Peter is planning to marry Ann on 12 September 2023. To make sure there were enough funds to pay for the wedding and the honeymoon, Peter sold the following assets:
The CPI numbers are:
March 1989 51.7
September 1999 68.1
Peter has capital losses he is carrying forward from previous years of $19,000 from the sale of an antique and $10,000 from the sale of some shares. Peter received a gross salary of $164,000 from his employment as an auditor and he has deductions of $750 for his CPA membership and $5,000 for his professional indemnity insurance. He is self employed and works under his ABN. He also paid $15,000 as a personal superannuation contribution. He paid a total of $25,000 as PAYG Instalments during the financial year.
REQUIRED
Calculate the net capital gain or capital loss for Peter for the year ended 30 June 2023 and his tax payable.
| Resident tax rates 2022-23 | |
| Taxable income | Tax on this income |
| 0 – $18,200 | Nil |
| $18,201 – $45,000 | 19 cents for each $1 over $18,200 |
| $45,001 – $120,000 | $5,092 plus 32.5 cents for each $1 over $45,000 |
| $120,001 – $180,000 | $29,467 plus 37 cents for each $1 over $120,000 |
| $180,001 and over | $51,667 plus 45 cents for each $1 over $180,000 |
The above rates do not include the Medicare levy of 2%.
In the realm of personal finance and taxation, meticulous assessment and strategic planning are crucial to ensuring that individuals optimize their financial outcomes. In this context, let’s delve into Peter’s financial situation for the year ending June 30, 2023, as he navigates the intricacies of capital gains tax (CGT) and tax payable.
Peter’s financial landscape is a tapestry of assets and transactions, each carrying implications for his capital gains or losses. The assets in question include a holiday house, vacant land, a painting, a horse, BHP Ltd shares, a 2-bedroom unit, and a vintage Morris motor car. These assets have undergone varying degrees of appreciation or depreciation since their acquisition, giving rise to potential capital gains or losses.
Holiday House: The sale of Peter’s holiday house has several factors to consider. The original purchase price of $350,000 is adjusted by the costs of acquisition ($20,000) and the improvement expenses ($15,000). The selling price of $650,000 also takes into account advertising and estate agent’s fees ($8,000). This results in a capital gain of $267,000 ($650,000 – $350,000 – $20,000 – $15,000 – $8,000).
Vacant Land: The vacant residential land, initially bought for $100,000, was sold for $500,000. The capital gain here amounts to $400,000 ($500,000 – $100,000).
Painting: Peter’s painting, purchased for $20,000 and sold for $30,000, results in a capital gain of $10,000.
Horse: The insurance payment of $16,000 for the horse’s demise constitutes a capital gain.
BHP Ltd Shares: The sale of BHP Ltd shares yields a capital gain of $45,000 ($90,000 – $45,000).
2-Bedroom Unit: The sale of Peter’s apartment for $555,000 necessitates a calculation that considers the period it was his main residence and the period it was rented out. However, specific details about the period spent as the main residence, the rental period, and the relevant expenses are not provided in the information given.
Vintage Morris Motor Car: The vintage car’s sale, at $68,000, results in a capital gain of $43,000 ($68,000 – $25,000).
To determine Peter’s net capital gain, we sum the capital gains from each asset and then subtract any capital losses. The capital losses from the antique sale and shares amount to $19,000 and $10,000, respectively. The net capital gain is the sum of all capital gains minus the total capital losses.
Net Capital Gain = (Capital Gains) – (Capital Losses) = ($267,000 + $400,000 + $10,000 + $16,000 + $45,000 + $43,000) – ($19,000 + $10,000) = $752,000 – $29,000 = $723,000
The Australian tax system employs progressive tax rates based on an individual’s taxable income. Given Peter’s gross salary of $164,000 and the mentioned deductions, his taxable income can be calculated:
Taxable Income = Gross Salary – Deductions = $164,000 – ($750 + $5,000 + $15,000) = $143,250
Using the provided tax rate brackets and Medicare levy of 2%, the tax payable can be calculated by applying the relevant tax rates to the different income brackets:
Tax Payable = Tax on $18,200 + Tax on ($45,000 – $18,200) + Tax on ($120,000 – $45,000) + Tax on ($143,250 – $120,000) + Medicare Levy
After calculations:
Tax Payable = $1,182 + $9,080 + $29,367 + $5,361 + $2,865 = $47,855
In conclusion, Peter’s meticulous asset management and strategic planning have led to a substantial net capital gain of $723,000 for the financial year ending June 30, 2023. His taxable income of $143,250, after deductions and other financial transactions, results in a tax payable of $47,855, accounting for the progressive tax rates and the Medicare levy. This comprehensive analysis underscores the importance of understanding capital gains and losses in navigating the complex realm of taxation, ultimately contributing to informed financial decisions.
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