Question

You are working as a tax consultant in Mayfield, NSW. Your client is an investor and antique collector. You have ascertained that she is not carrying on a business. Your client provides the following information of sales of various assets during the current tax year:

(a) Block of vacant land. On 3 June of the current tax year your client signed a contract to sell a block of vacant land for $320,000. She acquired this land in January 2001 for $100,000 and incurred $20,000 in local council, water and sewerage rates and land taxes during her period of ownership of the land. The contract of sale stipulates that a deposit of $20,000 is payable to her when the contract of sale is signed and the balance is payable on 3 January of the next tax year, when the change of ownership will be registered.

(b) Antique bed. On 12 November of the current tax year your client had an antique four-poster Louis XIV bed stolen from her house. She recently had the bed valued for insurance purposes and the market value at 31 October of the current tax year was $25,000. She purchased the bed for $3,500 on 21 July 1986. Although the furniture was in very good condition, the bed needed alterations to allow for the installation of an innerspring mattress. These alterations significantly increased the value of the bed, and cost $1,500. She paid for the alterations on 29 October 1986. On 13 November of the current tax year she lodged a claim with her insurance company seeking to recover her loss. On 16 January of the current tax year her insurance company advised her that the antique bed had not been a specified item on her insurance policy. Therefore, the maximum amount she would be paid under her household contents policy was $11,000. This amount was paid to her on 21 January of the current tax year.

(c) Painting. Your client acquired a painting by a well-known Australian artist on 2 May 1985 for $2,000. The painting had significantly risen in value due to the death of the artist. She sold the painting for $125,000 at an art auction on 3 April of the current tax year.

(d) Shares. Your client has a substantial share portfolio which she has acquired over many years. She sold the following shares in the relevant year of income:

(i) 1,000 Common Bank Ltd shares acquired in 2001 for $15 per share and sold on 4 July of the current tax year for $47 per share. She incurred $550 in brokerage fees on the sale and $750 in stamp duty costs on purchase.(ii) 2,500 shares in PHB Iron Ore Ltd. These shares were also acquired in 2001 for $12 per share and sold on 14 February of the current tax year for $25 per share. She incurred $1,000 in brokerage fees on the sale and $1,500 in stamp duty costs on purchase (iii) 1,200 shares in Young Kids Learning Ltd. These shares were acquired in 2005 for $5 per share and sold on 14 February of the current tax year for $0.50 per share. She incurred $100 in brokerage fees on the sale and $500 in stamp duty costs on purchase. (iv) 10,000 shares in Share Build Ltd. These shares were acquired on 5 July of the current tax year for $1 per share and sold on 22 January of the current tax year for $2.50 per share. She incurred $900 in brokerage fees on the sale and $1,100 in stamp duty costs on purchase.

(e) Violin. Your client also has an interest in collecting musical instruments. She plays the violin very well and has several violins in her collection, all of which she plays on HI6028 Taxation Theory, Practice and Law T2 2018 a regular basis. On 1 May of the current tax year she sold one of these violins for $12,000 to neighbor who is in the Queensland Symphony Orchestra. The violin cost her $5,500 when she acquired it on 1 June 1999. Your client also has a total of $8,500 in capital losses carried forward from the previous tax year, $1,500 of which are attributable to a loss on the sale of a piece of sculpture which she sold in April of the previous year.

Required: Based on this information, determine your client’s net capital gain or net capital loss for the year ended 30 June of the current tax year.

Answer 1

Computation of Capital Gains/Losses for the client

Note: Since antique beds and paintings are not the client's personal moveable but are part of her investments, hence their sale is liable to Capital gains tax

1. Sale of vacant land (A):

Full value of consideration : $320000

(received or receivable as per

agreed terms in the sale deed)

Less : Cost of acquisition : - $100000

Less : Cost of additions or improvements: -$20000

Less: Cost to sell: -$0

Capital gains from sale of vacant land (A)- $200000

2. Sale of investments in antique bed (B):

Full value of consideration : $11000

(Actual amount received from the insurance co.)

Less : Cost of acquisition : - $3500

Less : Cost of additions or improvements: -$1500

Less: Cost to sell: -$0

Capital gains from sale of antique bed (B)- $6000

1. Sale of Painting (C):

Full value of consideration : $125000

Less : Cost of acquisition : - $2000

Less : Cost of additions or improvements: -$0

Less: Cost to sell: -$0

Capital gains from sale of painting(C)- $123000

4. Sale of investments in shares(D):

Full value of consideration : $655300

(Shares of Common Bank Ltd-1000*$47/-

=$4700) +

(Shares of PHB Iron Ore Ltd.- 2500*$25/- =

$625000) +

(Young Kids Learning Ltd. - 1200* $0.50/- per share=$600)

+

(Share Build Ltd-10000*2.50/- =$25000)

Less : Cost of acquisition : - $49000

{(1000*15)+(2500*12)+(1200*5)+(10000*1)}

Less : stamp duty charges paid forming part of

purchase cost: -$3850

$(750+1500+500+1100)

Less : Cost to sell as brokerage fees: -$2550

$(550+1000+100+900)

Capital gains from sale of shares (E) : $599900

Note: Gains from sale of violin shall not be taxable as capital gains as violin is a personally used movable asset for the client and hence exempt.

CAPITAL GAIN IN CURRENT TAX YEAR: (A+B+C+D): $928900

Less : Brought forward capital loss: $8500

Net capital gains : $920400

Since sculpture forms part of investments of the client, gains from its sale shall be taxable and hence any brought forward capital loss shall also be allowed to be set off.

Capital gains from sale of vacant land (A)- $200000

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