Question

Emma has provided to you a listing of the transactions she has undertaken throughout the financial year to assist you in completing her 2015 income tax return.

Sale of a block of land for $1,000,000: Emma purchased the land as an investment in 1991. The purchase price was $250,000, plus $5,000 in stamp duty, $10,000 in legal fees. To fund the purchase, she took out a loan on which she paid interest totalling $32,000. During the period of ownership her council rates, water rates and insurance totalled $22,000. In January 2005 a dispute occurred with a neighbour over the use of the land and legal fees incurred amounted to $5,000 in resolving this dispute. Before putting the property on the market $27,500 was spent to remove a number of large dangerous pine trees that were on the land. Advertising, legal fees and agent’s fees on the sale of the land were $25,000.

Sale of Emma’s 1000 shares in Rio Tinto for $50.85 per share: Emma paid brokerage fee of 2% on the sale. Emma initially purchased the shares for $3.5 per share in 1982.

Sale of a stamp collection Emma had purchased, from a private collector, in January 2015 for $60,000: Emma sold the collection at auction for $50,000. Auction fees totalled $5,000 for the sale.

Sale of a grand piano for $30,000: It was initially bought for $80,000 in 2000.

HI6028 Taxation Theory, Practice and Law Individual Assignment T2.2019 4

Advise Emma of the capital gain tax (CGT) consequences of her transitions. Ignore indexation. Your answer must include references to relevant tax law and or cases.

IMPORTANT

Hello, To support our answer we need to refer to the correct key section of the law. Support your answer by referring to relevant statutory & case law.

Answer 1

SOLUTION:

Given That data Emma has provided to you a listing of the transactions she has undertaken throughout the financial year to assist you in completing her 2015 income tax return.

Sale of a block of land for $1,000,000: Emma purchased the land as an investment in 1991. The purchase price was $250,000, plus $5,000 in stamp duty, $10,000 in legal fees. To fund the purchase, she took out a loan on which she paid interest totalling $32,000. During the period of ownership her council rates, water rates and insurance totalled $22,000. In January 2005 a dispute occurred with a neighbour over the use of the land and legal fees incurred amounted to $5,000 in resolving this dispute. Before putting the property on the market $27,500 was spent to remove a number of large dangerous pine trees that were on the land. Advertising, legal fees and agent’s fees on the sale of the land were $25,000.

Sale of Emma’s 1000 shares in Rio Tinto for $50.85 per share: Emma paid brokerage fee of 2% on the sale. Emma initially purchased the shares for $3.5 per share in 1982.

Sale of a stamp collection Emma had purchased, from a private collector, in January 2015 for $60,000: Emma sold the collection at auction for $50,000. Auction fees totalled $5,000 for the sale.

Sale of a grand piano for $30,000: It was initially bought for $80,000 in 2000.

HI6028 Taxation Theory, Practice and Law Individual Assignment T2.2019 4

Advise Emma of the capital gain tax (CGT) consequences of her transitions. Ignore indexation. Your answer must include references to relevant tax law and or cases.

So the answer is given bellow

1) Generally any assesse whose income exceeds the basic exemption then such assessee is liable to pay tax.Basic exemption may be different from one assesse to another assesse.

For example Whose age does not exceed the 60 years then for such assesse basic exemption will be 2,50,000.

But in that basic exemption does not include the Long term Capital gain.For Such long term capital gains assesse is liable to pay tax @ 20% of such income.

If it long term capital assets then long term capital gain will be applicable.

Long term capital assets will be consider only if period of holding is more than 36 months in case of land or Building. If it is shares then period of holding should be More than 24 months.

In the our question both the land and shares are to be considered as long term capital asset only because period of holding is more than 36 and 24 months so we have to pay long term capital gain on the above income.

Even assesse does not exceed basic exemption limit then also such assesse is liable to pay tax for capital gain.

According to the Manjula J Shaw Case law if any gift given by the relative to the assesse then the period of holding should be consider from the previous year.

Computation of Capital Gain of Emma for the Year 2015

Land:

Sale Value : $10,00,000

Expenses: ($ 57,500)

Purchase Consideration: ($2,65,000)

Cost of Improvement $ 0

(A)Gross Long term Capital for Land:$ 6,77,500.

(B) SHARES:

Sale Value (1000 shares × $ 50.85) :    $50,850

Sale Expenses (50850×2%) ($1017)

Cost of Acquisition (1000×3.5) ($3500)

(B)Gross Long term Capital on shares ($46,333)

(C) STAMP COLLECTION:

Sale Value $50000

Expenses ($5000)

Cost of purchase ($ 60000)

loss on slae ($15000)

(C)Loss on sale of Stamp Collection ($15000)

(D) PIANO

Sale Value ($30000)

Expenses -

Purchases ($80000)

Loss on sale ($50000)

(D) Loss On sale of Grand Piano ( $ 50000)

Total Long term Capital Gain : A + B + C + D

$6,77500 + (46,333) +($15000) +(50000)

= $ 566,167

Tax on Long term Capital gain for the following period 2015 will be $ 566167 × 20% = $ 1,13,233.

Assesee can be eligible to set off Loss on long term capital asset with the gain on long term capital asset Only on net amount should be assesee should be liable to pay tax.

If assesee is an individual then such assesse is require to fiel the income tax return on or before the 31st July of the Assessment year as per income tax act 1961.