Question

Ed’s grandmother died on 1 November 2009 and, in her will, left Ed cash and jewellery worth $500,000. The jewellery had been bought by Ed’s grandmother in August 1985 at a cost of $40,000, and its market value on 1 November 2009 was $150,000.

Ed used the money from his grandmother and his savings to buy the following assets in January 2010:

• an apartment in Melbourne (cost was $360,000 plus $20,000 legal fees and stamp duty),
• a rare painting (cost was $50,000), and
• 2,000 bank shares (cost was $20 per share, plus $200 brokerage).

In 2019/20, Ed disposed of these assets as follows:

• on 12 March 2020, he sold the apartment for $470,000 – he had lived in it all the time he owned it,
• on 1 April 2020, the painting was stolen from his apartment – he received $30,000 compensation from his insurance company,
• on 13 May 2020, Ed sold 1000 bank shares for $30 per share (brokerage cost $150), and
• on 15 June 2020, he lost the jewellery, which wasn’t insured, when he left his briefcase on a train.

Question 1 - Australian Tax Law

Prepare a report advising Ed that explains what Capital Gains Tax (CGT) he is subject to with support from Australian Tax Legislation and relevant cases. There can be no further information provided

Answer 1

As per Augstrial law, losses or gains made on assets acquired before 20 September 1985 are generally also exempt from Capital Gain. Ed sold his grandmother's jewellery which was bought in august 1985 which was before the above mentoined date , therefore the amount of $500000 is exempt from capital gain.

Also, as per section 102-5 of the act, CGT is charged on the assets which constitutes as CGT assets. CGT assets does not include real estate property including legal fees and stamp duty) which is the main residence of Ed therefore no CG will be charged on the sale of apartment of $ 470000.

Also, the rare painting costing $20000 is exempt from CGT as the painting was stolen on which he received compensation CGT will charged of $30000 and any compensation received for injusries is exempt from CGT.

CGT is charged on the sale of shares including brokerage amount.