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...

Solution to Q1
Executive Summary
As Albert Einstein once said, the hardest thing to understand in the world is income tax. The
quote explains itself the importance of taxation wherein it explains itself that taxation is
difficult to understand since it can be interpreted in many ways but cannot deviate at the same
time from the income tax provisions.
The present individual assignment is on taxation theory, practice and law. The assignment
explains the laws around the Australian taxation, explains the fine provisions of the income
tax and with the practical examples, teaches the taxation principles. It has 5 practical
examples with different scenarios hovering around capital gains, house property income,
judicial precedents and others wherein the practical scenarios are dealt with the taxation
principles of Income Tax Assessment, 1997 of Australia and the other relevant provisions of
the taxation.
Solution to Q1
Facts
In the present question, the facts of the case are such that the taxpayer Eric has sold some of
the assets owned by him. Eric is not quite sure how the taxability will be for each of the
assets sold by him and how much of tax he owes to the tax authorities for the assets sold by
him.
Analysis
As per the Income Tax Assessment Act, 1997 (ITA), any capital assets which is held by
taxpayer is considered for the purpose of capital gains (CGT) such as real estate, stocks held
in entities and etc. unless capital assets are expressly excluded under the provisions Income
Tax for Capital Assets. Under the ITA, there are certain assets which are excluded from the
Income Tax as follows:
Sl. No. Nature of Asset Reason for Exclusion
1 Main Residence The main residence is generally an exempt assets
unless it falls under exceptions
2 Motor Vehicles The motor vehicles held by taxpayer wherein it can
ca
y a load of less than one tonne
3 Personal Assets Any assets held for personal use and acquired for
costs of $1,000 or below
4 Collectables Collectables which are acquired for or worth $500
at the time of purchase
5 Depreciating Assets Depreciating assets which are acquired for the
purpose of taxation and trading stocks
6 Others There are other assets which are also excluded from
tax but not relevant to the cu
ent exercise
Based on the above, we can now proceed ahead to work on the present case of Eric to
identify the taxability of the assets sold by them. Before that, we can identify that Eric sold
the assets for less than 12 month period therefore the capital gains would be taxed in the
hands of Eric as short term capital gains.
Sl.
No.
Asset
Sold
Nature of
Asset
Taxable /
Not-Taxable
Capital Gain
Sale - Costs
Reasons
1 Antique
Vase
Collectables Taxable $3000 - $2000 Collectables over
$500
$1000
2 Antique
Chair
Collectables Taxable $1000 - $3000 Collectables over
$500
-$2000
3 Painting Collectables Taxable $1000 - $9000 Collectables over
$500
-$8000
4 Home
Sound
System
Personal Use
Asset
Taxable $11000 - $12000 Personal Assets
used but value
above $10,000
-$1000
5 Shares in Shares Taxable $20000 - $5000 Shares in listed co.
listed Co. are taxable
i
espective of any
threshold value
$15000
Based on the above, we can now compute the net taxable capital gains for Eric as follow:
Value of taxable gains : $15,000
Less: Adjusted of any losses : Nil
Value of net taxable gains : $15,000
It may be noted that as per CGT provisions of ITA, the taxable capital losses under the
collectables and personal assets cannot be adjusted against any other heads of capital assets.
However Eric can ca
y forward these losses to future years to be adjusted under the same
head if he earns any other...