Legt2751 Essay
PART A
Joan and Darby (“the taxpayers”) have not filed tax returns in five years since 2005. The taxpayers sold their home in 2005 and their concerns are whether the sale has had any tax consequences for them.
CGT Event The first issue is whether the sale of the taxpayers Hunter’s Hill home on 15th May 2005 has triggered a Capital Gains Tax (“CGT”) event. The applicable statute relevant to this issue is s104-10[1] of the ITAA97[2]. Since the taxpayers’ home was disposed of with a change of ownership it has therefore triggered an A1 CGT event. s104-10 also states that the event occurs when the contract was entered into; in the taxpayers’ case that is 15th May 2005 and not the 30th June 2005.
CGT Asset Another issue is whether the home is classified as a CGT asset. S100-25(2) classifies land and buildings as CGT assets, therefore making the Hunter’s Hill home one. It should be noted that CGT is only applicable to assets acquired on or after 20th September 1985. The taxpayers originally signed a contract with Oz Constructions (“Oz”) to purchase a block of land and build a house on it on 1 July 1985, making it a pre-CGT asset under s149-10. However, the taxpayers entered into novations with Big Build Ltd (“Big Build”) on 21st September 1985. The issue is whether a new contract was made in these novations and therefore should be regarded as the date of acquisition of the asset. In order for the contract with Big Build to be classified as new from that with Oz, the terms of the contract need to have been altered. In this case they have been; the price to build the home was reduced from $300,000 to $250,000. Therefore, the contract to build the house with Oz is to be disregarded and the date of acquisition is to be considered as 21st September 1985.
Calculating Capital Gain/Loss The next issue is calculating whether this event has resulted in a capital gain or capital loss and by how much. s100-45 sets out the steps needed to perform the
Joan and Darby (“the taxpayers”) have not filed tax returns in five years since 2005. The taxpayers sold their home in 2005 and their concerns are whether the sale has had any tax consequences for them.
CGT Event The first issue is whether the sale of the taxpayers Hunter’s Hill home on 15th May 2005 has triggered a Capital Gains Tax (“CGT”) event. The applicable statute relevant to this issue is s104-10[1] of the ITAA97[2]. Since the taxpayers’ home was disposed of with a change of ownership it has therefore triggered an A1 CGT event. s104-10 also states that the event occurs when the contract was entered into; in the taxpayers’ case that is 15th May 2005 and not the 30th June 2005.
CGT Asset Another issue is whether the home is classified as a CGT asset. S100-25(2) classifies land and buildings as CGT assets, therefore making the Hunter’s Hill home one. It should be noted that CGT is only applicable to assets acquired on or after 20th September 1985. The taxpayers originally signed a contract with Oz Constructions (“Oz”) to purchase a block of land and build a house on it on 1 July 1985, making it a pre-CGT asset under s149-10. However, the taxpayers entered into novations with Big Build Ltd (“Big Build”) on 21st September 1985. The issue is whether a new contract was made in these novations and therefore should be regarded as the date of acquisition of the asset. In order for the contract with Big Build to be classified as new from that with Oz, the terms of the contract need to have been altered. In this case they have been; the price to build the home was reduced from $300,000 to $250,000. Therefore, the contract to build the house with Oz is to be disregarded and the date of acquisition is to be considered as 21st September 1985.
Calculating Capital Gain/Loss The next issue is calculating whether this event has resulted in a capital gain or capital loss and by how much. s100-45 sets out the steps needed to perform the