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QUESTION 1 Over the last 12 months, Eric acquired the following assets: an antique vase (for $2,000), an antique chair (for $3,000), a painting (for $9,000), a home sound system (for $12,000), and...

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QUESTION 1

Over the last 12 months, Eric acquired the following assets: an antique vase (for $2,000), an antique chair (for $3,000), a painting (for $9,000), a home sound system (for $12,000), and shares in a listed company (for $5,000). Last week he sold these assets as follows: antique vase (for $3,000), antique chair (for $1,000), painting (for $1,000), sound system (for $11,000) and shares (for $20,000). Calculate his net capital gain or net capital loss for the year.

Question 2
Brian is a bank executive. As part of his remuneration package, his employer provided him with a three-year loan of $1m at a special interest rate of 1% pa (payable in monthly instalments). The loan was provided on 1 April 2016. Brian used 40% of the borrowed funds for income-producing purposes and met all his obligations in relation to the interest payments. Calculate the taxable value of this fringe benefit for the 2016/17 FBT year. Would your answer be different if the interest was only payable at the end of the loan rather than in monthly instalments? What would happen if the bank released Brian from repaying the interest on the loan?
Question 3
Jack (an architect) and his wife Jill (a housewife) borrowed money to purchase a rental property as joint tenants. They entered into a written agreement which provided that Jack is entitled to 10% of the profits from the property and Jill is entitled to 90% of the profits from the property. The agreement also provided that if the property generates a loss, Jack is entitled to 100% of the loss. Last year a loss of $10,000 arose. How is this loss allocated for tax purposes? If Jack and Jill decide to sell the property, how would they be required to account for any capital gain or capital loss?
Question 4
What principle was established in IRC v Duke of Westminster [1936] AC 1? How relevant is that principle today in Australia?

Question 5
Bill owns a large parcel of land on which there are many tall pine trees. Bill intends to use the land for grazing sheep and therefore wants to have it cleared. He discovers that a logging company is prepared to pay him $1,000 for every 100 metres of timber they can take from his land. Leaving aside any capital gains tax issues, advise Bill as to whether he would be assessed on the receipts from this arrangement. Would your answer be different if he was simply paid a lump sum of $50,000 for granting the logging company a right to remove as much timber as required from his land?

 

Answered Same DaySep 17, 2019HI6028

Solution

David answered on Nov 25 2019
73 Votes
Answer to Question 1
Capital gain or loss arises out of selling capital assets. The definition of the capital asset is prescribed under the Australian taxation law. The taxation law provides for the identification and treatment of the capital gain or loss. As per the provisions contained in the taxation law all assets if acquired after 20th September 1985 will be classified as capital asset if they are not specifically mentioned in the list either to be exempted or excluded. In the given question Eric has acquired some assets and sells them over a period so it is clear that there will be a capital gain or loss arising from such situation. So the capital gain or loss is calculated below:
· Antique vase, antique chair or the painting will fall under collectables, as per the provisions of the capital gain if the collectables is
ought for more than $ 500 then liable to the capital gain or loss. By applying the same to the question the capital gain or loss would be
Antique Vase = $ 3000- $2000= $ 1000 capital gain
Antique Chair = $ 1000- 3000 = $ 2000 capital loss
Painting = $ 1000- $ 9000 = $ 8000 capital loss
So from the collectables the capital loss would be $ 9000.
· Home sound system will fall under personal used items, as per the provisions of capital gain if the personal used asset acquired for more than $ 10,000 then liable to tax. So the capital gain or loss from the above will be $ 11,000 - $ 12,000 = $ 1,000 capital loss.
· Shares are the capital asset, so the capital gain or loss from the shares will be $ 20,000 - $ 5,000 = $ 15,000 capital gain.
Further there is a provision in the capital gain tax that gain or loss from the collectables and the personal used items will be squared off from the same not from any other head and shall be ca
ied forward to the future years.
Answer to Question 2
The question is related to the fringe benefit policy of the Australian law. According to the Australian law the fringe benefit is provided in addition to...
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