Taxation Law Assignment: Property Disposal and Capital Gains Analysis

This Taxation Law assignment provides a detailed analysis of capital gains tax (CGT) implications related to property disposal, focusing on the crucial role of the asset cost base as defined by s. 110-25 ITAA 1997. It meticulously calculates the cost base of a property, incorporating elements such as the purchase price, incidental costs like stamp duty, ownership costs (taxes), value appreciation-related capital expenditures, and title preservation costs. The assignment identifies the relevant capital event (A1 as per s. 104-5 ITAA 1997) and computes the capital gains by deducting the asset cost base from the sale price. It also addresses the adjustment for prior year capital losses and applies the discount method under s. 115-25 ITAA 1997 for long-term capital gains, ultimately determining the CGT payable. Desklib offers a wealth of similar solved assignments and past papers to aid students in their studies.

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Question 1
(a) With regards to finding the capital gains with regards to disposal of any asset, a crucial role is
played by the asset cost base. The calculation of asset cost base is driven by s. 110-25 ITAA 1997.
Subsection 110-25(1) ITAA 1997 states that the asset cost base is comprised of the following five
elements (Sadiq et. al., 2015).
 Purchase price of underlying asset as per ss. 110-25(2) ITAA 1997
 Buying and selling related incidental costs of the asset as per ss. 110-25(3) ITAA 1997
 Ownership costs related to holding of costs which typically consist of items such as various
taxes (council, water, land) , interest expenses (loan for investment) etc. as per ss. 110-25(4)
ITAA 1997.
 Value preservation or appreciation related capital costs which the taxpayer incurs in relation
to the asset as per ss. 110-25(5) ITAA 1997.
 Title preservation related capital costs which the taxpayer incurs in relation to the asset as
per ss. 110-25(6) ITAA 1997.
The asset under consideration in the given case is a property. The cost base of this asset needs to be
computed considering the key elements contributing to cost base as have been indicated above.
Element One: Property purchase price = $ 500,000
Element Two: Buying related incidental costs for asset acquisition in the form of stamp duty = $
25,000
Element Three: Ownership costs in the form of various taxes related to property = $ 25,000
Element Four: Value appreciation related capital expenditure that investor has done = $ 250.000
Element Five: Title preservation related capital expenditure related to lawyer fees = $ 5,000
Property cost base as per s. 110-25 ITAA 1997 = 500000 + 25000 + 25000 + 250000 + 5000 = $
805,000
(b) With regards to capital asset disposal, the relevant capital event is A1 as highlighted in s. 104-5
ITAA 1997. Considering the above legislative clause, the property sale would be referred to a A1
capital event. The classification of capital event is pivotal as the capital gains computation method is

linked to the underlying capital event. For an A1 event, capital gains computation can be carried out
by deduction of asset cost base from asset sale price (Woellner, 2015).
Land disposal related sale proceeds = $1,500,000
Cost base (as computed in part a) = $ 805,000
Therefore, property related capital gains = 1,500,000 – 805,000 = $ 695,000
Also, it is known that the taxpayer has capital loss from the previous tax year which will be adjusted
against the capital gains in the present year (Coleman, 2015).
As a result, net capital gains post adjustment =695000 – 40000 = $ 655,000
Based on the given information, it is known that the concerned property would result in long term
gains as the underlying holding period exceeded one year. This is significant as the discount method
under s. 115-25 ITAA 1997 is applicable only when the capital gains are long term (Barkoczy, 2017).
Property related capital gains that would be levied CGT = 0.5*655000 = $ 327,500

References
Barkoczy, S. (2017) Foundation of Taxation Law 2017 (9th ed.). North Ryde: CCH Publications.
Coleman, C. (2015) Australian Tax Analysis (4th ed.). Sydney: Thomson Reuters (Professional)
Australia.
Sadiq, K., Coleman, C., Hanegbi, R., Jogarajan, S., Krever, R., Obst, W., & Ting, A. (2015) Principles of
Taxation Law 2015 (7th ed.). Pymont: Thomson Reuters.
Woellner, R. (2015) Australian taxation law 2015 (8th ed.). North Ryde: CCH Australia.