Deck 4: Capital Gains Tax

Question 1

Which one of the following statements is true?

A) Capital gains have always been taxed under Australia's tax laws
B) Capital gains were taxable before 20 September 1985 only if the taxpayer had held the asset for more than 12 months
C) Capital gains tax was introduced in Australia to apply to assets sold on or after 20 September 1985
D) Capital gains tax was introduced in Australia to apply to assets acquired on or after 20 September 1985

Answer 1

Capital gains tax was introduced in Australia to apply to assets acquired on or after 20 September 1985

Question 2

A valuable sports trading card featuring the signature of the famous NBA player Michael Jordan would be what kind of CGT asset?

A) A collectable
B) A personal use asset
C) A CGT asset
D) An exempt CGT asset

Answer 2

A personal use asset

Question 3

If a rental property is destroyed by fire this would constitute what type of CGT event?

A) A CGT event A1- disposal of a CGT asset
B) A CGT event C1- loss or destruction of a CGT asset
C) A CGT event D1- creating contractual rights
D) Some other CGT event

Answer 3

A CGT event C1- loss or destruction of a CGT asset

Question 4

Eddie purchased some shares in 2008 for $10,000. He also paid brokerage costs of $50 on the purchase. He then sells the shares in May 2020 for $13,000 and pays $65 in brokerage costs on the sale. What would Eddie's cost base be on these shares?

A) $10,050
B) $10,115
C) $13,000
D) $10,000

Question 5

Brian sold a car in March 2020 for $9,000. Brian purchased this car second hand in April 2018 for $8,000. Calculate Brian's net capital gain from the sale of this car?

A) $1,000
B) $500
C) Nil
D) A loss of $1,000

Question 6

During the 2020 tax year Ralph sold the following assets: 1,000 shares in ABC Ltd for $5 per share. Ralph had purchased these shares in 2016 for $3 per share. Ralph also sold 500 shares in DEF Ltd for $8 a share in April 2020. Ralph had purchased these DEF shares in 2008 for $10 a share. What is Ralph's net capital gain for the 2020 tax year?

A) $750
B) $0
C) $1,000
D) $500

Question 7

Roy has operated a sole trader business for 14 years. Roy is 56 and considering selling the business and retiring. Roy seeks your advice as to whether a building that is currently being used by the business is eligible for the CGT small business concessions. Roy advises that the building was purchased 9 years ago and was used only for rent for the first 4 years and then since 5 years ago the building has been used to operate Roy's business. Is the building an active asset?

A) No as for the first 4 years of ownership the building was not an active asset
B) Yes as for more than half the period of ownership it was used to carry on a business
C) No as an asset can only be an active asset if it was used 100% for business purposes for the whole period of ownership
D) Yes as is now being used for business purposes

Question 8

Sue decides to give a parcel of land to her son for no consideration. Has a CGT event occurred?

A) Yes, this is an example of CGT event A1
B) Yes, this is an example of CGT event D1
C) No CGT event has occurred as no consideration was involved
D) No CGT event occurred as there was a related (family) party dealing

Question 9

Amadeo has agreed to not appear in any movies made by any other movie studio for the next 5 years, other than the studio he is contracted to, and in return he has received a lump sum payment of $50,000. Is there a CGT asset involved here?

A) No as there is nothing tangible created by this agreement
B) Yes as rights have been created in this agreement
C) No as there is no intangible asset created by this agreement
D) Yes as there is a tangible asset created

Question 10

Les purchased a property for $200,000 and also paid stamp duty of $2,500 and land broker fees of $1,000 and title transfer fees of $200. The seller paid $4,000 in agent commissions to the real estate agent. What is Les's cost base in this property?

A) $200,000
B) $203,500
C) $203,700
D) $207,700

Question 11

Jamie purchased land in 2012 for $150,000. He then constructed a house on that property for $250,000. During the period of time it took to complete the building of the house, Jamie paid $18,000 in interest to the bank on a loan for the property and council rates and land tax of $1,200 in total. These costs were incurred in the year before Jamie started receiving any rent on the property. After construction of the house and before the property was rented, what is Jamie's cost base in this property?

A) $250,000
B) $400,000
C) $418,000
D) $419,200

Question 12

A company purchased some land in June 1990 for $1 million. The company sold this land in January 2020 for $2.2 million. The company also had some carry forward capital losses of $200,000. What is the company's net capital gain on the sale of this land?

A) $500,000
B) $797,000
C) $997,000
D) $1 million

Question 13

Pontoon Pty Ltd is a company with a single shareholder and it sells its business assets in June 2020 for $850,000. Included in these business assets are $200,000 of exempt CGT assets (trading stock and plant and equipment). The company has an annual turnover of $600,000. The cost base of the business assets is $250,000 and these assets were acquired in 2014. The owners of the company do not intend to purchase another business. What is the company's net capital?

A) $0 if $400,000 is placed into the shareholder's superannuation fund
B) $0 if $200,000 is placed into the shareholder's superannuation fund
C) $600,000
D) $400,000

Question 14

Marty has sold a business and after applying the CGT discount and all the available CGT small business concessions, except the small business rollover, Marty has a net capital gain remaining of $300,000. Which of the following statements is then true?

A) As long as Marty acquires a replacement business within 2 years of the sale he can reduce this net capital gain to $0
B) As long as Marty acquires a replacement business within 1 year of the sale he can reduce this net capital gain to $0
C) As long as Marty acquires a replacement business within the same income tax year of the sale of his old business he can reduce this net capital gain to $0
D) Marty would not be eligible to use the CGT small business rollover as it is only available to companies

Question 15

Raoul purchased an income-producing asset for his business in January 2018 for$82?000. Raoul sold this asset for$50?000January 2020. During the years that he held this asset, Raoul claimed deductions for capital works for this asset of$10?000. What is Raoul's capital gain or loss for the 2020 tax year?

A) A capital gain of $32,000
B) A capital gain of $22,000
C) A capital loss of $22,000
D) A capital loss of $32,000

Question 16

In April 2010, Lisa bought a six-room house to live in. She rented it out until April 2014 when she got a job in another city. Lisa then moved back into the house and the house was sold in April 2020 and Lisa made a capital gain of$44 000 (after applying the CGT discount). What is the CGT treatment of the sale?

A) $17,600
B) $44,000
C) $0
D) $22,000

Question 17

Dean sold some land in February 2020 to his daughter, Tina, for $50,000. The land cost Dean $20,000 in 2001. When the land was sold in 2020 the market value of the land was determined to be $200,000. What will Tina's cost base be on this land she purchased from Dean in February 2020?

A) $50,000
B) $200,000
C) $20,000
D) $0

Question 18

During the 2020 tax year, Terry sold a boat for $20,000. The boat cost Terry $45,000. Terry also sold an item of antique furniture for $15,000 (the item cost him $5,000 3 years ago). What is terry's net capital gain or loss for the 2020 tax year?

A) $10,000 net capital loss
B) $5,000 net capital loss
C) $10,000 net capital gain
D) $5,000 net capital gain

Question 19

Carol signed a contract to sell her rental property in June 2020 for settlement to take place in December 2020. She will make a net capital gain of $50,000 from the sale of this rental property. In which year will the net capital gain have to be included in carol's assessable income?

A) Carol has a choice as to which year- 2020 or 2021 that she wants to include the net capital gain into her assessable income
B) Carol does not need to include this net capital gain into her assessable income as the rental property is an exempt CGT asset
C) 2020 tax year
D) 2021 tax year

Question 20

Jack purchased some land in July 1984 for $50,000 and in May 2020 he sold this land for $500,000. Which of the following statements is true in respect to the sale of this land?

A) There will be a capital gain of $450,000 on the sale of this land
B) As the land was acquired before 20 September 1985 any capital gain or loss on the sale is disregarded
C) There will be a net capital gain of $225,000 on the sale of this land
D) Indexation or the discount method can be used on the sale of this land to reduce the capital gain

Question 21

Vance purchased a property for $300,000 (inclusive of all purchase and incidental costs) on 20 August 1990 and he sold the property for $510,000 (after costs of sale have been deducted) on 20 March 2020. What is Vance's net capital gain on the sale of this property?

Question 22

During the 2020 tax year Matthew advises you that he sold the following assets:
1. A painting for $6,000. He purchased the painting 3 years ago for $10,000.
2. A piano for $9,000. He purchased the piano 10 years ago for $5,000.
3. Shares in public companies for $20,000. He purchased these shares 5 years ago for $10,000.
4. Jewellery for $3,000. He purchased this jewellery for $8,000 6 years ago.
What is Matthew's net capital gain for the 2020 year?

Question 23

Mark purchased some land in June 1983 for $80,000. In July 2000 Mark constructed a building on the land for a cost of $400,000. Mark sells the land and building for $2 million in June 2020. In the sale contract it is agreed that the value of the building at the date of the sale was $1 million and the value if the land was $1 million. Will Mark have any CGT liability when he sells the land and building?

Question 24

During the 2020 tax year David advises you that he sold the following assets:
1. A rare coin for $6,000. He purchased the coin 10 years ago for $2,000.
2. A caravan for $10,000. He purchased the caravan 9 years ago for $8,000.
3. Shares in public companies for $10,000. He purchased these shares 11 months ago for $8,000.
4. Cartier watch for $8,000. He was given this watch by his employer 2 months ago for his good service. The market value of the watch at the time David was given the watch was $8,000.
What is David's net capital gain for the 2020 year?

Question 25

Ryan and Richard ran a business selling furniture in partnership for 10 years. They now have sold their business for $1,200,000. This figure includes $400,000 in trading stock and $200,000 in plant and equipment. The business had a turnover of $300,000 per year. The business was purchased in 2010 for $200,000. Ryan and Richard are both 50 years of age. Calculate the net capital gain for both Ryan and Richard?