Question

APPLICABLE COUNTRY AUSTRALIA

(This is the entire question, apply any assumptions if necessary)

Ken entered into a contract to purchase two retail store premises in June 2003. The cost of each was $300,000, with stamp duty of $20,000 each. Settlement was during August 2003.He used these retail premises (which had been previously unoccupied) to commence a business that sold furniture to the public.

During the time that Ken owned the store, they each had an annual aggregated turnover of approximately $3 million.During November 2019, Ken, who was 53 at the time, wanted to have more spare time and not carry on a business anymore.He had found that although his turnover was high, after costs his profits were very modest.As a result, he entered into the following contract with Jane:

•The first of the two furniture premises was to be sold to Jane for $1,200,000,and the goodwill attached to it sold to Jane for $400,000.

•The second store was to be rented to Jane for a two year lease (with an option to renew for another two year period). Rent was set at $2,000 a month, with an upfront lease premium of $25,000 payable.

•Jane was to pay Ken $200,000 to not compete with her for the following 3 years.At the time of the November 2019 contract, Ken owned the following assets:

•Full ownership of a main residence in Hawthorn, worth $3 million.

•42% ownership of a company called PI Pty Ltd, which invests in rural properties. The total market value of PI Pty Ltd was $300,000.

•80% share on an investment property (Ken's cousin owns the other 20%). The total value of the property was $500,000.It had a $300,000 mortgage over it.

•Superannuation worth $1.5 million.•Shares in BHP worth $200,000.

•An apartment in Kew (see below)

On 1 December2015 Ken had bought an apartment in Kew to live in. This cost him $400,000. After living in it for 2 years, on 1 December 2017,Ken bought and moved into his Hawthorn house (mentioned above),which he from that point on claimed as his main residence. At the time, his apartment in Kew was worth $500,000, which he immediately rented out. The Kew apartment was sold for $510,000 in December 2019.

Advise Ken as to the CGT consequences regarding the 2019-20 tax year. In doing so please discuss Ken's ability to utilise the CGT Small Business Concessions. Please also include a discussion of the Net Capital Gain made by Ken for the 2019-20 tax year.

Answer 1

Alternate 1: Without Cost Inflation Index
	Income Under the Head Capital Gain
S.No	Particulars	Cost of Acquisition	Full Value of Consideration	Capital Gain
1	First retail outlet	3,20,000.00	16,00,000.00	12,80,000.00
2	Selling Right for not to do an act i.e., Non Compete Agreement	-	2,00,000.00	2,00,000.00
3	Apartment in Kew	40,000.00	5,10,000.00	4,70,000.00
	Total	3,60,000.00	23,10,000.00	19,50,000.00
Notes:
1	Cost of Acquisition of First retail store includes stamp duty of $20000.
General Assumptions
Note 1	Indexation is not considered since it vary country to country, and question does not give Capital Gain Inflation Index.

Alternate 2: With Cost inflation Index
	Income Under the Head Capital Gain
S.No	Particulars	Cost of Acquisition	Indexed Cost of Acquisition	Full Value of Consideration	Capital Gain
1	First retail outlet	3,20,000.00	8,48,440.00	16,00,000.00	7,51,560.00
( 320000*289/109)
2	Selling Right for not to do an act i.e., Non Compete Agreement	-	-	2,00,000.00	2,00,000.00
3	Apartment in Kew	40,000.00	45,512.00	5,10,000.00	4,64,488.00
(40000*289/254)
	Total	3,60,000.00	8,93,952.00	23,10,000.00	14,16,048.00
Notes:
1	Cost of Acquisition of First retail store includes stamp duty of $20000
General Assumptions
Note 1	Cost Inflation Index Table:
	Financial Year	Cost Inflation Index (CII)
	2001-02 (Base year)	100
	2002-03	105
	2003-04	109
	2004-05	113
	2005-06	117
	2006-07	122
	2007-08	129
	2008-09	137
	2009-10	148
	2010-11	167
	2011-12	184
	2012-13	200
	2013-14	220
	2014-15	240
	2015-16	254
	2016-17	264
	2017-18	272
	2018-19	280
	2019-20	289