Taxation law

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Table of Contents

Question 1...................................................................................................................3

Ouestion 2...................................................................................................................6

References..................................................................................................................8

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Question 1

Advise jasmine of the CGT consequences of the above sales. Include relevant
legislative references to support the answer.

A. As per the Australian taxation law, the capital gain on the main residence of
the person is outside the ambit of the capital gain tax. The exemption is availed on
the main residence of the person (Carroll & Prante, 2012). To avalil this exemption
various conditions needs to be fulfilled. The conditions are that the property of the
person should not be vacant, the resident of Australia must be living at that particular
place. The property of person is considered to be main residence when the

 The person lives in that particular property.

 The personal belongings of the person are kept in the residence.

 The address of the residence is on the electoral roll.

If the person is living in the property that is going to be sold but is not the residence
of Australia, then the exemption will not be availed on such residence. For availing
the exemption, it is important to be residence of Australia. The another rule that can
be identified in this case is that any asset that has been purchased before 20
September 1985 is outside the ambit of the capital gain tax.

Therefore, it can be said that the sale of jasmine’s residence so outside the ambit of
the capital gain tax. This because the residence in which the jasmine is living is its
main residence and the house was purchased by jasmine before 20 September
1985.therefe, no tax is to be paid by jasmine on the sale of asset.

B. As per the Australian taxation law, cars and motor vehicle is outside the ambit
of the capital gain tax. The normal motor cars are exempted from the capital gain tax
(Evans et. al., 2015). All the cars are not included in the exemption criteria, there are
certain number of cars that are not included in the exemption and capital gain tax is
been paid on it such as:

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 Taxi cars

 Racing cars

 Single seat sports cars

 Motor cycle, scooters or motor cycle.

The car to grant exemption should be designed in such a way that the capacity to
carry passengers is less than nine in number.

Therefore, it can be said that it has been assumed that the car of jasmine has the
seating capacity less than nine and is used by her for private purpose. So by
analysing the rules it can be said that the sale of car by jasmine is outside the ambit
of the capital gain tax. Therefore, no tax is to be paid by jasmine on sale of car.

C. As per the Australian taxation law, it can be said that the capital gain tax is
levied on the sale of the business that includes various tangible and intangible
assets. The tangible assets may include the machine, inventory etc. whereas the
intangible asset may include the intangible assets such as goodwill, patents etc. the
sale of the business equipment’s needs it be taxed as per the Australian taxation
law.

In this case it can be said that the sale of business made by jasmine includes both
business equipment’s and goodwill. Therefore, it can be said that the sale of both of
these is to be taxed and jasmine has to pay the tax on the same. The sale of the
business equipment is made at price less than the price at which it was acquired.
Therefore, through analysis it can be said that the jasmine will have to incur the
capital loss on the sale of business.

D. As per the Australian taxation law, the use of personal use items is outside
the ambit of the capital gain tax. The personal use items include the boats, furniture,
electrical goods and the household items. Any items that is purchased for personal

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use or enjoyment can availed the exemption. The condition that needs to be fulfilled
for this is that the personal use item purchased should have cost less than $10000
(James, 2012). If the personal use asset is being disposed then the person will get
the exemption only when the set is sold for $ 10000 or less.

In this case the jasmine is selling the furniture that cost her $2000. It has been
assumed in this case that the furniture is used by jasmine for personal use.
Therefore, it can be said that the sale of such furniture by jasmine is outside the
ambit of the capital gain tax. No tax is to be paid by her on sale of such assets.

E. As per the Australian taxation it is said that the sale of collectible is outside
the ambit of the capital gain tax. The term collectible should include the artwork,
jewellery, coins or books. These collectibles that has been acquired should value
$500 or less, so that the exemption can be availed on it.

In this case, it can be said that jasmine is selling the paintings that is acquired by her
at $ 500 because it was purchased by her from the second hand shop. There was
one painting that was purchased by jasmine for $1000 directly from the artist
(ATO,2019). Therefore, it can be said that the paintings that has been acquired by
jasmine for $500 is outside the ambit of the capital gain tax and the painting that has
been acquired by jasmine for $1000 direct by artist is to be taxed as the purchase
price of this painting is more than $500.

Therefore, it can have said that the jasmine will earn capital gain on the sale of the
paintings that she acquired directly from artist and she will earn capital gain on such
sale.

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Question 2.

Calculate the cost of the CNC machine for the purpose of calculating the
capital allowance. What is start time for calculating the decline in value of the
asset? Include relevant legislative.

Issue

In this case it can be said that John owns a motor vehicle manufacturing company.
he wanted the CNC machine for its factory. The CNC machine is available only in
Germany. The date on which the machine was purchased was different, installation
date was different and date in which the additional guiding rod was installed is
different. For the purpose of purchasing of machinery the company person wants to
go to Germany and includes the expenses of traveling (Clark, 2014). The installation
expenses are also there which are included in the cost of the machine when it is
purchased. In this case the john wants to know the date from which the depreciation
is to be started for the machine. The case study also wants to know the capital
allowance that needs to be applied on the machine so that the value of the machine
can be deceased.

Law and application

As per the Australian taxation law, the first element of the cost includes the amount
of money that is paid by the person in acquiring the assets, that is the purchase
price. The first element of cost also includes the amount that has been incurred after
the 30 June 2005 that have to paid for acquisition of assets. Capital allowance is the
money spent on the assets then can be helpful if we are paying tax. It also amounts
to track the depreciation. The allowances that are for the long term in nature and that
are not recurring frequently. The amount that has been paid should be directly
related to the assets (Kenny, 2018). Therefore, it can be said that as per the
Australian taxation law, the first element of cost includes the cost that has been paid
and is directly related to the acquisition of the assets. As per this case study it can be
said that the purchase price of the CNC machine that is $30000, should be included
in the first element of the cost. This cost should also include the cost of installation
that is $25000. Therefore, it is clear through thus case that the first element of cost

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includes the cost that has been incurred by the purchaser in purchasing the asset
and the cost that is directly related to the acquisition of the assets.

Law and application

As per the Australian taxation law, the second element of tax includes the amount
that is paid by the purchaser after the asset has been brought to its present condition
or location (Ang, 2014). The first element of cost is not being include in the second
element of the cost. The second element of cost is incurred to improve the condition
of the machinery and maintains its quality. This type of cost includes the cost
incurred for repairs, maintenance etc. therefore, it can be said that by studying the
case of CNC machine the second element of cost will include the cost that has been
paid by the company for the installing the additional rod on the machine so that the
quality of the machine is made and the it can work effectively. The cost includes are
mainly called as repairs and maintenance, advertisement, brokerage or commission
if any included in the part of the asset. Therefore, it can have said that the second
element of cost will include the cost that was incurred for addition of the rod in the
machine that is $5000. The time of depreciation of the machine will be the date at
which the machine was installed and started for work.

Law and application

As per the Australian taxation law, the depreciation is levied on the capital assets
when it came to the use of the business. once the asset is installed and put to use in
the business, from that point of time the depreciation can be levied on the assets.
Therefore, it can have said that the depreciation on the CNC machine can be applied
from the time it was installed in the industry and put to use (Taylor & Richardson,
2012). A deduction is also allowed by the company when the amount is the taxable
one and not amount to depreciate the assets of the company. the cost of the
machine includes all the cost that has been incurred by the industry in bringing the
asset to its working condition. The cost that are directly related to the assets are to
be included in the cost of assets. Therefore, by this it can be said that the total cost
of the CNC machine will be $33700 and the depreciation will be charged on the
basis of this cost. If some additional cost is to be incurred in the machine that

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additional cost should also be taken into consideration for calculating the
depreciation on the machine.

Conclusion

Through this case study it can be concluded that the assets of the industry are
depreciated from the time when the asset is put into use. The cost of the machine
should include all the cost that are directly related to the cost of assets. The cost is
divided into two factors that are that is the first element of the cost of asset and the
second element of the cost of the asset. the first element of cost includes the cost
that has been incurred by the purchaser in purchasing the asset and the cost that is
directly related to the acquisition of the assets. the second element of tax includes
the amount. The depreciating value of the asset should be calculated by the various
methods as are developed in the organization either the diminishing value method or
the prime cost method of the organization. that is paid by the purchaser after the
asset has been brought to its present condition or location., the depreciation is levied
on the capital assets when it came to the use of the business. once the asset is
installed and put to use in the business, from that point of time the depreciation can
be levied on the assets

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References

 Ang, A., 2014. Asset management: A systematic approach to factor investing.

Oxford University Press.

 ATO,2019. Welcome to ATO in Australia. [Online] ATO. Available

at: https://www.ato.gov.au/general/capital-gains-tax/cgt-assets-and-exemptions/.
[Accessed: 7 Sept. 2019].

 Carroll, R. and Prante, G., 2012. Corporate Dividend and Capital Gains
Taxation: A comparison of the United States to other developed nations. Prepared
for the Alliance for Savings and Investment. Ernst & Young LLP. http://www. theasi.
org/assets/EY_ASI_Dividend_and_Capital_Gains_Internationa
l_Comparison_Report_2012-02-03. pdf [accessed April 11, 2012].

 Clark, J., 2014. Capital gains tax: historical trends and forecasting
frameworks. Economic Round-up, (2), p.35.

 Evans, C., Minas, J. and Lim, Y., 2015. Taxing personal capital gains in
Australia: An alternative way forward. Austl. Tax F., 30, p.735.

 James, S., 2012. Australian Tax Research Foundation. In A Dictionary of

Taxation, Second Edition. Edward Elgar Publishing Limited.

 Kenny, P., 2018. Small business capital allowances.

 Taylor, G. and Richardson, G., 2012. International corporate tax avoidance

practices: evidence from Australian firms. The International Journal of
Accounting, 47(4), pp.469-496.