Capital gain: Australian Taxation law

Capital gain: Australian Taxation law

Jasmine is an Australian resident. She is 65 years old and born in the UK, is now selling her Australian assets as she is retiring from her business as a cleaner and going back to the UK. Jasmine is selling the following assets:

  1. Jasmine’s home was purchased in 1981 for $40,000 and now worth $650,000. This home was Jasmine’s main residence since she purchased the house.
  2. Jasmine purchased a car in 2011 for $31,000 and is now worth around $10,000.
  3. Jasmine commenced her ‘small cleaning business’ herself and now found a buyer to take over the cleaning business for $125,000. The sale price includes $65,000 for all of the business equipment, which cost $75,000, and $60,000 for goodwill.
  4. Jasmine is also selling her furniture for $5,000. No single item offered for sale cost more than $2,000.
  5. Jasmine has several paintings and is now selling them all for $35,000. All of her paintings were purchased in second-hand shops or markets and no single painting cost more than $500. The one exception was a painting she purchased directly from an artist for $1,000. This painting is being sold for $5,000.

Advise Jasmine of the CGT consequences of the above sales. Include relevant legislative references to support your answer.

QUESTION 2 (10 MARKS)

John owns a motor vehicle parts and accessories manufacturing company. The business produces certified BMW parts. John purchased an industrial computer numerical control (CNC) machine imported from Germany on 1 November 2014 for $300,000. John visited the CNC factory to inspect the CNC machines and place his order. The only reason for his visit to Germany was to purchase the CNC machine. The trip to Germany cost John $12,000. The CNC machine needed to be installed by specialists and bolted to his factory floor. The installation of the CNC machine was completed on 15 January at a cost of $25,000. Once the CNC machine was installed and John started using the CNC machine he discovered that the CNC machine required an additional guiding rod to make it more effective. This guiding rod was installed on 1 February at a cost of $5,000. Calculate the cost of the CNC machine for the purpose of calculating the capital allowance. What is the start time for calculating the decline in the value of the asset? Include relevant legislative references to support your answer.

Assignment Structure should be as the following (students’ responses involves calculations, and students must refer to the relevant legislation and cases whenever required according to the questions).

For question 1, address the following elements:

  1. The capital gain in relation to the family home
  2. The capital gain or loss made from the car
  3. The capital gain in relation to the sale of the business
  4. The capital gain in relation to selling the furniture
  5. The capital gain in relation to selling the paintings

For question 2, address the following parts:

Issue: Identify and discuss the problem.

Law and Application: Discussion of the first element of the cost of the CNC machine. Set out the legal principles that will be used to address the problem. Source legal principles from cases and legislation.

Law and Application: Discussion of the second element of the asset’s cost, i.e. the start time for calculating the decline in the value of the CNC machine. Set out the legal principles that will be used to address the problem. Source legal principles from cases and legislation.

Law and Application: Concluding discussions regarding the exact start time of holding the CNC machine for depreciation purposes, and the total cost of the machine. Set out the legal principles that will be used to address the problem. Source legal principles from cases and legislation.

Conclusion: Stand back and play ‘the judge.’ Choose the argument and conclusions you think is the strongest and articulate what you believe to be the appropriate answer

Snippet

A capital gain or loss in taxation is described as the difference between what has been realized after a sale, less all the expenses, and the cost of the property. Under Australian law, the taxable capital gain is 50% for individual taxpayers and 33.3% in the case of superannuation funds. The allowable capital loss is 50% of the loss[1].

Bibliography

[1] Woellner, Robin, Stephen Barkoczy, Shirley Murphy, Chris Evans, and Dale Pinto. “Australian Taxation Law 2016.” OUP Catalogue (2016). Online. https://ideas.repec.org/b/oxp/obooks/9780190304386.html

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