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Before calculating someones net capital gain, the assets and events need to be analysed to ensure
they are of CGT nature. Mr Smith, an Australian resident, sold several assets on 1 March 2014. These
will be discussed below to identify whether any CGT events from CGT assets occurred, with direction
from the Income Tax Assessment Act 1997 (Cth), then his net capital gain will be calculated.
House
According to s100-25(3), someones home is identified as a CGT asset, however this CGT asset must
result in a CGT event, for a capital gain or loss to be made. Under s104-5, the disposal of a CGT asset
gives rise to CGT event A1. S104-10 continues to mention that the disposal of a CGT asset occurs
when there is a change in ownership, from one entity to another. Since, Mr Smith sold his home to
another entity, CGT event A1 was created. Before the net capital gain on this CGT event can be
calculated, it needs to be determined whether any exemptions apply. S118-110 highlights that a
dwelling is regarded as your main residence when you and your family live in it, your personal
belongings are in it, it is the address your mail is delivered to, it is your address on the electoral and
it is connected to services such as telephone, gas and electricity. Since Mr Smith lived in the house
with his wife since the date of purchase, he meets the criteria for the main residence exemption.
Hence, Mr Smith can receive a full or partial exemption from the main residence exemption,
depending on his circumstances. As mentioned earlier, Mr Smith has lived on the property and
jointly owns it with his wife since the date of acquisition and has not used it to produce assessable
income; therefore Mr Smith receives a full exemption and the capital gains resulting from the
disposal of his house is disregarded.
Vacant Land
In addition, on 1 June 1995 Mr Smith purchased vacant land for $30,000 which is located in a
separate suburb to his house. He disposed of this land on 1 March 2014 for $150,000. According to,
s100-25(2), land is regarded as a common CGT asset, however it must lead to a CGT event. S104-10
suggests that a CGT event A1 happens when there is a change of ownership. Since the sale of land
resulted in a transfer of ownership, CGT event A1 occurred. Division 118 explains any exemptions
that may apply, which could result in the capital gain or loss being disregarded. Since Mr Smith
made the capital gain after September 21, 1999 and held the CGT asset for greater than 12 months,
as outlined in s115-24, the CGT discount gain applies. This is where for individuals the capital gain
from the CGT event is reduced by 50%. Furthermore, s110-25(1) explains that the cost base of a CGT
asset contains five elements; however Mr Smith only incurred element one and two during the
acquisition and disposal of the vacant land. S110-35 (2), s110-35(4) and s110-35(5b) define agents
commission, stamp duty and advertising as indirect costs respectively. Therefore, the total cost
base is $37,000 ($30,000+$4,000+$2,000+$1,000=$37,000). The capital proceeds can now be
calculated which under s 116-20 generally relates to the consideration received as a result of the
CGT event, thus the capital proceeds is purely the sale price of $150,000. Finally, the net capital gain
or loss as a result of the CGT event A1 on the sale of the vacant land can be calculated, which is done
so below (page 4&5).
Car
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Vintage Car
On 1 March 2002 Mr Smith purchased a 1924 Bentley for $40,000, which he then sold for $60,000
on 1 March 2014. As mentioned above, s118-5 states that a capital gain or loss resulting from a car,
motor cycle or similar vehicle is disregarded. However, division 108 identifies a car as a CGT asset,
also suggesting it may be a collectable if it is an antique under subsection 108-10(2). Furthermore,
TD1999/40 states that the word antique describes an object of artistic and historical significance
that, when a CGT event occurs the age of the asset exceeds 100 years. Mr Smith owned a 1924
Bentley, meaning it is only 90 years of age at the date of sale, therefore under TD 1999/40 his
vintage car is not classified as an antique. Thus, s118-5 remains where a capital gain or loss resulting
from the disposal of this vintage car is disregarded.
Television
Moreover, Mr Smith purchased a television on 1 July 2009 for $1,500 and sold it on 1 March 2014
for $200. According to s104-10, CGT event A1 occurs when there is a change of ownership from one
entity to another, hence the disposal of Mr Smiths television is an example of CGT event A1. Since a
television is normally acquired for personal enjoyment, according to section 118-10(3) any capital
gains made from a personal use asset is disregarded if the asset was acquired for less than $10,000.
However, Mr Smith incurred a capital loss during the disposal of his television ($200 $1,500 =
capital loss of $1,300). Hence, subsection 108-20(1) applies where, when a capital loss is made from
a personal use asset, the CGT event is disregarded.
Net Capital Gain from the disposal of 2,000 shares in CAB Ltd = $1,400
Less: 50% of Net Capital Gain = $700
Total Net Capital Gain = $700
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