Question

aryn would like to open a new business as an interior designer, to funds her ambition she sold some of the following assets: Antique Painting that was given to Taryn by her father 5 years ago. Taryn’s father bought it on 20 August 1984 for $2,500. Taryn sold it on 1’st June 2020 for $25,000 Taryn sold her car (Toyota Corolla) for the amount of $12,000 on 20’th May 2020, she bought on 1’st January 2015 for the amount of $20,000 Taryn sold her Harry Potter’s collection for the amount of $1,500 on 4’th January 2020, she bought it second hand on 10’th October 2018 for $350. Taryn sold her gold necklace for $2,000 on 20’th March 2020, she bought it for $1,200 on 8’th August 2018 Taryn sold a sculpture for $6,000 on 1 January 2020, she bought it on December 1994 for $1,500 Advise the Capital Gain Tax Consequences for the above transactions, please have a look at the matrix below on how to answer the question This Question will test your knowledges about CGT (Capital Gain Tax) especially about Specific assets (Collectibles and Personal Use Assets), so please make sure you understand the concepts and the special rules about those. You also need to incorporate the "Indexation method" and "Discount Capital gain" method if its applicable Please review your Pre recorded lectures and Interactive Tutorial Session for Capital Gain Tax Please remember, when you can use Indexation and Discount Capital Gain For examples: 1. If you purchase a CGT asset after 21'st September 1999, you can only use Discount Capital Gain Method 2. If you purchase a CGT asset before 21'st September 1999, and you disposed the asset after 21'st September 1999, you use both Indexation and Discount Capital Gain. Later on you need to advise which one will give you a better result.

Answer 1

It is assumed that Taryn is an Australian resident at the time of the following Capital Gain Tax events.

1. Antique Painting that was given to Taryn by her father 5 years ago. Taryn’s father bought it on 20 August 1984 for $2,500. Taryn sold it on 1’st June 2020 for $25,000

A. Material facts – Sale of antique painting given by Taryn’s father for $25,000 which was bought for $2,500 on 20 August 1984.

Legal issues/ legal question and relevant taxation law/ Application of ITAA 1997 – The antique painting will fall under collectible i.e. artwork as per section 108-10 of Income Tax Assessment Act 1997, as it is being used mainly for personal use or enjoyment.

As per section 124-10 of the Income Tax Assessment Act 1997; any capital gain or loss made from an asset acquired before 20th September 1985 will be exempt.

Conclusion – No capital gains tax consequences on the sale of the antique painting.

2. Taryn sold her car (Toyota Corolla) for the amount of $12,000 on 20’th May 2020, she bought on 1’st
January 2015 for the amount of $20,000

A. Material facts – Sale of car

Legal issues/ legal question and relevant taxation law/ Application of ITAA 1997 – As per section 118-5 of the Income Tax Assessment Act 1997; any capital gain or loss made on the sale of a car is disregarded.

Conclusion – No capital gains tax consequences on the sale of the car.

  

3. Taryn sold her Harry Potter’s collection for the amount of $1,500 on 4’th January 2020, she bought it
the second hand on 10th October 2018 for $350.

A. Material facts – Sale of Harry Potter’s collection bought for $350

Legal issues/ legal question and relevant taxation law/ Application of ITAA 1997 – The Harry Potter collection will fall under collectible i.e. books as per section 108-10 of Income Tax Assessment Act 1997, as it is being used mainly for personal use or enjoyment.

As per section 118-10 (2) of Income Tax Assessment Act 1997; any capital gain or loss made from a collectible having a market value of $500 or less at the time when the collectible was acquired is disregarded. As Taryn has purchased the collection for $350 (assuming it to be the market value at the time of purchase), which is lower than $500, any capital gain or loss on its sale will be disregarded.

Conclusion – No capital gain or loss on the sale of Harry Potter’s collection.

4. Taryn sold her gold necklace for $2,000 on 20’th March 2020, she bought it for $1,200 on 8’th August 2018.

A. Material facts – Sale of gold necklace for $2,000 bought for $1,200

Legal issues/ legal question and relevant taxation law/ Application of ITAA 1997 – The gold necklace will fall under collectible i.e. jewelry as per section 108-10 of Income Tax Assessment Act 1997, as it is being used mainly for personal use or enjoyment.

As per section 118-10 (2) of Income Tax Assessment Act 1997; any capital gain or loss made from a collectible having a market value of $500 or less at the time when the collectible was acquired is disregarded. Taryn has purchased the necklace for $1,200 (assuming it to be the market value at the time of purchase), which is higher than $500; hence, the capital gain will be considered for taxation purposes.

Conclusion – Capital gain on sale of necklace i.e. $2,000 less $1,200 i.e. $800 will be considered for taxation purposes.

5. Taryn sold a sculpture for $6,000 on 1 January 2020, she bought it on December 1994

A. Material facts – Sale of sculpture for $6,000 acquired in December 1994

Legal issues/ legal question and relevant taxation law/ Application of ITAA 1997 – The sculpture falls under collectible i.e. artwork as per section 108-10 of Income Tax Assessment Act 1997, as it is being used mainly for personal use or enjoyment.

As per section 118-10 of the Income Tax Assessment Act 1997; any capital gain or loss made from a collectible on which interest was acquired for $500 or less is disregarded. As the sculpture is purchased before 16 December 1995; however, the cost of purchase of the sculpture is not provided it is not possible to comment on the capital gain tax consequences.

Conclusion – In case the interest was acquired in the sculpture by Taryn for $500 or less then there will be no capital tax consequence and vice versa.