INDIVIDUAL ASSIGNMENT 1
TABLE OF CONTENT
RELEVANT RULE/ APPLICATION
Janet (taxpayer) residing in Australia is named as the sole beneficiary of a property (1.85 hectares) with a large homestead as a result of the death of a relative on 7/10/2010. The property is not used for commercial purposes and at the date of death, the property was valued at $1.45million. Settlement took place on 21/12/2010. After moving into the homestead shortly after taking ownership, she planned to take a one-year trip which she had been planning for some time in late 2011. The taxpayer felt that the homestead was far too large for her (she is single), applied to the ATO for an exemption for ABN registration and some fourteen months later (16/2/2012), she obtained council approval to subdivide the property into three, with the intention of building three units, one she will take up as her own residence, the other two will be sold. Work commenced some weeks after approval and on 12th December that same year, the taxpayer returned and moved into one of the apartments. The other two were sold in March/April in 2013, one selling for $1.35m (24/3/2013), the other for $1.45m (9/4/2013). You are to consider the CGT implications both from the relevant sections (ITAA), rulings, etc. and from the values (if/where applicable). Assume that the blocks are subdivided equally. For each determination that you make, you should clarify. You should also clarify what Capital Gains and CGT is in your answer
Various facts of the case have to be taken into consideration in order to clarify the capital gains and CGT that have implied. A person who gets the advantage, benefits or profits from a will, trust and life insurance policy is known as a beneficiary. In this case, Janet is a beneficiary as she is entitled to a property as a result of the death of her relative. However, if a relative died without making any will, then Janet would be named as a beneficiary as per the laws of intestacy. As per Australian Taxation, special capital gain tax (CGT) rules apply on transfer of any asset to the beneficiary if the owner of the assets dies. However, if a beneficiary sells the property that she has inherited then normal capital Gain tax Rules would be applicable. However, if the property was acquired by the beneficiary before 20 September 1985, then the beneficiary would have been exempted from Capital Gain Tax (CGT). But in this case, the relative of Janet died on 7th October 2010 and the property is deemed to be transferred on that same day that is after 20th September 1985, so Janet is liable for Capital Gain Tax (CGT). As per the case study given, we do not know when the relative of Janet had actually bought the property. So here we assume that, the property was bought on or after 20th September 1985. However, if the relative of Janet has made some major improvement in the assets before he/she dies then that improvement would not be taken as separate assets by the beneficiary. So in the given case as the relative of Janet died on 7th October 2010 so indexation method would not be applicable as the provision states that if the deceased person dies on or after 21st September 1999, then indexation method would not be available. So Janet has to apply to CGT Discount Method. Since the property was acquired by the relative after 20th September 1985, so beneficiary (Janet) has all the right to know the full details about the relevant cost incurred by the relative. If this property was not been transferred to the beneficiary and has been sold by the executors, then the cost incurred by the executor on that day would be included by the beneficiary in the cost base. In the given case, Janet a beneficiary got a residential property from her relative as a result of the death of her relative on 7th October 2010. On that day...
References: 1. Deceased estate and CGT | Australian Taxation Office. 2014. Deceased estate and CGT | Australian Taxation Office . [ONLINE] Available at:https://www.ato.gov.au/General/Capital-gains-tax/In-detail/Gifts,-inheritances-and-deceased-estates/Deceased-estate-and-CGT/. [Accessed 21 August 2014].
2. Whitelaw McDonald | Newcastle Solicitor. 2014. Whitelaw McDonald | Newcastle Solicitor. [ONLINE] Available at:http://www.whitelawmcdonald.com.au/. [Accessed 21 August 2014].
3. Capital gains tax (CGT) implications | Australian Taxation Office . 2014.Capital gains tax (CGT) implications | Australian Taxation Office . [ONLINE] Available at: https://www.ato.gov.au/Individuals/Deceased-estates/Capital-gains-tax-(CGT)-implications/. [Accessed 23 August 2014].
4. Capital gains tax | Australian Taxation Office . 2014. Capital gains tax | Australian Taxation Office . [ONLINE] Available at:https://www.ato.gov.au/General/Capital-gains-tax/. [Accessed 23 August 2014].
5. Stephen Barkoczy 2014, Foundations of Taxation Law, 6th ed., CCH Australia
6. Taxation Ruling No. IT 2186; http://law.ato.gov.au/atolaw/view.htm?docid=ITR/IT2186/NAT/ATO/00001
7. Income Tax Assessment Act, 1997
8. Taxation Ruling No. IT 2186; http://law.ato.gov.au/atolaw/view.htm?docid=ITR/IT2186/NAT/ATO/00001
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