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LAWS20060 Taxation Law of Australia - Central Queensland University

Question a) Andy owns some land and grants a lease to Brian for five years, at a premium of $5,000.

Solution: a) As per Section 102(5), read with section 115(15) of the Income Tax Assessment Tax 1997 (ITAA97), individuals are eligible to apply a 50% discount to their net capital gains on assets which they have held for more than a year. In the given case, Andy owns a land and leases it to Brian for 5 years at a $5,000 premium. The premium shall form part of the capital gains (after subtracting proportionate costs based on the value of assets at the beginning and end of lease, under income property rule ITTOIA 2005 S 277 (4)).
Therefore, CG= $5,000*(1-50%) = $2,500

Question b) On the 11th January 2018, in exchange for the sum of $40,000 John granted to Farm Ltd, an option to purchase his 100-acre farm just outside Adelaide for the sum of $800,000. John had purchased the farm 10 years ago.

Solution: b) As per Section 104(5) of the ITAA97, when an option is granted by an individual for sale of an asset, the option proceeds shall be treated as capital gains. As per Section 102(5), read with section 115(15) of the Income Tax Assessment Tax 1997 (ITAA97), individuals are eligible to apply a 50% discount to their net capital gains on assets which they have held for more than a year. In the given case, John receives option proceeds worth $40,000 from Farm ltd. for granting them an option to purchase his land. Hence, the proceeds shall form part of his capital gains.
Therefore, CG= $40,000*(1-50%) = $20,000

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Question c) Jamie and Olivia purchase a house in January 2006. Immediately they rent it out for 2 years while they travel overseas. In January 2008 they occupy the house and make it their main residence until they sell it in January 2018. They make a capital gain of $300,000. What are the CGT implications for Jamie and Olivia?

Solution:  c) As per Section 102(5), read with section 115(15) of the Income Tax Assessment Tax 1997 (ITAA97), individuals are eligible to apply a 50% discount to their net capital gains on assets which they have held for more than a year. In the given case, both Jamie and Olivia have owned the house since January 2006 and have been occupying it from January 2008 till January 2018. Therefore, the capital gains of $300,000 made on sale of the house will be subject to CGT.
Therefore, CG= $300,000*(1-50%) = $150,000

Question d) Chris bought 12,000 shares in BHP for 45 cents on the 1 August 2018 and they are now trading at $1.56. The same day he also purchased 5,000 shares in Westfarmers for $5.20 and they are now trading at only $2.10. Chris sells both his BHP and Westfarmers shares on the 30 June 2019. Calculate the net capital gain that Chris would record in his 2018/19 tax return.

Solution: d) As per Section 102(5), read with section 115(15) of the Income Tax Assessment Tax 1997 (ITAA97), individuals are eligible to apply a 50% discount to their net capital gains on assets which they have held for more than a year. In the given case, Chris sold some shares at a profit and some at a loss. Hence, the net capital gains would be charged to CGT.
Therefore, CG= $[12000*(1.56-0.45) + 5000*(2.10-5.20)] = $[12000*1.11 - 5000*3.10]
=> CG = $[13320-15500] = $(2,180)
Therefore, Capital Loss = $2,180 (carried forward).

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