Question

Tutorial: Capital Gains Tax

1.         Kai, a long-term Australian resident, decided to move overseas permanently, leaving during June 2016. Accordingly he entered into the following transactions:

a, He sold his Mitsubishi station wagon (acquired 30 November 2005 for $20,000) on 31 March 2016 for $2,000.

b, He sold his home at Mission Beach (acquired 31 December 1984 for $50,000) on 30 April 2016 for $200,000. His home had included a separate and designated home office occupying 10% of the floor space.

c, He sold a rental property at Tully (acquired - ie contract signed – on 30 November 1999 for a purchase price of $100,000) for $150,000. The contract for the sale of this property was signed on 30 June 2016 but under the contract the transfer was not to occur for three months (ie in September 2016). Other costs relating to this property included:

solicitors’ fees and expenses (November 1999) $5,000

interest payments on mortgage (December 1999 - 2016) $10,000

painting the walls (30 June 2000) $5,000

real estate agent’s commission on sale $5,000

solicitors’ fees and expenses on sale   $1,000

(Assume no other incidental costs of acquisition or disposal. Ignore the Div 43 rules for the purposes of this question.)

d, He sold an aboriginal art piece (acquired 30 November 1999 for $15,000) on 31 March 2016 for $10,000.

e, He gave his yacht (acquired 30 November 1999 for $12,000) to his best friend as a farewell gift. The yacht was handed over on 31 May 2016 and at the time had a market value of $8,000.

Calculate Kai’s net capital gain or loss for the years ending 30 June 2016 and 2017 (assuming no other relevant transactions.) Quote supporting sections.

Would it make any difference to your calculations if the yacht had only cost $6,000? What if the market value on disposal was $14,000?

2, In Year 1 Jean had a net capital loss of $2000. In Year 2 she sold two CGT assets. She had acquired the first for $5000 in December 1985 and she sold it for $8000. She had acquired the second in December 2002 for $1000 and she sold it for $3000.

Calculate her lowest net capital gain for Year 2. What if the first asset had been acquired 6 months prior to sale rather than in December 1985?

Answer 1

Mitsubushi Station Wagon	$2000
Home at Mission beach	$200000
Rental Home	$150000
Other costs involved
Solicitor fees and expenses	$5000
Interest Payment on Mortgage	$10000
Painting on Walls	$5000
Real Estate Agents Commission on Sale	$1000

Overall Amount after deduction	$129000
Aboriginal Art Piece	$10000
Yacht	$8000
Gross Amount (Before Tax)	$364000
(Minus) Tax of 20percent 364000*20/100	$72800
Net Amount After Tax	291200

To Calculate the Amount Exempted : Capital Gain /loss * Amount Invested /Net Sale Consideration

2000*100000/129000= $1550.3876

For Year 2 the Gross Capital Gain is $8000+ $3000= $11000

Tax Deduction = 11000*20/100=$2200

Net Capital Gain = $11000-$2200=$8800

Conclusion :- The above problem is related to Capital Gains and the calculations has been described clearly.