Question

Question 1

Mr khan got some cash worth $ 500,000 and collectibles in inheritance, and his ancestors died on November 2003. The collectibles were acquired by the ancestors before September 1985 at a cost of $ 20,000.

And these collectibles were worth $ 100,000 on the date of death.

From the inherited amount, Mr Khan bought some shares in BHP for$ 50,000. And he bought a house in Burwood for $ 400,000 in 2003, also he bought a painting for $ 20,000 on the same date.

During the current year the painting was stolen and there was no insurance on the painting. He sold the shares in BHP (2000 shares @ $50, commission $1/share)

In 2015 Mr khan sold his property in Burwood for $ 700,000 and started living with his parents. Mr khan before moving into his parent’s house he was living in his Burwood property.

In 2015 he sold a diamond ring which was inherited from his ancestors for $100,000. This item was purchased for $ 50,000 in 18^th century. The market value of this diamond on the date of death was $ 20,000.

CALCULATE THE CAPITAL GAINS TAX OF MR KHAN. (Australian tax law)

Answer 1

when a deceased person acquired their asset before sept 1985 the first element of your cost base is market value of the asset on the date the person died hence, cost of collectibles is $100000. If asset is collectable & personal use , it continues to be one when you receive it .

Total amount received in inheritance is Cash - 500000$+ collectibles $100000+ daimond ring $20000 . It shall be taxable when the amount is further disposed off.

Further this amount is used to purchase shares , painting & house

No capital gain/ loss on stolen painting and Capital gain tax is exempt on dwelling houses as Mr. khan has used the property for residential purpose.

Calculation of capital gain tax

Shares Sold (2000*50) 100000

-Commission 2000

Net Shares selling price 98000

-Cost of shares 50000

Gain on sale of shares 48000

Sale of daimond 100000

- Market value of daimond 20000

Gain on sale of daimond 80000

Total Capital gain (48000+80000) 128000

As the assets are kept for more than 1 year capital gain tax is first discounted by 50% for individuals taxpayers i.e. 128000*.5 = 64000