This a question that requires an essay style answer.
Herbert , an Australian resident, had been living in Sydney.
He decided to take a new job and transferred to Newcastle.
Before moving, he sold the following assets:
Item Purchase Price Sale Price
Rented Apartment $480,000 $580,000
Yacht $50,000 $62,500
Gold jewellery $5,000 $10,000
Flat Screen Television $1,000 $ 1,500
Antique Vase $4,000 $3,000
All assets were purchased on 1 July 2015 and sold on 30 June 2023. The yacht has been used as his home since it was purchased, and he had nowhere else to live. Because of the pandemic and the shortage of accommodation he was surprised to sell it for more than it cost.
Required:
Explain how you would assess the capital gain on each of these items and then calculate the total amount to be included in his assessable income, if any, from these CGT events?
Your answer must refer to the relevant legal rules as well as setting out the calculations.
Capital Gains Tax (CGT) is an integral part of Australia’s taxation system. It applies to the capital gains made on the disposal of various assets, including real estate, investments, and personal items. In this scenario, we will assess the capital gains on the assets that Herbert, an Australian resident, sold when he relocated from Sydney to Newcastle. The assets in question are a rented apartment, a yacht, gold jewelry, a flat-screen television, and an antique vase. We will also calculate the total amount to be included in Herbert’s assessable income, considering the relevant legal rules and calculations.
Rented Apartment: Herbert’s rented apartment was sold for $580,000, which is $100,000 more than the purchase price of $480,000. To calculate the capital gain, we use the following formula:
Capital Gain = Sale Price – Purchase Price Capital Gain = $580,000 – $480,000 = $100,000
As the property was owned for more than 12 months, Herbert is eligible for the 50% CGT discount for individuals. Therefore, the assessable capital gain on the apartment is $50,000.
Yacht: Herbert’s yacht was used as his primary residence, and it was sold for $62,500, exceeding the purchase price of $50,000. The capital gain calculation is as follows:
Capital Gain = Sale Price – Purchase Price Capital Gain = $62,500 – $50,000 = $12,500
Since the yacht served as his main residence, it may qualify for the main residence exemption, provided it meets certain conditions. If eligible, this capital gain could be exempt from CGT.
Gold Jewelry, Flat-Screen Television, and Antique Vase: Herbert also sold his gold jewelry, flat-screen television, and an antique vase. To calculate the capital gains on these items, we follow the same formula:
Gold Jewelry: Capital Gain = $10,000 – $5,000 = $5,000
Flat-Screen Television: Capital Gain = $1,500 – $1,000 = $500
Antique Vase: Capital Gain = $3,000 – $4,000 = -$1,000 (a capital loss)
Herbert has made a capital loss of $1,000 on the antique vase, which can be used to offset capital gains on other assets.
To calculate Herbert’s total assessable income from these CGT events, we sum up the assessable capital gains and apply any applicable discounts or exemptions:
Total Assessable Income = (Capital Gain on Apartment + Capital Gain on Yacht + Capital Gain on Gold Jewelry + Capital Gain on Flat-Screen Television + Capital Loss on Antique Vase)
Total Assessable Income = ($50,000 + $12,500 + $5,000 + $500 – $1,000)
Total Assessable Income = $67,000
In this scenario, we assessed the capital gains on Herbert’s assets, considering the relevant legal rules and calculations. The total amount to be included in his assessable income from these CGT events is $67,000. It’s important to note that the potential CGT exemptions, such as the main residence exemption for the yacht, should be further evaluated based on specific circumstances and eligibility criteria, which could affect the final assessable income amount. Additionally, Herbert should consult a tax professional or the Australian Taxation Office for precise guidance on his tax liability.
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