Topic 4 Capital Gains Tax Flashcards
QUIZ 1
QUIZ 2
(2) Bryce Gibbs acquired a main residence in Hawthorn in 1994. On 22 November 2012 he accepted a posting to America for four years and as a result he rented out his main residence. For the period he was away, Gibbs could still elect to treat his Hawthorn house as his main residence.
If he returned in November 2016 and used his Hawthorn house as his main residence, the normal exemption would apply. Suppose further that in March 2017 he accepted a position in Hong Kong for two years and again rented out his home. In this case Gibbs could also choose to treat his Hawthorn dwelling as his main residence because eachabsence is less than six years.
QUIZ 3
(3) Oscar Judd acquired a CGT asset on 14 March 1990 at a cost of $4,000. He sold the CGT asset on 23 March 2017 when it’s indexed cost base was $4,892. Oscar elects to use the indexation method to determine the capital gain.
If Oscar sold the asset for $5,000, he would have incurred a capital gain of $108, ($5,000 – $4892). Alternatively if Oscar sold the asset for $2,000, he would have incurred a capital loss of $2,000 ($4,000 - $2,000).
QUIZ 4
(4) On 22 November 1999, Chris Judd acquired shares for $80,000. Chris sold these shares on 14 March 2017 for $100,000. Chris will have made a gain of $20,000. After applying the CGT 50 per cent discount, only half of this gain ($10,000) will be included in Chris’s assessable income.
QUIZ 5
(5) In May 2016, Chris purchased 5,000 shares in a listed public company for $10 per share. He sold these shares in March 2017 for $15 per share. At the date of sale, Chris has owned the shares for less than 12 months and is thus unable to choose the CGT discount. Chris must therefore include a net capital gain of $25,000 ($5 per share x 5,000 shares) in his assessable income for the tax year.
QUESTION 1
On 1 April 1987 Bolton purchased 2,000 shares in ABC Ltd for $4.25 per share. On 1 June 1993 he also purchased 1,000 shares in XYZ Ltd at a cost of $14 per share. In order to purchase a property he sold some shares on 14 March 2017 at the following prices:
1,000 ABC at $8 per share
500 XYZ at $13 per share
250 XYZ at $12 per share
Advise Bolton of the capital gains tax consequences of the sale.
QUESTION 2
Consider the capital gains tax implications of the following;
a. The purchase of a car for $45,000 in September 1995 and its sale in March 2017 for $50,000.
QUESTION 2
Consider the capital gains tax implications of the following;
a. The purchase of a car for $45,000 in September 1995 and its sale in March 2017 for $50,000.
ANSWER:
a. CGT Event A1 as per sec 104-5
No CGT as Car an Exempt asset as per sec 118-5
QUESTION 2
Consider the capital gains tax implications of the following;
b. The purchase of a horse for show jumping for $500 in July 1997 and after a decided lack of success, its sale in March 2017 for $100.
QUESTION 2
Consider the capital gains tax implications of the following;
b. The purchase of a horse for show jumping for $500 in July 1997 and after a decided lack of success, its sale in March 2017 for $100.
ANSWER:
b. CGT Event A1 per sec 104-5
+ If show jumping is a hobby, then horse is a personal use asset with cost of less than $10,000. Thus an Exempt asset - sec 118-10(3). Also a capital loss from personal use assets are disregarded – sec 108-20.
+ If show jumping is a business, then Horse may be considered ‘trading stock’. Thus Exempt under sec 118-25.
QUESTION 2
Consider the capital gains tax implications of the following;
c. The purchase of house for $195,000 in September 1991 by the Lee family, with extensions costing $35,000 in February/March 1995. As the house became too small for the growing family, the property was sold in March 2017 for $300,000.
QUESTION 2
Consider the capital gains tax implications of the following;
c. The purchase of house for $195,000 in September 1991 by the Lee family, with extensions costing $35,000 in February/March 1995. As the house became too small for the growing family, the property was sold in March 2017 for $300,000.
ANSWER:
c. CGT Event A1 as per sec 104-5
Main residence is exempt from CGT - Subdiv.118-B Main Residence - sec 118-110
QUESTION 2
Consider the capital gains tax implications of the following;
d. The purchase of furniture for use in a retail furnishing business for $6,500 in November 2000, sold in March 2017 for $9,000
QUESTION 2
Consider the capital gains tax implications of the following;
d. The purchase of furniture for use in a retail furnishing business for $6,500 in November 2000, sold in March 2017 for $9,000
ANSWER:
d. Furniture is ‘trading stock’ in this scenario and thus Exempt under sec 118-25
QUESTION 3
Consider the capital gains tax implications of the following;
a. Joe Canny purchased 2000 Telstra shares for $3,900 when they floated in November 1997. In November 1998 he purchased a further 1,000 shares for $2,600. The shares were sold in early March 2017 for $16,000.
QUESTION 3
Consider the capital gains tax implications of the following;
a. Joe Canny purchased 2000 Telstra shares for $3,900 when they floated in November 1997. In November 1998 he purchased a further 1,000 shares for $2,600. The shares were sold in early March 2017 for $16,000.
ANSWER:
QUESTION 3
Consider the capital gains tax implications of the following;
b. At the same time Joe also sold shares for $6,200 he had purchased in an Internet company for $2,000 in April 2016.
QUESTION 3
Consider the capital gains tax implications of the following;
b. At the same time Joe also sold shares for $6,200 he had purchased in an Internet company for $2,000 in April 2016.
ANSWER:
QUESTION 3
Consider the capital gains tax implications of the following;
c. At the same time Joe sold shares in XYZ Ltd for $600 which he had brought for $1,800 in December 1996. Joe has carry forward capital losses of $2,000 from a property sold in June 1996. He has made no other capital gains or losses.
QUESTION 3
Consider the capital gains tax implications of the following;
c. At the same time Joe sold shares in XYZ Ltd for $600 which he had brought for $1,800 in December 1996. Joe has carry forward capital losses of $2,000 from a property sold in June 1996. He has made no other capital gains or losses.
ANSWER:
QUESTION 4
The taxpayer acquired an antique dining table on 1 February 1987 for $10,000. The table was sold for $25,000 on 30 March 2017.
The taxpayer also sold a leather lounge suite on the same day for $3,100. The suite had been acquired on 2 October 1995 for $5,750.
Required
Calculate the taxpayer’s capital gain or loss. Identify all relevant factors relating to the assessability or otherwise of the resulting gain or loss.
QUESTION 4
The taxpayer acquired an antique dining table on 1 February 1987 for $10,000. The table was sold for $25,000 on 30 March 2017.
The taxpayer also sold a leather lounge suite on the same day for $3,100. The suite had been acquired on 2 October 1995 for $5,750.
Required
Calculate the taxpayer’s capital gain or loss. Identify all relevant factors relating to the assessability or otherwise of the resulting gain or loss.
ANSWER:
QUESTION 5
Murphy purchased a holiday home in December 1989. The holiday home was not available for rental and used by family and friends. Murphy incurred the following costs between that date and the sale of the property in February 2017:
$
Purchase price 280,000
Solicitors fees (acquisition) 5,000
Solicitors fees (sale) 3,000
Cost of erecting carport 2,000
Repairs 4,000
What is the cost base for the purposes of capital gains tax?
QUESTION 6
On 18 March 1992 Mel purchased a vacant block of land for $100,000. Stamp duty, conveyancing fees and sundry legal expenses cost a further $10,000. During the period of ownership Mel incurred the following expenditure.
Interest $31,000
Rates and Land Taxes $6,000
General Maintenance (Mowing etc.) $1,000
In May 2016 Mel decides to sell the vacant block as he requires the money to buy another property. On 29 June 2016, he signs the contract for sale for $260,000 with settlement to be on 30 March 2017.
Required
a. Calculate the assessable net capital gain/loss and explain your treatment of all items with reference to relevant sections of the ITAA 1997.
b. Would your treatment of any of the items considered in part (a) be any different if the vacant land was sold for $90,000?
QUESTION 6
On 18 March 1992 Mel purchased a vacant block of land for $100,000. Stamp duty, conveyancing fees and sundry legal expenses cost a further $10,000. During the period of ownership Mel incurred the following expenditure.
Interest $31,000
Rates and Land Taxes $6,000
General Maintenance (Mowing etc.) $1,000
In May 2016 Mel decides to sell the vacant block as he requires the money to buy another property. On 29 June 2016, he signs the contract for sale for $260,000 with settlement to be on 30 March 2017.
Required
a. Calculate the assessable net capital gain/loss and explain your treatment of all items with reference to relevant sections of the ITAA 1997.
b. Would your treatment of any of the items considered in part (a) be any different if the vacant land was sold for $90,000?
