tax dimension
explained. Sydney L. Rev., 41, p.217.
Fry, M., 2017. Australian taxation of offshore hubs: an examination of the law on the ability of
Australia to tax economic activity in offshore hubs and the position of the Australian Taxation
Office. The APPEA Journal, 57(1), pp.49-63.
Greggi, M., 2017. In Search of a Compass. Base Erosion, Profit Shifting and New Dilemmas in
International Taxation. Economic Journal, 119(537), pp.764-795.
Griffiths, J.J., 2016. Recognition of Foreign Administrative Acts in Australia. In Recognition of
Foreign Administrative Acts (pp. 51-89). Springer, Cham.
Heath, S., 2019. Tax files: Deemed dividends and private companies. Bulletin (Law Society of
South Australia), 41(1), p.33.
Jia, S., Wang, Y. and Fan, G.Z., 2018. Home-purchase limits and housing prices: Evidence from
China. The Journal of Real Estate Finance and Economics, 56(3), pp.386-409.
Oldham, J.T. and Parkinson, P., 2017. Evaluating Judicial Discretion-Family Property Law in
Australia and the USA Compared.

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Sharkey, N. and Murray, I., 2016. Reinventing administrative leadership in Australian taxation:
beware the fine balance of social psychological and rule of law principles. Austl. Tax F., 31,
p.63.
Sippel, S.R., Larder, N. and Lawrence, G., 2017. Grounding the financialization of farmland:
perspectives on financial actors as new land owners in rural Australia. Agriculture and Human
Values, 34(2), pp.251-265.
Spiro, P.S., 2018. Tax policy and the underground economy. In Size, causes and consequences of
the underground economy (pp. 179-201). Routledge.