Mbs614 Taxation Principles: Applicable Tax Assessment Answers
Questions:
Many years ago in the year nineteen hundred and eighty-four on the first of December, Mellisa L began the operation of a retailing business as a sole proprietor.
On this day she acquired capital assets totalling $100,000. On the first of July 2017, Mellisa transferred the entire operation to a new trading entity incorporated as Mel Lew Pty Ltd.
From the transfer, Mellisa L acquired a number of shares. In total 200,000 shares were acquired. Each share had a value of $1 per share as at the transfer date.
Required:
Assume your group were the Tax Accountants advising Mellisa L and responsible for preparing her tax return:
- Discuss the applicable tax issues citing relevant sections of the law.
- Discuss the applicable tax issues citing relevant sections of the law, if on 1 December 2017 Mellisa sold the shares for $250,000 and the capital assets were acquired on the first of December in the year nineteen hundred and eighty six.
Answers:
1a:
|
Section |
Discussion |
|
102-5, ITAA 1997 |
Required taxpayer to include the income of net capital gain under the assessable income for the purpose of taxation. Accordingly, in the present circumstance any net gain made on disposal of such asset shall be treated as ordinary gain for the purpose of taxation. |
|
102-20 |
A tax payer shall be liable to tax inly if a CGT event happens to the taxpayer. Further, the same happens when there is a disposal of CGT asset. The same can be under the will of taxpayer or through operation of law. Thus, a CGT event shall occur when the ownership of asset changes. In the present case, since there has been change of ownership of asset from Mellisa L to Mel Lew Pty Ltd. Thus, the conditions laid down for CGT event has been triggered. |
|
102 |
Under the Australian Income Tax, Capital Gain Tax was introduced on 20 September, 1985, Accordingly, any asset acquired before that and disposed later on by the company is generally outside the purview of taxation under the Act. Accordingly, in the present circumstance, asset has been acquired by Mellisa L before 1985 to be precise in 1984 and has disposed the same in July 2017. Thus, the same generally falls under the exception and exemption category of Capital Gain Tax. Thus, even after triggering the CGT event the same is not liable to CGT and the gain of $1,00,000 shall not be treated as ordinary income and no Capital Gain Tax shall be charged on the same. |
1b:
|
|
Tax Issue |
Section |
Discussion |
|
1. |
Is disposition of Assets for share and later on disposition of share for cash is a tax event |
102-20 |
A tax payer shall be liable to tax inly if a CGT event happens to the taxpayer. Further, the same happens when there is a disposal of CGT asset. The same can be under the will of taxpayer or through operation of law. Thus, a CGT event shall occur when the ownership of asset changes. In the present case, since there has been change of ownership of asset from Mellisa L to Mel Lew Pty Ltd. Thus, the conditions laid down for CGT event has been triggered for 1st Scenario.
In the second scenario, the shares of the company have been disposed of to some external third party and hence the same shall give rise to a CGT event as ownership of the asset has changes and CGT event is triggered. |
|
2. |
How To treat Such Income |
102-5 |
The Section requires taxpayer to include the income of net capital gain under the assessable income for the purpose of taxation. Accordingly, in the present circumstance any net gain made on disposal of such asset shall be treated as ordinary gain for the purpose of taxation. Thus, the income of $1,00,000 and $ 50,000 shall be treated as assessable Income. Further, the law states that only net capital gain shall be liable to tax which shall be worked out on the basis of parameters established under the Act. |
|
3. |
Date of Acquisition |
102 |
Since the date of acquisition of the asset is after 20th September 1985 to be precise December, 1986, the provisions of the section shall apply and the gain on disposition of asset shall be liable to Capital Gain Tax. Thus, under the present circumstance Mellisa L shall be required to pay Capital Gain Tax on both of her disposal of assets and they shall be treated as separate transaction for the purpose of levy of capital Gain Tax. |
|
4. |
Discounted Capital Gains |
115-A |
The provisions are applicable to individual, life insurance companies, superannuation entities. Under the said method, a reduction of 50% is allowed for individuals on the capital gain made if certain conditions are satisfied: (a) The transaction must take place after 21st September, 1999 (Section 115-5) (b) Asset must be held for 12 months before disposal (Section 115-25); (c) Indexation method has not been used;
In the Present case under the first disposal the holding period is greater than 12 months hence the benefit of discounting method shall be available to Mellisa L and assessable income shall be $ 50000 as further reduced by any carryover of losses if any; Under the second disposal, the said benefit shall not be available as the holding period of asset is not for 12 months |
|
5. |
Indexation Method |
Australian Tax Office |
The provisions are applicable to inidividual. Under the said method, benefit of indexation is allowed for individuals on the capital gain made if certain conditions are satisfied: (a) The asset has been acquired before 11:45 AM of 21st September, 1999; (b) The asset has been owed for 12 months or more; Further the method comes with a limitation that asset has been disposed of after 21st September 1999, then also indexation benefit shall be available uptill 30th September, 1999.
In the Present case under the first disposal the holding period is greater than 12 months hence the benefit of Indexation Method shall be available to Mellisa L and assessable income shall be determined by reducing indexed cost and as further reduced by any carryover of losses if any;
Under the second disposal, the said benefit shall not be available as the holding period of asset is not for 12 months |
References:
Prendergast v Inland Revenue Commissioners [1935] AC 462
P Benson & R Lender Taxation Law in New Zealand (Lexis Nexis, 2014), pp 207 – 209
P Sharpener ‘The University of Western Australia Law Review: Past, Present and Future’ (2005) 58 UWA L Rev 217
Income Tax Assessment Act 1997 (Cth), section 4-15
The High Court of Australia has overruled its previous decision: Sproggs Pty Ltd v Henry Simpson & Co (2005) 225 CLR 123
Buy Mbs614 Taxation Principles: Applicable Tax Assessment Answers Online
Talk to our expert to get the help with Mbs614 Taxation Principles: Applicable Tax Assessment Answers to complete your assessment on time and boost your grades now
The main aim/motive of the management assignment help services is to get connect with a greater number of students, and effectively help, and support them in getting completing their assignments the students also get find this a wonderful opportunity where they could effectively learn more about their topics, as the experts also have the best team members with them in which all the members effectively support each other to get complete their diploma assignments. They complete the assessments of the students in an appropriate manner and deliver them back to the students before the due date of the assignment so that the students could timely submit this, and can score higher marks. The experts of the assignment help services at urgenthomework.com are so much skilled, capable, talented, and experienced in their field of programming homework help writing assignments, so, for this, they can effectively write the best economics assignment help services.
