Class 15.06 Capital Gain Tax (CGT) PDF

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Class 15.06 Capital Gain Tax (CGT)...

Description

Capital Gains Tax (CGT) REGIME Choose the method that generates the smallest capital gain, as this will mean the lower tax payable for the taxpayer

Assets purchased before 20/09/85 – Pre CGT-Asset EXEMPT

Assets purchased on/after 20/09/85 – Post CGT-Asset Sold before 21/09/99

Sold after 21/09/99

Only Indexation method Indexation & Discount method (abolished indexation method on 21/09/99 11.45pm) (Held 12 months) Assets purchased and sold after 21/09/99 Only Discount method 1. Index or Discount – must hold assets for at least 12 months

Example 1

Cost of asset - $5,000 Sold for - $7,500

Sales

7,500

Cost

(5,000) --------

Gain

2,500 * 50% --------

Discount gain 1,250

2. All CGT – must trigger events 3. 53 events for CGT From A1 to L8 A1: Disposal of Assets

C1: Any asset you own is lost or destroyed (e.g. demolition or theft) C2: Ownership of an asset ends through expiry, cancellation or forfeiture (e.g. cancellation of shares) D1: A contractual right or some other legal or equitable right is created in another entity (e.g. restrictive comments)

Quarter ending rates

Year

30 Septembe r

31 December

31 March

30 June

199 9

67.8

68.1

68.7

69.1

199 8

67.0

67.4

67.5

67.8

199 7

67.1

66.9

66.6

66.8

199 6

66.2

66.7

66.9

67.0

199 5

63.8

64.7

65.5

66.0

199 4

61.5

61.9

62.3

62.8

199 3

60.6

60.8

61.1

61.2

199 2

59.9

59.7

59.8

60.1

199 1

58.9

59.0

59.3

59.9

199 0

56.2

57.1

57.5

59.0

198 9

51.7

53.0

54.2

55.2

198 8

48.4

49.3

50.2

51.2

198 7

45.3

46.0

46.8

47.6

198 6

41.4

42.1

43.2

44.4

198 5

37.9

38.8

39.7

40.5

Type of assets 1. Collectibles - >$500 – purchased cost - Is an asset which is collected by tax payer (TP) for his personal enjoyment. E.g. jewellery, postage stamps, paintings, antique Painting Gain Jewellery Loss Net gain

$500 ($300) -------$200

$200 ($300) -------($100) carried forward for collectibles

2. Personal Use Assets - > $10,000 - Assets used for personal consumption by the taxpayer. - E.g. TV, handphones, yacht, furniture Furniture Sales $500 Cost ($700) Loss ($200) – equal to 0 - disregarded 3. Other Assets (OA) – no cost limit - Any assets are not collectible and not personal use assets - E.g. Land, shares, currency

Other Asset Other Asset

Gain Loss Loss $2000 b/f

Index gain

$3000

Less Loss b/f ($2000)

Discount gain

$4500

($15000 - $6000 - $2000) * 50%

-------Net gain

$1000

Net = $3500

Choose Index method

Capital Gain = Capital Proceeds – Asset’s cost base Capital loss = Asset’s reduced cost base – Capital Proceeds

Capital Proceeds Div 116 Modifications: 1. Market value substitution rule where nothing received (gift) or non-arm’s length transaction (s116-30) 2. Apportionment rule – “reasonably attributable” (s116-40) 3. Non-receipt rule (s116-45)

Indexation Example An asset is purchased for $10,000 on 2 October 1989. It is sold on 11 November 2010.

Indexation: 68.7/55.2 = 1.245 Cost base: $10,000 * 1.245 = $12,450

Question 3.2

The disposal of the assets has triggered CGT event A1. Since the assets were purchased on 29th October 1985 and sold today in 2020, the TP is eligible to use indexation and discount methods.

Home (Personal use) But if the home is used for exclusively for residential purposes, it is exempted by virtue of S118-B – under Main residence exemption.

Vacant Land (Other Asset) Index

Discount

68.7/40.5 = 1.696 Cost *28000 ---------Indexed cost $47,488 Sales $30,000 ---------Loss $17,488 = 0

Sales $30,000 Cost $28,000 -------$2000 *50% -------$1,000

Choose index method = 0

Caravan (Personal Use Asset) Since the cost did not exceed $10,000, it is exempted for CGT purpose.

Old etching (Collectible) Since the cost did not exceed $500, it is exempted for CGT purpose.

Antique Sideboard (Collectible) Sales

$1800

Reduced Cost

$2000 --------

Loss

$200

Net Gain Personal Use 0 Others

0

Collectible

0 ---

Net gain

0

S102-5

=== Collectible loss c/f $200

Question 3.30

The disposal of the assets has triggered CGT event A1. Since the assets were purchased on 31st July 1989 and sold today in 2020, the TP is eligible to use indexation and discount methods. Jewellery (Collectibles) Index

Discount

68.7/54.2 = 1.267 Cost *550 ---------Indexed cost $696.85 Sales $4,950 ---------Gain $4,253.15

Sales $4,950 Cost $550 -------$4,400 *50% -------$2,200

Choose Discount method = $2,200 Car (Personal Use Asset) Index 68.7/54.2 = 1.267 Reduced Cost

Discount

*20,000 ----------

Indexed cost $25,340 Sales $22,000 ---------Loss $3,340 = 0 Choose Index method = 0 Vacant Land A (Other Asset)

Sales $22,000 Cost $20,000 -------$2,000 *50% -------$1,000

Loss situation (do not use discount/index method) Sales

55000

Reduced cost 70000 Loss

15000

Vacant Land B (Other Asset) Index

Discount

68.7/54.2 = 1.267 Cost *$40,000 ---------Indexed cost $50,720 Sales $70,000 Loss b/f ($15,000) ---------Gain $4,280 Choose Index method = $4,280

Sales $70,000 Cost $40,000 -------$30,000 *50% -------$15,000

Stereo (Personal Use Asset) Since the cost did not exceed $10,000, it is exempted for CGT purpose.

Television (Personal Use Asset) Since the cost did not exceed $10,000, it is exempted for CGT purpose.

Net gain OA

$4280

Collectible

$2200

Personal Use

$0

Net capital gain =

$6,480...