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How to Minimize Capital Gains Tax - Assignment Example

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In the paper “How to Minimize Capital Gains Tax” the author focuses on taxation, which is the power by which the government raises revenue to defray the necessary expenses of government. Taxes are levied on those who are some measures are privileged to enjoy its benefits and must bear its a burden. …
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How to Minimize Capital Gains Tax
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Download file to see previous pages The inhabitants pay taxes to the government and in return receives benefits and protection from the State.
In this problem involving the sale of the house of Ms. Vaughan, considerations as to the taxability of the sales include whether or not the house sold was the primary residence of the seller. Under the Capital Gains Tax (CGT) law, sales of the primary residence of a person may not be taxed.
Residency is dependent on one's length of stay, number, and frequency of trips to the place (i.e. habitual stay) and the intention to stay in that particular place. There must be intent on the part of the seller to establish such property as a primary residence as evidenced by the frequency of her return to the place and the amount of time she spends in the property whenever she is in the country.
In our case, the time Ms. Vaughan spent on the property in Brechin is minimal. She spent more time living with her mother and abroad than actually residing in the Brechin house. The fact that she lent the house to a tenant while she occupied only a portion thereof speaks for itself. The house in Brechin is not the primary residence of Ms. Vaughan and therefore not exempt from capital gains tax.
In computing the taxable gains, the acquisition cost or market value on 2 January 1982 should be used. Since there was no mention in the problem as to the cost of acquiring and disposing of the property, it is best not to assume such amounts.
Note that we use the indexation allowance rate of March 1982 as the basis since it is the closest date to the date of acquisition. We, therefore, use such a rate as the baseline. Indexation allowance applies only from March 1982 to April 1998. Thereafter, we apply the taper relief system on the remaining amount after deducting the indexation allowance. The tapered system is designed to reduce the amount of a gain chargeable to capital gains tax based on the number of whole years. ...Download file to see next pagesRead More
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