Question

Lisa’s Darwin Home

Lisa sold her home in Darwin (contract date September 2019, settlement December 2019), receiving $1,220,000 at settlement. This is after legal fees ($12,000), advertising ($2,000) and real estate commissions ($25,000) were deducted. Records indicate that Lisa purchased the property in 2002 (contract date January, settlement March) for $653,000. Legal fees, commissions and advertising of $8,000 were also incurred. Lisa moved in within 6 months, selling her former residence during that time. Over the ownership period, Lisa rented the property for three years beginning December 2010, with $65,000 of $120,000 in non-capital costs claimed against rental income. The property was valued at $890,000 at the time it began being rented. Sculpture Lisa gave a sculpture, valued at $18,900, to her friend in June 2020.

The sculpture was purchased for $480 in December 2000 and repaired in March 2016 for $1,250.

Vase

When Lisa was playing with her cat in September 2019, the cat accidentally knocked over and broke a vase given to her by her grandmother in September 2018 (worth $6,100 at that time). The vase dated back to the Australian gold rush (circa 1850's) and, after undertaking some research, she discovered it was currently worth approximately $27,000. Lisa did not have insurance for the item. Cryptocurrency Lisa converted cryptocurrency into $27,200 Australian dollars in October 2019. To complete the transaction, she incurred $950 in transaction fees. Therefore, Lisa received $26,250 in cash. Lisa had acquired the cryptocurrency in September 2018 for $9,200 Australian dollars.

Shares Lisa sold

shares she held in a construction company in March 2020 for $182,000. She had purchased the shares for $37,200 in December 1986. Lisa has indicated that she has carried forward losses from prior years of $180,000 relating to a prior disposal of shares and land. We will have a meeting first thing Monday morning, so please complete your analysis by the end of Friday so I can review her circumstances over the weekend.

Required: You are required to calculate Lisa’s Net Capital Gain (loss) for the year ending 30 June 2020 based on the above information provided. In doing so, you must present an accurate and complete analysis.

Qa) Determine the taxable capital gain (loss) on the sale of the home. Briefly justify your answer/show all workings.

Qb) Determine the taxable capital gain (loss) on the sale of the Sculpture. Briefly justify your answer/show all workings

Qc) Determine the taxable capital gain (loss) on the sale of the Vase. Briefly justify your answer/show all workings

Qd) Determine the taxable capital gain (loss) on the sale of the Cryptocurrency. Briefly justify your answer/show all workings.

Qe) Determine the capital gain on the sale of the Shares. Briefly justify your answer/show all workings A.6 Determine the Net Capital Gain and/or Loss for Lisa. Briefly justify your answer/show all workings.

Answer 1

Lisa’s Net Capital Gain (loss) for the year ending 30 June 2020 based on the above information provided are as follows :

a) On the Sale of Home :

Lisa has sold her house after 3 years from the date of purchase. Hence, the Capital gain/loss applicable on the sale of home is Long Tem in nature.

Long Term Capital Gain is the difference in the Selling Price of the House and the Cost of the House.

Sale Price of the Home	$1,259,000
Less : Expenditure made on Transfer (Legal Fees, Advertising, Commission) $(12,000 + 2,000 + 25,000)	$39,000
Net Sales Consideration	$1,220,000
Less : Cost of Acquisition net of Legal Fees, Advertising, Commission of $8000	$645,000
Less : Capital Cost incurred on the house $(120,000 - 65,000)	$55,000
Long Term Capital Gain	$520,000

Answer : Total Capital Gain on the sale of home is $520,000

b) Sale of the Sculpture

The sculpture was purchased for $480 in December 2000, repaired (improvement) in March 2016 costing $1,250 and was then sold for $18,900 in June 2020. Therefore, Long Term Capital Gain is applicable in this transaction.

Sale Price of the sculpture	$ 18,900
Less : Purchase cost of the sculpture	$ 480
Less : Cost of Repairement	$1,250
Capital Gain (Loss)	$ 17,170

Answer : Total Capital Gain on the sale of sculpture is $ 17,170

c) Sale of Vase

The vase was given to Lisa by her grandmother in September 2018 whose value was $6100 at that time. Since the vase was not purchased by her, therefore her Cost of Acquisition becomes Nil. Later, in September 2019, Lisa's cat accidently breaks the vase as a result of which there is no Sale Consideration as it was not sold. Further, the Vase was also not insured resulting in no Cash Flow to Lisa. So, the current valuation of the vase, which Lisa finds out after the reseach, of $27,000 is irrelevant for the computation of Capital Gain(loss).

Answer : The Capital Gain (Loss) is therefore Nil because the Vase was not sold, but broken resulting in no Sales Consideration.  

d) Sale of the Cryptocurrency

The Cryptocurrency was purchased in September 2018 for $9,200 Australian dollars. Later on Lisa sold the crytocurrency for $ 27,200 Australian Dollars in October 2019 by incurring a transaction fee of $950 Australian Dollars. Hence, she incurred Short Tern Capital Gain(Loss).

Converted Cryptocurrency in October 2019	$ 27,200
Less : Transaction Fee	$ 950
Net Consideration	$ 26,250
Less : Purchase Cost of cryptocurrency	$ 9,200
Short Term Capital Gain (Loss)	$ 17,050

Answer : The Capital Gain from sale of Cryptocurrency is $ 17,050.