Question

Your line manager, Ahmed, has sent you the following email late on Wednesday just as you are about to finalize your timesheet and head to a monthly tax-update webinar:

Good afternoon,

I have just spoken with Lisa Eastwood (new client) over her tax position for the current tax year. I will be getting further documentation tomorrow; however, I need you to examine my notes below and determine the tax consequences arising from her various activities. Lisa has recently moved to Melbourne from Darwin, after being appointed as Regional Manager at the company, Dial Before You Dig.

Lisa’s Darwin Home

Lisa sold her home in Darwin (contract date September 2019, settlement December 2019), receiving $1,220,000 at settlement. This is after legal fees ($12,000), advertising ($2,000) and real estate commissions ($25,000) were deducted.

 Records indicate that Lisa purchased the property in 2002 (contract date January, settlement March) for $653,000. Legal fees, commissions and advertising of $8,000 were also incurred.

 Lisa moved in within 6 months, selling her former residence during that time.

 Over the ownership period, Lisa rented the property for three years beginning December 2010, with $65,000 of $120,000 in non-capital costs claimed against rental income. The property was valued at $890,000 at the time it began being rented.

Sculpture

Lisa gave a sculpture, valued at $18,900, to her friend in June 2020. The sculpture was purchased for $480 in December 2000 and repaired in March 2016 for $1,250.

Vase

When Lisa was playing with her cat in September 2019, the cat accidentally knocked over and broke a vase given to her by her grandmother in September 2018 (worth $6,100 at that time). The vase dated back to the Australian gold rush (circa 1850's) and, after undertaking some research, she discovered it was currently worth approximately $27,000. Lisa did not have insurance for the item.

Cryptocurrency

Lisa converted cryptocurrency into $27,200 Australian dollars in October 2019. To complete the transaction, she incurred $950 in transaction fees. Therefore, Lisa received $26,250 in cash. Lisa had acquired the cryptocurrency in September 2018 for $9,200 Australian dollars.

Shares

Lisa sold shares she held in a construction company in March 2020 for $182,000. She had purchased the shares for $37,200 in December 1986.

Lisa has indicated that she has carried forward losses from prior years of $180,000 relating to a prior disposal of shares and land.

We will have a meeting first thing Monday morning, so please complete your analysis by the end of Friday so I can review her circumstances over the weekend.

Questions:

1. Determine the taxable capital gain (loss) on the sale of the home. Briefly justify your answer/show all workings

2. Determine the taxable capital gain (loss) on the sale of the Sculpture. Briefly justify your answer/show all workings.

3. Determine the taxable capital gain (loss) on the sale of the Vase. Briefly justify your answer/show all workings

4. Determine the taxable capital gain (loss) on the sale of the Cryptocurrency. Briefly justify your answer/show all workings

5. Determine the capital gain on the sale of the Shares. Briefly justify your answer/show all workings

6. Determine the Net Capital Gain and/or Loss for Lisa. Briefly justify your answer/show all workings (use table format)

Answer 1

captal gain/loss on sale oh house:

Option 1: Long term capital gain without indexation

Sale considration.,Dec 2019 =  $1220000

Less cost of acquisition.= $ 653000

Capital gain.= $ 567000(1220000-653000)

Note: 1 expenses incurred on sales are already deducted from sale value.

2. expenses incurred before the purchase of property is not allowed to part of cost.

3 .rental receipts are taxable under house property income of respective year.

Option 2 taking index value (indian index 2001-2002 is 100 and 2019-2020 is 289)

Sale considration= $1220000

(Less) cost of acquisition =

$653000*289/100 = $ 1887170

long term capital loss. $ 667170 (1220000-1887170)