Question
In: Accounting
Alex is a carpenter who purchased a vacant block of land in Sydney on 1 October...
Alex is a carpenter who purchased a vacant block of land in Sydney on 1 October 1980. On 1 September 1986, Alex built a house on the land. At the time, the land was valued at $110,000 and the cost of construction was $100,000. Immediately, after the construction finished, the property has been rented out. On 1 March 2019, Alex sold the property at auction for $1,400,000. With reference to relevant legislation/case law determine: (A) Alex’s net capital gain or net capital loss for the year ended 30 June 2019 using both Discount method and Indexation method. (B) How would your answer to (A) differ if the owner of the property was a company instead of Alex?
Solutions
Expert Solution
| A) | Profit on sale | |
| Total Sales value | 1,400,000.00 | |
| Less: cost of land | (110,000.00) | |
| Cost of Construction | (100,000.00) | |
| Profit on sale is | 1,190,000.00 | |
| Capital gain on discounted methode | 595,000.00 | |
| As per Australian govt discounted rate is 50% - The property should be bought before 12 months and more | ||
| Capital gain on Indexation method | 712,134.15 | |
| If the capital gain tax event happened before 11.45am (by legal time in the ACT) on 21 September 1999, you use this formula: | ||
| A is the CPI for quarter ending 30 September 1999 | 68.7 | |
| B is the CPI for quarter in which expenditure was incurred | 114.8 | |
| C is the indexation factor | 0.598 | |
| a/b=c | 0.60 | |
| b) | In this case if the owner is company discounted methode will be applicable | Not Applicable |
| Indexation method | 712,134.15 |
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