Question

Q1 (Disposal of two assets)

On 10 April 1988, Penny Pleb, an Australian resident, purchased a block of land for $74,000 as an investment. On 19 February 2018, she sold the land for $125,000.

Penny also sold shares in Prosperous Ltd for $32,000 on 1 August 2017. The shares had cost Penny $8,000 on 17 July 2009. Penny did not dispose of any other assets during the year, nor did she have any capital losses from previous years.

Required:

Calculate the minimum net capital gain for the 2017/18 tax year. Use a combination of the indexed and discount methods, where allowed. (Show your workings).

Answer 1

1. The indexation factor is the CPI for September 1999 quarter divided by the CPI for June 1988 quarter.
2. His indexed cost base is his cost ($74000) multiplied by the indexation factor.

Capital Proceeds from sale of land	125,000
Less: Cost base= $74,000 * (68.7/49.3) = 74,000 x 1.3935	103,120
Capital Gain (a)		21,880
Capital Proceeds from Shares	32000
Less: Cost base	8000
Capital Gain	24000
Less: Discount @ 50%	12000
Net Capital Gains (b)		12,000
Total (a+b)		$33,880