Lecture 9 CAPITAL GAINS TAX

LECTURE EXAMPLES

Question 1

Calculate the capital gain for an asset purchased by a resident individual on 15 December 1996 for a cost of $25,600 and sold 15 May 2022 for $36,900 using:

(i) Indexation (frozen at 30 September 1999); and

(ii) Appropriate CGT discount

Question 2

A CGT asset was purchased on 16 November, 2021 for a cost of $13,000 and sold 15 June 2022 for $19,000.  Calculate the capital gain using appropriate methods (if available).

Question 3

Grecco Greeback is not a share trader but plays the share market.  He had a net capital loss of $12,000 carried forward from the 2021 year.  In 2021/2022 his share transactions produced the following results:-

a capital loss of $6,000 in August 2021

a capital gain of $4,000 in July 2021 (these shares were owned less than 12 months)

a capital gain of $24,000 in March 2022; (shares were owned for more than 12 months and 50% discount will be used)

Calculate the minimum capital gain to be included in his assessable income.

Question 4

From the following disposals by J Lewis, calculate the minimum net capital gain to be included in her assessable income for the 2020/2021 tax year and any losses to be carried forward.

Asset	Cost$	Date of Purchase	Date of Sale	Sale proceeds $
XXX Shares	4,800	1.7.2010	15.7.2021	3,700
Jewelry	4,000	1.10.2002	14.9.2021	2,000
Business car	20,000	1.1.2018	15.3.2022	21,500
YYY Shares	3,000	15.1.2021	18.11.2021	6,500
Painting #1	3,900	1.9.2006	1.4.2022	5,500
Painting #2	62,500	1.6.1997	10.4.2022	64,000
Holiday house	60,000	10.8.1985	15.5.2022	370,000
ZZZ Shares	15,000	15.4.2013	30.5.2022	28,000

Lecture 9 SOLUTIONS

Question 1

(i) Indexation Method
Capital Proceeds	=	36,900
Less Indexed Cost Base 68.7 (Sept 99)
67.0 (Dec 96)	1.025 x 25600	26,240
Capital Gain		$10,660
68.7 = 1.0253 and this must be rounded to 1.025 (3 decimal places)
67.0
(ii) CGT discount method
50% (36900 – 25600)	=	5,650

Question 2

In this case indexation is not available as asset purchased after 21/9/99; discount method not available as asset owned for less than 12 months.

Capital gain 19000 – 13000 = $6,000

Question 3

Grecco’s net capital gain depends on how he applies part of the losses.   T/P can choose to apply capital losses against capital gains in any order.  The result of Grecco’s transactions is an overall gain of $10,000 (ie 4000 + 24000 – 12000 – 6000).

To minimise the net capital gain Grecco would choose to first apply part of either the loss carried forward or the August 2021 loss against the $4,000 gain as no discount can be applied to this gain (18,000 – 4,000 = 14,000)

He would then apply the balance of the losses to the $24,000 gain.  This would leave the whole of the remaining gain of $10,000 to be discounted by 50%, resulting in an assessable net capital gain of $5,000 (50% x $10,000).

However, if Grecco chooses to apply all of the losses firstly to the $24,000 gain, the assessable net capital gain is $7,000 ($4,000 + 50% of 24000 – 12000 – 6000).  This is because the CGT discount is not available for the $4,000 gain of July 2021 as the shares were not held for >12 months.

Question 4

	Collectable	Discount	Other
XXX Shares:  Capital loss $4,800 – 3,700			<$1,100>
Jewelry:       Capital loss $4,000 – 2,000	<$2,000>
Business car is exempt from CGT.			–
YYY Shares: Purchased and sold within 12 months. Capital gain $6,500 – 3,000			3,500
Painting #1:  Capital  gain $5,500 – $3,900	1,600
Painting #2:  Selling price $64,000Less indexed cost price68.7/66.9 = 1.027 x $62,500 $64,188Nil result, indexed cost price cannot create a loss)	NIL
Holiday house:  Purchased pre 20 September 1985; capital gains tax does not apply.
ZZZ shares:  Capital gain $28,000 – 15,000	–	$13,000	–
	<400>	13,000	2,400
Balance of loss on collectables carried forward	<400>
Minimum net capital gain for 2021/22 tax year 50% of $13,000  + 2,400             $8,900