Karen is an Australian resident. She is 50 years of age and born in Ireland. She...

Karen is an Australian resident. She is 50 years of age and born in Ireland. She has decided to sell her Australian assets as she is retiring from her business as a retail owner and going back to Ireland. Karen is selling the following assets:

1. She purchased a home in 1981 for $60, 000 which she used as her main residency. Her home is now worth $100, 000.

2. She purchased a car in 2012 for $25, 000 which is now worth $ 50, 000.

3. Karen started a small retail business herself and now has found a buyer to take over her business for $150,000. The sale price includes $70, 000 for all of the business equipment, which cost $50, 000 and $90, 000 of goodwill.

4. Karen is also selling her furniture for $7, 000. No single item offered for sale cost more than $2, 000.

5. There are also several paintings that she is selling for $35, 000. All of her paintings were purchased in second hand shops and no single painting cost more than $500. The one exception was a painting she purchased direct from an artist for $1,000. This painting is being sold for $5, 000

Based on the above figures, you are required to deal with Capital Gain Tax. You must answer the following questions:

1. What is the Capital gain about the family home?

2. Capital loss or gain incurred from the car.

3. The capital gain related to the business sale.

4. The capital gain after selling furniture.

5. The capital gain concerned with the selling of paintings.

Expert Solution

Karen's Capital Gain Tax

Explanation:

The home was purchased in 1981 at a cost of $60,000 nd is now sold at $100,000. It will realize a capital gain of $40,000 but the amount will be exempt from tax because it has been the main home for Karen for the entire period.
The car that Karen purchased in 2012 at $25,000 that is now worth $50,000 will earn Karen a capital gain or profit of $25,000.
The business equipment that cost $50,000 now selling at $70,000 will earn Karen capital gain of $20,000. The goodwill that of $90,000 was paid for $80,000 ($150,000 - $70,000) will make Karen realize a capital loss of $10,000. Summing the capital gain and capital loss of the small business, Karen will earn a capital gain of $10,000 from the entire sale of the business.
There is no single item of furniture offered for sale cost more than $2, 000. We have not been told how many items were offered to calculate the total cost Therefore, it is not possible to calculate the capital gain or capital loss.
The painting purchased from an artist for $1,000 that is currently selling at $5,000 will realize a capital gain of $4,000 for Karen. The rest of the paintings will not be possible to calculate their capital gain or capital loss because they are not stated in quantity to help determine their cost.

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