CLWM4100 Taxation Law Assessment: CGT Event Timing and Tax Advice

This case study analyzes the timing of Capital Gains Tax (CGT) events and the taxability of capital gains for Harrison Carter, an Australian resident. The analysis focuses on two key scenarios: the sale of an investment property and the sale of shares. The solution explains the determination of the CGT event timing, referencing relevant legal precedents like "FCT v Sara Lee Household & Body Care P/L (2000)" and "McDonald v FCT (1998)" and applicable sections of the ITAA 1997. The case study details how the sale of the investment property in 2018 triggered a CGT event A1, and the transfer of shares on June 20, 2018, also constituted a CGT event. It also provides an overview of how to calculate capital gains and losses to be included in Harrison Carter's tax return for the years ending 2018 and 2019, including all available methods for calculation. The document provides insights into how the timing of CGT events is determined and its implications on tax liability. The case study is designed to help students understand the practical application of CGT principles and the analysis of tax implications for various transactions.

TAXATION LAW

Timing of CGT event
 The time of the CGT event represents the stage when the taxpayer enters in a contract
or denotes those circumstances when the change in ownership takes place.
 The high court most importantly gave its decision in “FCT v Sara Lee Household &
Body Care P/L (2000)” when the time of CGT event is determined.
 The applicable agreement amounts to those which becomes as the source of
obligation to carry out the transfer of assets that amounts to relevant sale.
 If it becomes difficult to recognize a single contract based on which the sale takes
place, then the time represents the occurrence of change in ownership.
 The date when the asset is sold and the date when the asset is purchase may appear
to be different and does not requires to be contemporaneous.

Taxability of CGT: Investment
Property
 As noticed, Harrison had sold a property that he had purchased in 1999. During the
year 2018 the property was sold by Harrison for a sales proceeds of $1.3 million.
 The sale of investment property has given rise to “CGT event A1” under “section
104-10 (1)”. Referring to “McDonald v FCT (1998)” a “CGT event A1” happened
when a contract for sale of investment property was entered into by Harrison.
 Upon the sale of property a change in ownership happened. Accordingly, the net
value of capital gains under the “section 102-5 ITAA 1997” represents the capital
proceeds derived by Harrison from disposing the asset.
 As a result the amount will be counted within the assessable earnings of Harrison.

Taxability of CGT: Shares
 The decision of entire shares were made and the transfer document was
handed by Harrison on 20th June 2018.
 By citing the law court judgement made in “FCT v Sara Lee Household (2002)” it
can be stated that the time of CGT event is 20th June 2018.
 This is because the transfer document and agreement was formed on 20th July
and this represents a change in ownership took place on 20th June 2018.
 Denoting “sec 104-10 (3) ITAA 1997” the relevant time of CGT event is the
income year of 2017-18 because it is the year when the agreement was formed
and ownership of the asset was exchanged by Harrison.

Thank You