Q What is meant by two terms tax evasion and tax avoidance? Give your answer with examples Home, - What is meant by term tax evasion Question 1 - What is meant by two terms, 'tax evasion' and 'tax avoidance'? Give your answer with examples of each. Answer - Tax evasion means violation of various laws and using illegal methods for reducing the tax liabilities. Tax avoidance is simply using legal methods or loopholes for reducing tax liabilities. For example Not disclosing one's full income in order to reduce tax liability is tax evasion. On the other hand giving charitable donations in order to reduce tax liability is tax avoidance. Tax evasion is a crime in every jurisdiction of the world. In Australia one can get a prison term of up to 10 years for doing tax evasion. Tax evasion is considered a major criminal offence in Australia. As aforementioned, tax avoidance is not a crime. One cannot be sent to jail or punished in any way for doing tax evasion. It is perfectly legal. Question 2 - Benjamin is an artist. He sold some assets last week. He requests you to calculate the Capital Gain Tax (CGT) consequences of the following transactions: He purchased the following items last eight months ago. - an antique ceramic bowl (for $4,000), - An antique vase (for $5,000), - A colourful painting (for $15,000), - A TV sound system for his personal use (for $10,000) and - Shares of a reputed Company (for $6,000) Last week he sold these assets as follows: - an antique ceramic bowl (for $6,000), - An antique vase (for $1,000), - A colourful painting (for $ 5,000), - A TV sound system for his personal use (for $9,000) and - Shares of a reputed Company (for $26,000) Based on the legal provisions, discuss capital gain tax assets and calculate his net capital gain or net capital loss for the current tax year. Answer - Capital gains tax came into existence in Australia, after the passage of Capital gains tax Act in 1985. Currently provisions regarding capital gains are given in sections 104-105 of Income Tax Assessment Act, 1997. Personal assets are exempt from capital gains tax. Depreciable assets are also exempt from capital gains. Capital gains are included in the assessable income of the individual. If capital gains are made on an asset held for more than one year, then only 50% of the capital gains made is taxable. Antique ceramic bowl Purchase price 4000 Selling price 6000 Capital gains made 2000 Antique vase Purchase price 5000 Selling price 1000 Capital loss -4000 Colourful painting Purchase price 15000 Selling price 5000 Capital loss -10000 Shares of company Purchase price 6000 Selling price 26000 Capital gains 20000 Capital losses on collectibles can be offset against capital gains on them. Net capital gain (loss) 20000 Related: Explain the Income Tax Assessment Act What are the tax consequences Calculate what amount is allowed as deduction What is meant by term tax evasion
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