Capital Gain Taxes

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Question :

Read the given case study and answer the questions related to capital gain taxes.

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Answer :

Case Study

Answer 1 


Eric acquired assets which consists of vase, antique chair, home sound system and shares in a listed company. Then he sold all the possessions and wanted to calculated the capital gains arising from it.


Capital gains arise when the asset sold comes under the purview of capital asset and the sale price is higher than the purchase price. CGT also don’t  affront to demeaning assets used wholly for assessable purposes, such as commercial tackle or furnishings in a rental possessions. It is considered as part of income tax and should not be treated as separate tax. Items like Landscapes, coins, jewelry are taxable to capital gain. Capital gain taxes are not applicable to home system. The capital gain is calculated as the difference between the sale price, less associated expenses, such as solicitor fees, agent commission etc., and the original purchase price, plus associated costs of purchase, such as stamp duty, solicitor fees, building inspections Stocks are also answerable to capital gains. In this circumstance it is assumed that the stocks are hold for less than 12 months. Short term capital asset are not hold for more than 36 months where long term asset are hold for more than 36 months. Where as in shares when it is hold for more than 12 months it amounts to long term capital gain and when the individual holds it for less than 12 months it related to short term capital gain. There  are proper indexation which are done. Indexation assists us to pawn the corrosion in the worth of the asset over some years. Using the risen index, the individual needs to increase the purchase price so that the correct capital gain or loss can be measured effectively Therefore indexation is important. In this case we are not taking the indexation in to consideration.


Auction price $5000

Less acquisition :$14000

Wealth loss:$9000

Capital or wealth loss can be set off against short term capital gains.

 (The loss is appropriate under segment s108-20(1)ITAA1997)

Listed stocks

Auction price $20000

Less: buying price $5000

Wealth gains:$ 15000

Tax would amount to $15000 which is 15 percent of the gains.


Capital gain taxes are applicable to assets which qualify for capital assets. 

Answer 2


Brian serves as an bank executive. To serve him a package the employer provided a loan at an interest of 1 percent which is paid in monthly installments. In the middle of 2016 the loan was given. Brian used the income which is around forty percent for income producing purpose and also he gave all his dues related to interest. This question is to arrive at the fringe benefit accrued.


Fringe Benefit Tax (FBT) is basically a tax that an company has to wage in lieu of the welfares that are agreed to his/her staffs. It was an effort to lengthily levy tax on those welfares, which avoided the taxman. 
The list of welfares included a wide variety of freedoms, services, services or conveniences which were straight or circuitously given by an boss to current or former workers, be it somewhat simple like telephone compensations, free or concessional tickets or even aids by the boss to a Application

Interest accrued for a month: $833.33

Interest accrued for one year:$10000

40 percent of the income represent funds which are borrowed that is $100000

Revenue$250000 which is from the rented funds

Assessable worth :$25000-$10000


There will be a difference in the answer if the interest will be paid monthly rather at the end of the loan.

The chargeable value is $25000 If the bank release comes in to picture. (Adams 2017)


It can be concluded that fringe benefit can be a part of the salary.

Answer 3


Jack was serving as an architect. Jill was a homemaker and was not having any source of money. They both purchased a rental property as joint tenants. They are both under a written agreement that Jack while getting 10 percent of the profits if there is profit from the agreement and Jill will be getting 90 percent of the profits. The written agreement also introduced that Jack will be responsible for the loss if any loss will be accruing. He will be responsible for 100 percent of the loss. There was a loss of $10000. 


In this case clubbing of income apply. Clubbing of revenue means combination of income. This income is used for devious chargeable income. Main aim of clubbing is to avoid any income. There are many cases of clubbing. If assesse attempts to handover of income without allocation of possession, at that time, salary will surely be battered in assesses total income. Here income means income from all parts such as Income from Salary, House property, Income from business (Adams 2017)


This case is known as clubbing of income. This is a strategy of tax evasion. It is seen that Jack is having a business income or a salary income from his architecture skills where his wife is just a homemaker. This agreement was to evade the income as if there will any loss it would get transferred to Jack as he is having a business income and the income would be then lessen which means less liability of tax. If there would have been profits the profits would be just 10 percent attributable to Jack which is not possible according to law. This agreement is to introduce some income in the books of Jill and to evade the income from the books of Jack. Clubbing has different rules and in this case there is transfer of income. Jack is transferring his income to his wife so that he can reduce his tax liability. Jill however has no business income will be gaming some income and will be paying minimal tax.


             It is a case of tax evasion. As Jack was evading his income by transferring part of the profits to Jill who was not having any income. This is a strategy of tax evasion. It is seen that Jack is having a business income or a salary income from his architecture skills where his wife is just a homemaker

Answer 4


This is a case of IRC v Duke of Westminster where the employer makes a tax saving by employing a gardener and paying him the remuneration as per the agreement made by the employer.


              It can be said as a tax avoidance case. Duke introduced a gardener in his field. Previously he was paying a normal wage but afterwards he went in to an agreement with him to pay him the wages. A deed of bond is a lawful item or a text  which records the answerability of one separate person to pay an amount of cash to someone with a prescribed lock in period.. The  case was stretched to Court whether Duke is evading any income. It was aid that an separate individual can inferior down his businesses of disbursing the tax and is he does that it cannot be said that he or she has avoided the tax(Government 2016)


             This principle is still appropriate as it is notified under the rules of tax avoidance. The Duke of Westminster code is no elongated unbreakable. The courts progressively smear a purposive understanding to coup replica tax dodging schemes.


            It cannot be said as a tax evasion or tax avoidance as the individual has not avoided the tax. He has just made arrangement to reduce his tax liability. He has not evaded any tax liability from his income.

 Answer 5


Bill owns a large land in which many tall trees were there. He wanted to clear the land and wanted it to be cleared. He intends to use the land for grazing and a logging company gave $1000 for every 100 meters of timber.


          Capital Gain results from the profits of the sales of capital possessions. Capital gains tax is tax on the income made on the auction of any capital item.

            This contains all dissimilar types of reserves, including, but not imperfect to shares, units in unit beliefs, productions and possessions. Capital gains tax smears in any financial year a capital possession is sold. The year of the actual contract is the acquisitions or auction date for capital improvements purposes and not the date of settlement.

             Capital assets does not include agrarian land or woodland area. Mr. Bill owns a land established with Pine trees. Hence Mr. Bills possesses an assets which does not come under the purview of capital assets and hence does not quantify for capital gains.

            If any professional activity is made over a forest or farming land, the profits will be taxable as commercial income from agrarian/ forest land. Mr. Bill is obvious to achieve the logging of timber action contingent upon the cubic meter of the wooden sold which obviously shows the facts of having the business with the logs selling (Index 2017).In case of lease device against group of a lump sum money to do a business movement over a period should be careful under other foundation of income. The incomes should be regular as per the allowed freehold of assessment years.


            There will be no capital gain tax as there will be no capital gains. The commerce of selling of log@USD 1000 per 100 meters can be apparent as the professional income and consequently the tax allegation will be there. The group of lump sum profits will form part of the other bases of income as the advantage of the auctions will be taken by the purchaser over a passé as per lease preparation.


              It can be concluded there will no capital gains The revenue from commercial income will be activated based on the recurrent deal from the classification of pine plants on meter recorded basis.