Questions:
Dave Solomon is 59 years of age and is planning for his retirement. Following a visit to his financial adviser in March of the current tax year, Dave wants to contribute funds to his personal superannuation fund before 30 June of the current tax year. He has decided to sell the majority of his assets to raise the $1,000,000. He then intends to rent a city apartment and withdraw tax-free amounts from his personal superannuation account once he turns 60 in August of the next year. Dave has provided you with the following details of the assets he has sold:
(a) A two-storey residence at St Lucia in which he has lived for the last 30 years. He paid $70,000 to purchase the property and received $850,000 on 27 June of the current tax year, after the real estate agent deducted commissions of $15,000. The residence was originally sold at auction and the buyer placed an $85,000 deposit on the property. Unfortunately, two weeks later the buyer indicated that he did not have sufficient funds to proceed with the purchase, thereby forfeiting his deposit to Dave on 1 May of the current tax year. The real estate agents then negotiated the sale of the residence to another interested party.
(b) A painting by Pro Hart that he purchased on 20 September 1985 for $15,000. The painting was sold at auction on 31 May of the current tax year for $125,000.
(c) A luxury motor cruiser that he has moored at the Manly Yacht club. He purchased the boat in late 2004 for $110,000. He sold it on 1 June of the current tax year to a local boat broker for $60,000.
(d) On 5 June of the current tax year he sold for $80,000 a parcel of shares in a newly listed mining company. He purchased these shares on 10 January of the current tax year for $75,000. He borrowed $70,000 to fund the purchase of these shares and incurred $5,000 in interest on the loan. He also paid $750 in brokerage on the sale of the shares and $250 in stamp duty on the purchase of these shares. Dave has contacted the ATO and they have advised him that the interest on the loan will not be an allowable deduction because the shares are not generating any assessable income.
Dave has also indicated that his taxation return for the year ended 30 June of the previous year shows a net capital loss of $10,000 from the sale of shares. These shares were the only assets he sold in that year.
(a) Based on the information above, determine Dave Solomon’s net capital gain or net capital loss for the year ended 30 June of the current tax year.
(b) If Dave has a net capital gain, what does he do with this amount?
(c) If Dave has a net capital loss, what does he do with this amount?
The Capital gain taxes are explained for the creation of the differentiation between the capital proceedings that are required for the acquirement of the capital gain taxes property. The capital gain taxes also can be calculated by the process of the implementation of the three procedures. Thus the first principle also signifies the methods that are included for the creation of the process is the implementation of the Discount method that is applied for the continuation of the capital gain taxes (Amatucci et al., 2006). The next method involved is the development of the indexation method which is applied for the creation of the case and it is applied before the assets taken on the capital gain taxes for the assets that are taken over on 21st September and hence it is possessed for an excess possession under the 12 months. The final method is known as the residual methods and thus this method is applicable for undertaking the possession over assets under 12 months. Hence the calculation of the capital gain taxes are used for the proper calculation of the abovementioned three procedures.
For the purpose of the exemption creation from the gain taxes or the capital gain assets, the following exemptions are given below:-
A property acquired for the provision of the priority to the 20th September which consists of the following:-
The setting off of the losses also helps in the development of the capital gains that are indicated below.
Long term capital loss: – It helps in setting off the long term capital gains and no alternatives are set to create the feasible condition. It is possible for the carrying the indefinite succeeding that are required for the proper creation of the development of the strategies for the continuation of the services and thus it also helps in the development of the creation of the strategies and thus it also helps in the enhancement of the strategies for the isolation of the long term prospects (Apps and Rees, 2010).
Short term capital loss: – the short term process are created for the creation of the similar sources for the carrying out the similar sources for the long term process and thus it also helps in the development of the succeeding of the indefinite assessment years.
a) In the case of the question provided, Mr. Dave Solomon resides n the double storey building for the last 30 years and thus it also helps to bought the house for $70000 and was sold at the $850000 on the date of the 27th June and thus for the presentation of the taxable year. Thus the house is sold at the auction and the buyer had to pay $850000 and thus it also helps in the continuation of the amount $850000 was received by the income from the other sources (Barker, 2005).
Calculation of the capital gain
The Sale proceeds is seem to be $ 865000 is exempted by the definition of the CST i.e. Family home exemption
Henceforth the long term capital gain can be calculated as
b) The art of the pro Hart was bought on the 20th September 1985 for a price of the acquisition of the house and thus it was sold at the 125000. Therefore the capital gain taxes are described as follows:-
Sale precedes $ 125000
Cost of acquisition of the less indexed
15000×123.4/71.3= $25961
Therefore the long term capital gain is $150961
c) A luxury motor car is bought at $110000 in the year 2004 and it was sold on 1st June of the present year to a local boat broker at the $60000.
Therefore the capital gain tax also helps in the calculation of the sale proceed is $ 60000
Cost of acquisition on the Less Index $110000
Loss of Long term capital $ 50000
d) He sold parcel for to the mining company at the prices of $ 80000. He purchased for the sharing of the issues as for the creation of the same year price which is about $ 75000. In this case the Dave Solomon has to pay the amount$ 750 for the terms of the brokerage (Harvey, 2009). And thus it also helps in the sales of the shares and $250 for the stamp duty for the purchase of the shares. The loan interest is also included for the loan interest which is not included.
a. Therefore capital gain can be described as follows-
Sale proceed $ 80000
Less: Brokerage= $750
Less cost of acquisition= $ 75000
Less: stamp duty $ 250
Therefore the short term capital loss is $ 4000
Hence the capital gain of the year is as follows
Long term capital gain on sale of residential property= $ Nil
Long term capital gain on sale of painting= $ 150961
Long term capital loss on sale of boat= $ 50000
Short term gain on sale of share= $ 4000
Therefore long term capital gain can be calculated as $ 104961
Therefore the net long term capital for the present year is calculated to be $ 104961- $ 10000= $ 94961
b. Net capital gain is considered to be the summation of the all the present gain which was assumed to obtained from the sale from sale of capital asset which is deducted from all acquired loss on the sale of capital asset from the past year. It is assumed that the capital gain tax is no different from the other tax and cannot be considered as spate tax (Ato.gov.au, 2016). Capital gain asset measured to be formed as a main part of the assessable income of entire assessed revenue of an considerable and assessed tax is measured to be paid on the total gain to increase on each capital property in the current income year in that the sale measured to be taken position. Thus, from the several analysis of the Mr. Dave which is earned increase or on the overall sale of the key assets. As a outcome of such contribution finance to his personal superannuation fund. Mr. Dave is considered to be maintaining all key present and relevant record when some significant and primary transactional amount took place which consist of the interest on loans, purchase receipt and overall expense paid in relation to the litigation fees or legal amount (Lloyd, 2015). Record is considered to be regarding as a repair and overall maintenance cost f the key record and significant assert of the overall amount of the brokerage paid on the given shares.
c. Net capital loss is measured to be addition or all other summation of the particular loss that is produced from the sale of the capital property that is incorporated due to the loss of the past year transaction. Examination is considered to not to be set of the capital loss from other significant key loss of income but it is considered to be carried forward for the key subsequent year and substrate from the key gain of capital which is arrived in the given current year. Capital loss can be carried forward to infinity time (Mann, 2009). Examination of the capital gain or loss foes not have the key right to select or not to set the capital losses which is against the capital gain, however it is not subtracted from key loss as per the selection with the capital gain. If Dave considered denying a positive capital gain than it is required for Dave to sell his property or measured to obtain loan from the main financial institution that will assist him to add his own superannuation fund and then eventually it also assist him to purchase the rented apartment and moreover, assist to remove certain free amount from his main superannuation fund the moment the era of the Dave reach 60 (Woellner, 2013).
References
Amatucci, A., GonzaÌÂlez, E., Trzaskalik, C. and Amatucci, A. (2006).International tax law. The Hague: Kluwer Law International.
Apps, P. and Rees, R. (2010). Australian Family Tax Reform and the Targeting Fallacy. Australian Economic Review, 43(2), pp.153-175.
Ato.gov.au. (2016). Fringe benefits tax (FBT) | Australian Taxation Office.
Ato.gov.au. (2016). Home page | Australian Taxation Office.
Barker, D. (2005). Essential Australian law. Sydney, N.S.W.: Cavendish.
Harvey, C. (2009). Cornerstones of Australian law. Prahran, Vic.: Tilde University Press.
Lloyd, P. (2015). Excise Tax Harmonisation in Australia at Federation.Aust Econ Hist Rev, p.n/a-n/a.
Mann, T. (2009). Australian law dictionary. South Melbourne, Vic.: Oxford University Press.
Marsden, S. (2012). Australian master bookkeepers guide. North Ryde, N.S.W.: CCH Australia.
Nethercott, L., Richardson, G. and Devos, K. (2011). Australian taxation study manual. North Ryde, N.S.W.: CCH Australia.
Scott, R., Currie, G. and Tivendale, K. (2012). Company cars and fringe benefit tax. Wellington, N.Z.: NZ Transport Agency.
The international tax handbook. (2013). Haywards Heath, West Sussex, UK: Bloomsbury Professional.
Warren, N. (2006). Fringe benefit tax design. Sydney, N.S.W.: Institute of Chartered Accountants in Australia.
WHITEFORD, P. (2010). The Australian Tax-Transfer System: Architecture and Outcomes*. Economic Record, 86(275), pp.528-544.
Woellner, R. (2013). Australian taxation law 2012. North Ryde [N.S.W.]: CCH Australia.
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