CLWM4100: Taxation Law - CGT and Capital Gains Analysis

This report addresses a taxation law case study, focusing on Capital Gains Tax (CGT) events and calculations. Part one defines CGT events according to the Australian Taxation Office (ATO) guidelines, referencing relevant sections of the Income Tax Assessment Act 1997 (ITAA 1997) and case law to explain event timing. Part two provides tax advice to Harrison Carter, an Australian resident, calculating his net capital gains for the years ending 2018 and 2019, using the CGT discount method and the indexation method, comparing the outcomes to determine the most beneficial approach for minimizing tax liability. The report covers an investment property and shares, detailing acquisition and sale dates and values. The analysis includes the application of CGT rules and methods to determine the capital gains or losses incurred by Harrison Carter. The bibliography lists the resources used in the report.

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

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TAXATION LAW
Table of Contents
Part One........................................................................................................................................2
Part Two.......................................................................................................................................3
Bibliography.................................................................................................................................6

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Part One
According to the guidelines of the Australian Taxation Office (ATO), a CGT event can
be defined as an event or a transaction that may ultimately result in a capital gain or loss for the
people involved in the sale. A majority of the CGT events contain a CGT asset while others are
related to a capital receipt. The most common form of a CGT event occurs when the CGT asset
is sold to a related party. As held by s102-20 of ITAA 1997, a capital gain or loss occurs only
when a CGT event happens. The various aspects related to the CGT events are covered by
Division 104 of ITAA 1997. The timing of a CGT event is dependent on the nature of the
transaction as suggested by ITAA 1997. Under section 104-10(1) of ITAA 1997, a CGT event
occurs when a CGT asset is disposed off and there is a change in the ownership. As per s104-
10(3) of ITAA 1997 and the case of Sara Lee Household, the timing of this event happens when
the contract to sell happens and in case of no contract, the change in the ownership occurs.
Another CGT event occurs when a taxpayer signs an agreement in which the right to use and
enjoy an asset is passed on to another party under s104-15(1) of ITAA 1997. In this case, the
timing of the CGT event happens when the other party first gets the use and enjoyment of the
asset. In case of the loss or destruction of a CGT asset under s104-20(1) of ITAA 1997, the CGT
event occurs when the compensation for such loss is received or when the actual destruction
occurs when there is no compensation. A similar CGT event happens when there is a
cancellation, surrender or ending of the ownership of an asset by a taxpayer under s104-25(1).
As per s104-25(2), the CGT event occurs when the contract to end the ownership is entered into.
The other form of CGT events happen when an asset is brought into existence. Under s104-35(1)
and s104-40(1), when a contractual obligation is signed, a CGT asset is said to come into

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TAXATION LAW
existence. This is also the timing of the CGT event. Hence, these are the various aspects which
can be constituted as the timing of a CGT event.
Part Two
In this case, the advice on Capital Gains is to be provided to Harrison Carter, who is an
Australian resident. One of them is his investment property, the contract for which was signed on
24 January 1999. The further settlement regarding this property was completed on 5 December
2001, when the market value of the property was $720000, when the market value of the
property was $1 million. In this case, the purchase date of the property will be considered to be
the date when the agreement was entered into. The sale of this property happened on 14 June
2018. The other CGT asset is his shares in Star Entertainment Ltd., which were acquired for $4
per share and sold for $12 per share. The timing of the CGT event will be taken as the date when
the transfer is registered. The CGT of an individual can be calculated using the CGT discount
method, Indexation method and the ‘Other Method’.
Net Capital Gains of Harrison Carter under the CGT Discount Method:
For the year 2018
Particulars Amount
Sale proceeds from the property $
1,300,000
Less: Cost of acquiring the asset $
800,000
Capital Gains $
500,000

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Capital Losses incurred $
(65,000)
Capital gains during 2018-19 $
565,000
Less: 50% reduction under Discounted
Method
$
282,500
Net Capital gains during 2018 $
282,500
For the year 2019
Particulars Amount
Proceeds from sale of shares $
120,000
Less: Cost of acquiring the shares $
40,000
Capital Gains earned during the year $
80,000
Less: 50% reduction under Discounted
Method
$
40,000
Net Capital Gains during 2019 $
40,000
CGT under the Indexation Method:

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For the year 2018
Particulars Amount
Sale Proceeds from the property $
1,300,000
Less: Indexed Cost of Acquisition $
810,619
Capital gains earned $
489,381
Less: Capital Losses Incurred during the
year
$
65,000
Net Capital Gains earned during the year $
424,381
For the year 2019
Particulars Amount
Sale proceeds from Shares $
120,000
Less: Indexed Cost of Acquisition $
67,852
Capital Gains earned during the year $
52,148

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In this case, as both the assets owned by Harrison Carter are for more than 12 months, the
‘other method’ of calculating CGT is not being implemented. The results suggest that using the
Discounted Method provides lower capital gains for Mr Carter than the Indexation method for
both 2018 and 2019. Hence, this method should be used in calculating the capital gains of Mr
Carter due to the lower tax liability from the same.
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].