HA3042 Taxation Law, Holmes Institute, Australia
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Learning Outcomes: The individual assignment will assess students on the following learning outcomes:
1. Practical skills and knowledge of tax law concepts.
2. Ability to analyze tax law issues.
3. Ability to apply legal tax principles.
Question 1: Advise Jasmine of the CGT consequences of the given sales. Include relevant legislative references to support your answer.
Answer: Details of the case is given as follows: -
Residential Status of Jasmine - Australian
Age - 65 years old (Senior Citizen)
Assets Details are as follows: -
Assets A - Purchase of Home in the year 1981 for $ 40,000
Selling Value = $ 650,000
The Assets is considered as a main residence.
Assets B - Purchased of a car in the year 2011 for $31,000.
Selling Value = $ 10,000
Assets C. Small cleaning business self-owned sold for $125,000.
Sale Price $ 65,000
Business equipment Expense = $ 75,000
Goodwill = $ 60,000.
Assets D - Furniture Expense = $ 5,000. No single item offered for sale cost more than $2,000.
Assets E - Several paintings selling value = $ 35,000.
Single painting all less than value of $ 500. One exception was a painting she purchased direct from
an artist for $1,000. This painting is being sold for $5,000.
Jasmine CGT consequences for the above sales can be analyized essentially knowing when she is a resident of Austrlia
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The case is analyized in understanding the theoretical laws and rules applicable to the Capital Gain Taxation laws as expressed under the Australian Taxation Office. Capital Tax Gains are subject to various explanation and computed as detailed below:
In connection with the Assets which needs to be analyized it is essential to understand that the Jasmine purchased the house in the year 1981 at a price of $ 40,000 and now the assets sales at a value of around $ 650000. However, they say will not be treated as a capital tax gain primarily due to law stated in the capital gain. The Gain tax clearly mentions that any property purchased before 20th September 1985 is not applicable for the Capital Tax, therefore any selling of such assets will not liable under this tax structure. On the more, it is essential to understand that in case of renovation which is done after such dates definitely comes under the ambit of such Tax law. However, the same is exempted when the house sold is considered to be a sole and the main house of the resident and used just for is living purely under residential status. In case of Jasmine both the conditions hold true and therefore, any profit earned on sale of such house is definitely out of the ambit of taxation laws.
In connection with the Car it is necessary to understand a whether the same is used for personal purpose or for professional purpose, in such case the year of purchase does not hold good but as a matter of fact the utility and the no of assets hold good for understanding the applicability of the tax. In this case though if Jasmine Sold the car after applying indexation for the year 2011 would have incurred loss, however she does not have the right to sett off such losses with the gain. Mainly, because the Car Fulfils the condition of exemption under the Capital Gain tax laws and therefore the loss is also not eligible for set off in case when profit is earned in long term capital gains.
In connection with the small cleaning business it is necessary to understand the age the person holds at the time he or she agrees to sell the business. Even though the assets hold a great value, still as per the taxation laws it necessary to understand that the business has been regularly run and been active for at least fifteen years or more. At the same time the owner of the business as attained the age of 55 or more or retiring on permanently basis and therefore, on such conditions the capital gain will not be charged on such assets. As the same conditions lies with Jasmine, she is selling her self-owned business and mainly because of the fact that she has attained the age of retirement and wants to permanently retire from such business.
In connection with the furniture as well it is necessary to understand two essential factor which being the cost of the assets and the other being the use of the assets. According to the Capital Tax gain rules it is necessary to analyzing that the worth of the furniture must not be more than $ 10000 in todays date vale, and the other factor is that such furniture must be specifically used for personal purpose. Both the conditions met makes the assets free from capital gain tax and non-eligible for paying tax. Understanding further, according to the jasmine condition the same thing which is evident is that the assets was majorly used for the personal purpose and secondly the furniture held had a single value of not more than $ 2000 each making the rule labile for Jasmine to claim the Sale as Tax Free under the Capital Gain tax rule.
In connection with the last assets sold which were the painting according to the tax laws of capital gain collectibles are again considered as a tax-free trade under capital tax when such assets follow the following rule which being the value of the assets must be essentially not more than the $ 500 each (Braithwaite, and Reinhart, 2019). Henceforth, in same case Jasmine sold various painting and none of them were more than $ 500 each making all such sales as capital tax free. In this case only one specific painting which costed around $ 1000 and sold for $ 5000 will be expressed as a capital tax gain as the same is not exempted from such tax rules and is liable to either short term capital gain or long-term capital gain according to the date of purchase.
Thus, as per the above analysis it is evident that the case of Jasmine has been highlighted in the light of various assets which are being traded by an Australian resident after the age of retirement. To ensure that the tax gain is correctly computed.
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Question 2: Calculate the cost of the CNC machine for the purpose of calculating the capital allowance. What is the start time for calculating the decline in value of the asset?
Answer: Introduction: The case explains the analysis of how the cost of the CNC machine must be computed so that the legal principles in connection with the assets can be correctly stated that whole analysis depends upon evaluating the assets and the cost of the assets in order to ascertain the depreciable value and at the same time ensure that the date of use can be computed in a correct systematic manner. In addition to this the paper provides a critical analysis over the capital allowance and the rules which must be polished and elaborated in context to the capital allowances.
Analysis of the Case: It is very necessary to understand that the case study deals in depreciation of assets and ensuring that the correct value is computed for the same. Henceforth, it important for any assets to have two elements to be correct firstly the cost of the assets purchased and the other the exact date the asset is put to use.
Issue Identified: The Case explains that John purchased an industrial computer numerical control (CNC) machine which is being imported from Germany. However, once landed the CNC machine was pulled through various stages before it was declared suitable to run for a longer duration. During that period there were prima facie to two main issues identified which need to be evaluated and analyized the same are listed as follows: -
1) The Cost of the assets must be correctly computed so that the capital allowance and the depreciation rules on assets can be correctly applied to attain correct expense value.
2) The Other factor is the Time cost which deals with ensuring that the date of usage is correct so that the multiplying factor does not exceeds or decreased the value of assets. Hence, the expense computed are neither inflated or deflated and correct computation of the assets can be defined.
Analysis of Issue No 1.: The cost of the asset which must be accounted for computing the assets for the capital allowance must be calculated on the basis of the following five pointers which are elaborated as below:
a) The Real Lump Sum actual cost or the base price paid to purchase the assets that being the initial payment.
b) In addition, the value may include cost which are incidental to the purchase of assets or which may increase th capital cost of the assets rather being the revenue cost.
c) The other amount which must be added is the expense which is incurred in connection with the assets which are mainly being in terms with the rates value, repairs value or in terms with the capital maintenance undertaken to keep the asset in working condition.
d) The expense must also include expense which are incurred while installing and establishing the assets on the more it deals with the cost incurred by placing the assets from one place to the other and also including the value which is incurred in course preserving the assets as well as enhancing the assets worth.
e) Lastly, ant amount paid towards defending title or rights to your such assets purchased must be include the capital value of the assets purchased.
Hence, after computing the law stated John must compute the value of the industrial computer numerical control
(CNC) machine imported from Germany as follows: -
Base Cost of the machine = $ 3,00,000 (as explained in point no a above)
Add: - Germany Ticket Cost = $ 12,000 (exclusive expenditure done to purchase the machine)
Add: - Installation Costs = $ 25000 (as explained in point nod above)
Add: - Guiding Costs = $ 5000 (as explained in point no c above)
Total Cost of The CNC Machine equal to $ 3,42,000. Thus, the capital cost of the assets is to which must be undertaken to ensure the capital allowance is correctly computed is not $ 3,00,000 but $ 3,42,000. Thus, John must ensure that the value is correctly maintained in the books of account is correctly valued and not overvalued.
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Analysis of Issue No 2.: The date of the assets on which it is put to use must be correctly addressed so that the value of depreciation is calculated in a right justifiable manner. Understanding the definition of depreciation, it clearly states that the expense must be computed from the date when the assets is put to use and not on the date when the assets was actually purchased. The payment date also does not hold good, the usage date must be considered. The usage date must be accounted is the day when the assets is ready to use and is first placed in action irrespective of the fact that latter the asset was given for further, repair or taken down for more installation purpose and then kept for put to use (Spiro, 2018). It is necessary to understand that there is a difference between the trial period and usage period, here the trail period is not accounted for as actually the assets does not helps in the business operations.
Hence, John must considered the date 15th January for computing the depreciation on assets as this was the date when the CNC Machine was introduced in business operation and not the day when the assets when the assets where purchased which was 1st Of November 2004 and neither on 1st February as on that date the assets was repaired.
Conclusion: Thus, this paper explains as to how crucial it is to estimate th cost of the asset in a right manner and a right value and at the same time ensure that the date of usage or applicability is correctly stated so that so the depreciation can be computed in a right manner and also the capital allowance can be computed as per the taxation laws stated in by the Australian Taxation Officer. Hence, to sum up the site definitely has a practical perspective towards analyzing this case study in an elaborated and a detail manner. To sum up the value of assets = $ 342000 and the date assets was put use is 15th January.
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