Q Based on the legal provisions, discuss capital gain tax assets and calculate his net capital gain Home, - Discuss capital gain tax assets Question 1 - 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 - All collectable assets are considered to be capital assets if they have been acquired for a sum of AU$501 or more. Similarly all personal assets are considered to be capital assets if they have been acquired for a sum of AU$10,000 or more in the financial year. Since he is an artist, the painting shall be considered as a stock and will be exempt from the definition of capital assets. He incurs a capital gain on the Antich ceramic bowl of AU$2000, a loss on the antiquities of AU$4000 and again on the sale of shares amounting to AU$20,000. Hence on the whole, he as a short-term capital gain of AU$18,000. Question 2 - What is meant by two terms, 'tax evasion' and 'tax avoidance'? Give your answer with examples of each. Answer - Tax evasion as the term suggests is the process of illegitimate evasion of tax payments towards the government. Here, the individual or the corporate entity deliberately involves in minimisation of taxes through illegal activities which are not permissible under the ATO. The management miss represents the assessable income for the particular financial year and thereby reduces the taxable income. These are fraudulent activities against which government can take strict actions by imposition of fines and penalties.Tax avoidance is a legitimate strategy undertaken by corporate entities and individual residents to cause minimisation of their tax liabilities towards the government of the nation. This is done with the intention to cause inflation in the after-tax profits for the particular financial year. Here, the individual or the corporate entity Intentionally undertakes such activities that may cause avoidance of tax payments through allowing every legal deduction possible under the ATO. There is no government intervention or penalties imposed against such a strategy. Availing credits of taxes, ensuring allowable deductions are included, etc are some examples of tax avoidance strategies. Related: What circumstances are individuals treated as residents of Australia Prime cost and diminishing value methods Discuss capital gain tax assets
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