Taxation Law Case Study Report: CLWM4100 Assessment Analysis

This report provides a comprehensive analysis of a Taxation Law case study, focusing on Capital Gains Tax (CGT) events and calculations. The report begins by explaining the timing of CGT events, referencing relevant sections of the ITAA 1997 and case law. It then addresses the case of Harrison Carter, an Australian resident with investment properties and shares. The report calculates his net capital gains (losses) for the years ending 2018 and 2019, using various methods, including the CGT Discount Method and the indexed cost method, for both property and share transactions. The analysis includes the acquisition and sale of an investment property and the purchase and sale of shares in Star Entertainment Ltd. The report concludes with a bibliography of the sources used for research and analysis.

Running head: CLWM 4100
CLWM 4100
Name of the Student
Name of the University
Author Note

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Table of Contents
Answer to Part 1...........................................................................................................................2
Answer to Part 2...........................................................................................................................3
Bibliography.................................................................................................................................5

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Answer to Part 1
The ATO guidelines recommend that a monetary transaction which results in the arising
of a Capital Gain or a Capital Loss can be described as a CGT event. CGT events usually tend to
deal with capital assets. However, some also involve capital receipts. One of the most widely
recognised CGT event in the ITAA 1997 is the sale of a CGT asset by a taxpayer. The guidelines
of s102-20 of ITAA 1997 suggest that for a capital loss or gain to occur, a CGT event must take
place. Division 104 in ITAA 1997 contains details of various transactions which can be
classified as CGT events and also describe the guidelines related to the timing of the CGT event.
This timing varies based on the nature of the transaction entered into by the parties. S104-10(1)
of ITAA 1997 suggests that a CGT event happens when an asset is disposed of or there is a
change in its ownership. S104-10(3) of ITAA 1997 along with the court’s decision in Sara Lee
Household suggests that a CGT event happens on the signing of the contract related to sale. In
case of an absence of contract, the date of change of ownership should be considered as the
timing of the CGT event. S104-15(1) states that the CGT event happens not on the signing of an
agreement to pass the usage of the asset. It only happens on the other party receiving the claim
and the right of using the asset. S104-20(1) suggests that when there is a loss of the asset due to
destruction, the timing of the CGT event is the time of receiving the compensation for the loss. If
there is no compensation, then the date of loss or destruction is the timing of the CGT event.
Under s104-25(1), a CGT event also happens on the surrender of a right, cancellation of a
contract or the ending of the ownership by the taxpayer. Another most common form of a CGT
event occurs when a new CGT asset is brought to life as per s104-35(1) and s104-40(1). This
asset can be said to have begun to exist on the signing of the contract. These are the different
methods in which the timing of a CGT event is measured in calculating the capital gains tax paid

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by an individual. The cost base of the asset is taken on the basis of the timing of the acquisition
of the asset. The tax liability is also calculated in a similar manner.
Answer to Part 2
It has been stated that Harrison Carter is a resident of Australia and has various properties
which can be classified as CGT assets. Advice is to be provided to him on the basis of the
transactions entered into by him and the capital gains liability arising from the same. The
primary property of Harrison is the investment property owned by him. The contract to purchase
this property was signed by both the parties on 24 January 1999 for an agreed fees of $800000
and the payment of $80000 was given to the other party. However, the completion of the
payment related to the asset took place on 5 December 2001, when the property’s market value
was $1 million. The completion of the sale of the property happened on 14 June 2018 for $1.3
million. In this situation, the tax liability of Mr Carter’s capital gains is to be calculated by taking
$800000 as the cost base of the asset. Under the CGT Discount Method, his tax liability for 2018
is calculated to be $282500. Using the indexed cost method, the capital gains earned by him are
valued at $424381. Another property owned by Mr Carter is the shares in Star Entertainment
Ltd. These shares were purchased for a cost of $4 per share and sold for a consideration of $12
per share. The capital gains tax of Mr Carter for 2019 would be calculated on this property for
the year 2019. Using the indexation method, the capital gains of Mr Carter for the year 2018 are
calculated to be $40000. This is calculated by deducting the cost of acquisition of $80000 from
the sale proceeds of $120000. Similarly, the Capital gains for 2019 are also calculated using the
Indexation Method. Calculating the capital gains through this method is done through using the
indexation for the fourth quarter of 1985 which is made equivalent to the cost as on the 3rd
quarter of September 19999. On this basis, the CGT for 2019 is calculated to be $52148. Hence,

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it can be suggested that Mr Carter’s tax liability is lower when using the Discounted CGT
method and the same should be used in calculating his annual tax liability.

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Bibliography
Ato.gov.au. (2020). Working out your capital gain. [Online] Available at:
https://www.ato.gov.au/General/Capital-gains-tax/Working-out-your-capital-gain-or-loss/
Working-out-your-capital-gain/ [Accessed 20 Jan. 2020].
Ato.gov.au. (2020). Obtaining and owning a rental property. [Online] Available at:
https://www.ato.gov.au/General/Property/Residential-rental-properties/Obtaining-and-owning-a-
rental-property/ [Accessed 20 Jan. 2020].
Ato.gov.au. (2020). Capital gains tax. [Online] Available at:
https://www.ato.gov.au/General/Capital-gains-tax/ [Accessed 20 Jan. 2020].
Legislation.gov.au. (2020). Income Tax Assessment Act 1997. [Online] Available at:
https://www.legislation.gov.au/Details/C2017C00336/Controls/ [Accessed 20 Jan. 2020].

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