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Income taxition law - Essay Example

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[INCOME TAXATION LAW] (Name) (Instructor/Tutor) (Course/Subject) (Institution/ University) (City, State) (Date) Part 1- Problem Question Capital Gains Tax Implications on Sale of the Shoe Manufacturing Factory Premises A capital gain is the difference between the cost of asset acquisition and the proceeds realised from disposing the same asset1…
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Download file to see previous pages Any household required to pay tax on gains that result from disposition of financial and real property2. Whether the gains are speculative, from business income or passive, from capital income, they are subject to tax. On the other hand, investors may make capital losses when the proceeds realised from asset disposal are less than the costs of asset acquisition. Capital gains are only realised when assets are disposed, and not when they are leased. From the information that is provided, the net capital gain for Chloe from the sale of shoe manufacturing factory premises is $1,570,000. This is calculated by subtracting the costs incurred in the acquisition of the factory premises from the proceeds realised from sale of the factory premises as shown. $ $ Selling Price 2,000,000 Goodwill 400,000 Compensation 60,000 Compensation 30,000 2,490,000 Purchase Price 800,000 Goodwill 100,000 Renovation Cost 20,000 920,000 (920,000) Net Capital Gain 1,570,000 The capital gains tax implication for this transaction is that only fifty percent of the net capital gains will be subject to capital gains tax because the factory premise was owned for a period of more than twelve months. Gains arising from assets that were purchased after 21st September 1999 are calculated using the 50% discount method3. An asset purchased and sold more than twelve months later is taxed on 50% of the gain while gains on assets held for less than twelve months do not qualify for an increased base of the fifty percent discount. Therefore, an amount of $ 785,000 will be subject to capital gains tax. There should be proper recording of the business transactions regarding the factory premises, commencing the date of acquisition to avoid paying more capital gains tax than necessary. There will be no benefit of small business concessions. A company whose annual income is more than $2 Million is not a small business. On the other hand, if the aggregate turnover for the current year is less $ 2 Million, then the business is a small business4. Capital Gain Tax Implications on PKY Pty Ltd An expense was incurred in acquiring the company, PKY Pty. There should be appropriate recording of transactions and costs associated with the acquisition and running of this company to ensure that capital gains tax is equitable. It is imperative to note any income that will is to be realised from rent is subject to tax. This is because rental income is subject to tax. Secondly, the retail business’ net proceeds will be subject to tax. In case, the aggregate income per year does not exceed $2 Million, then Chloe can benefit from small business concessions because the company will be categorised under small businesses. Capital Gain Tax Implications on Residential House The $800,000 residential house with $400,000 mortgage is not subject to any tax because all residential properties are exempt from taxation. Personal assets such as personal use assets, home and car are exempted from capital gains tax. However, this does not apply to depreciating assets such as business equipment or fittings in rental property that are solely used for taxable purposes. To avoid payment of any tax there should be proper recording regarding the residential house cost. Also, the house should not be rented or be on more than two hectares of land, and must have a dwelling in it4. A dwelling is exempt from capital gain ...Download file to see next pages Read More
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