Taxing Personal Capital Gains

Question: Discuss about the Taxing Personal Capital Gains. Answer: Introduction: The estimated net worth of Sally business is amounted to $240000. It means that the total turnover of the business is surely less than $2 million and therefore, it can be considered as small business. Sale of any small business is a CGT event. Hence, if Sally will sell the business the net profit from the sale will be treated as Capital Gain Tax (Evans et al. 2015). Sally has been running the business from 2002. Hence, the business is a post CGT asset and Sally will be entitled to 50% exemption on the net capital gain. However, apart from the 50% exemption, Sally can claim few other concessions, applicable on CGT fir small business. To claim the concessions, three basic conditions should be fulfilled. According to the first condition, the business should be small business entity. As per the second conditions, the assets must satisfy the active asset test and the third condition is applicable for the asset, which is a share in a company or an interest in a trust. Sallys business is small in nature and it is assumed that the business is fulfilling the active assets test and is not a share in a company or interest in a trust. Thus, Sally fulfills all the necessary conditions (Jones 2016). There are four concessions available for the small business CGT event. The concessions and Sallys eligibility for the concessions are discussed below: Year Assets Exemption: The total CGT will be exempted if the taxpayers age is 55 years or above. He/she must be retiring or permanently incapacitated and has to run the business for at least 15 years. Sally is 53 years old and she is not retiring or permanently incapacitated. Moreover, she has been running the business for 14 years. Therefore, she will not be entitled for this concession. 50% Active Asset Reduction: If the taxpayee owns any active business asset, then the taxpayer can avail 50% reduction on the CGT for the disposed active assets. Sally has not provided any details about her active business assets. Hence, she cannot avail this concession (Sadiq and Marsden 2014). Retirement Exemption: The taxpayer can get CGT exemption upto $500000, if he/she is below 55 years and depositing the selling amount in superannuation fund or retirement savings account. Sally, though being under 55 years, does not have any intention to deposit the selling amount in any retirement deposit. Therefore, she cannot get any such concession. Rollover: If the selling price from any active business asset is used to replace another active asset or improvement of any existing assets, then the taxpayer may defer the CGT upto one year. Sally is selling her business assets to purchase a rental property. Thus, she is investing the selling amount into another asset. However, the new asset will not belong to the old business, so, Sally cannot avail any concession under this act (Geljic et al. 2016). As per the above discussions, the Net Capital Gain Tax of Sally will be as follows: Taxpayee : Sally Calculation of Capital Gain Tax Particulars Amount Sale Proceeds 240000 Less: Legal Accounting Advice 2700 Less: Agent Legal Cost 8700 Capital Gain 228600 Less: 50% Exemption 114300 Net Capital Gain 114300 It can suggested that Sally should provide the list of her active business assets to claim deductions on CGT for such assets. Moreover, if she waits for another 2 years, then she will be 55 years old and the time span of her business will also be more than 15 years. In such case, she can claim for full concession under 15 year Assets Exemption rule. Apart from that, if she invested the selling amount into any retirement accounts instead of purchasing the rental property, she will reduce the net capital gain to nil (Hicks and Tran 2014). Sally cannot claim any deduction for the cost price of the property. However, she can have the deductions for the stamp duty and legal fees on the purchase, borrowing costs on the loan and part of the expenses, incurred for replacing carport. To claim the deductions, she has to prove that she is willing to rent the property and make necessary efforts to rent it accordingly, like giving advertisement or hiring real estate agents etc (Baum and Crosby 2014). When, she will receive rent from the property, her assessable income should include the rent and she can claim deductions for any expense, which she will incur to keep the property rentable (Easthope 2014). The assessable income of Sally for the current year will include the following: The business is the main source of income of Sally. Therefore, gross income from her business will be included as the main ordinary assessable income. Sally have to include the full dividend amount of the 100% franked dividend in her assessable income and can claim tax offset for 30% of the total dividend as franking credit (Harding 2013). Bonus shares as statutory income Income from Army Reserves as part time employment income (Long et al. 2016) The cash, received from her grandfather, will not be included in her assessable income as it is assumed that the cash is a gift from her grandfather (Hemmings and Tuske 2015). Sally can claim the following deductions: Business expenses, made for generating revenues from her business 70% of the mobile expenses, used for business purpose 85% of the depreciated value of the laptop, where the depreciation will be charged as per decline in value for 151 days starting from 1/2/2016 to 30/06/2016. However, being in a small business, she can claim full deduction for the proportionate cost of the laptop, as the value of the laptop is less than $20000 (Ma 2015). Tax Agent fees Superannuation contribution Sally will not be allowed for any deductions on the life insurance and interest on loan, used to pay Sallys tax liability. Sally can claim tax offset on the net medical expenses. The net medical expenses is calculated by deducting the health fund and medicare refund from the total medical expenses. She will also entitled to reduction in total tax liability for the PAYG installments, paid by her during the year (Barkoczy 2016). Taxpayee : Sally Calculation of Taxable Income Tax on Taxable Income Particulars Amount Amount Assesable Income: Gross Income from Business 180000 Franked Dividends 1200 Bonus Shares 50 Income from Army Reserves 3400 Total Assessable Income 184650 Allowable Deductions: Deductible Business Expenses 75000 Mobile Phone Expenses 600 Value in use of Laptop 1258 Tax Agent Fees 1750 Superannuation Contribution 5200 Total Allowable Deductions 83808 Net Taxable Income 100842 Tax on Taxable Income 25258.54 Add : Medicare Levy 2016.84 Add : Medicare Levy Surcharge 1008.42 Less : Tax Offset on Net Mediacl Expense: Total Medical Expense 7110 Less : Refund from Health Fund Medicare 2850 Net Medical Expense 4260 Tax Offset 399 Less : PAYG, paid for the period 24947 Net Tax Payable 2937.8 References: Barkoczy, S., 2016. Core tax legislation and study guide.OUP Catalogue Baum, A.E. and Crosby, N., 2014.Property investment appraisal. John Wiley Sons Easthope, H., 2014. 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