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Law Assignment Question
1. You must explain the timing of a CGT event with relevent section numbers and cases
2. Advise net capital gains (losses) to be included in Harrison Carter’s tax return for the years ending 2018 and 2019. Include all available methods for calculating a capital gain for both years.
3. Video Presentation
Law Assignment Solution
CGT is the capital gains tax on the disposal of an asset subjected to various exemptions.
There are different timings, sections and case laws related to CGT.
As per Section 104A of Tax Act 1997, the timing of the CGT Event A1 is as follows.
- A CGT event occurs when there is the disposal of an asset.
- An asset is considered to be transferred if there is a change in ownership, whether due to some act or operation of law. However, it is not considered to be transferred if their beneficial ownership subsists.
- The timing of the event is:
- When a contract is entered and not on the settlement date of,
- When there is a change in ownership.
A person entered into a contract to sell land in June 2016. The settlement was done in October 2016. As per CGT rules, Capital Gain shall be taxable in the year 2015-16 and not in 2016-17, i.e. in the year or contract and not in the year of settlement.
- Capital Gain occurs when capital proceeds are higher than the cost base, and capital loss occurs when the cost base is higher than the capital proceeds.
- There is no Capital Gain or Capital loss if the assets are purchased before 20.09.1985.
- When an asset is purchased under compulsory acquisition, the timing of the event is the earliest of:
- When compensation is received or
- When ownership is transferred or
- When possession is transferred or
- When the entity acquires power.
Example: The property of a person was destroyed in June 2015. Compensation was received in October 2016. Thus, capital gains shall occur in the year 2016-2017.
In the case of FCT V Sara Lee Household, the change in ownership occurred on 30th June 1992, but the contract was entered on 30th June 1991. The response contends that capital tax to be taxed on 30th June 1992 and appellant on 30th June 1991. Thus, it was held that taxability occurred on 30th June 1991, i.e. when the contract was entered.
As per the American Taxation Office, if assets are acquired before 20.09.1985 capital gains are exempt and for assets, after 20.09.1985, there are three different methods of calculation of CGT. These are as follows.
- CGT DISCOUNT METHOD
This method is not available for the company. In this method, if an asset if held for more than 12 months before the CGT event then the capital gains may be reduced by 50% applicable for individuals (including partners in partnerships) and trusts and 3 percent for complying with super funds.
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