Acct 90016 Taxation for Business Decision Making Group Assignment

[pic 1]

ACCT90016

Taxation for Business Decision Making

Group Assignment

Semester, 2016

9 May 2015

Part A

1. CGT Event A1 - Disposal of Land

This is a Capital Gain Tax event A1, disposal of a CGT asset, under Income Tax Assessment Act 1997, section 104-10^[1]. CGT asset include the vacant 5-hectare block of land is fallen into this category^[2]. In 1st January 2016, an Australian entity, Colourvision Pty Ltd signed a contract with another entity for the agreement to sell the land for 11 million Australian dollars. The signed contract shows a change of ownership of the land, which Colourvision Pty Ltd is no longer to be the land’s beneficial owner^[3]. The time of disposal is when the contract is entered into, which is January 2016^[4]. Any gain from disposal will be recorded in the 2015-2016 income year.

Calculation of capital gain or loss

Colourvision Pty Ltd is a registered entity for GST purposes. The cost base or reduced cost base must be reduced by a net input credit available to the taxpayer when calculating the capital gain from disposal^[5]. Colourvision Pty Ltd acquired the land for three million Australian dollars in 1st January 1986. This three million acquisition cost paid is the first element of the cost base and reduced cost base^[6]. There are four incidental costs had incurred, which are identified as the second element of the cost and reduced cost base. They include the $180,000 Victorian stamp duty that incurred in the purchase settlement date 1st May 1986^[7]; the $4,500 legal fees incurred in 1st May 1986^[8]; the $20,000 (GST reduced) legal fees in the sale settlement date 1st April 2016^[9]; and the $70,000 (GST reduced) real estate agent’s commission on 1st April 2016^[10]. Therefore, the Total cost base equals to the sum of all cost base mentioned, which is equal to $3,274,500 (= $3,000,000 + $180,000 + $4,500 + $ 20,000 + $70,000). And the capital proceeds from sale is $10,000,000 (GST reduced).

Capital gain calculation methods is selected depends on the date of acquisition of the asset, the date of the CGT event, and the type of taxpayer. Indexation method is available for Colourvision Pty Ltd since the land was first acquired before 21st September 1999 and it held the land for more than 12 months.

Calculation of the CGT A1 event:

Indexed cost base

= Cost base*Indexation factor

= $3,274,500*(Index no. for the Dec 2015 quarter/Index no. for Dec 1985 quarter)

= $3,274,500*(108.4/40.5)

= $8,764,340.74