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Case study 1: Capital Gains Tax Dave Solomon is 59 years of age and is planning for his retirement. Following a visit to his financial adviser in March of the current tax year, Dave wants to contribute funds to his personal superannuation fund before 30 June of the current tax year. He has decided to sell the majority of his assets to raise the $1,000,000. He then intends to rent a city apartment and withdraw tax-free amounts from his personal superannuation account once he turns 60 in August of the next year. Dave has provided you with the following details of the assets he has sold:
(a) A two-storey residence at St Lucia in which he has lived for the last 30 years. He paid
$70,000 to purchase the property and received $850,000 on 27 June of the current tax
year, after the real estate agent deducted commissions of $15,000. The residence was
originally sold at auction and the buyer placed an $85,000 deposit on the property.
Unfortunately, two weeks later the buyer indicated that he did not have sufficient
funds to proceed with the purchase, thereby forfeiting his deposit to Dave on 1 May of
the current tax year. The real estate agents then negotiated the sale of the residence to
another interested party.
(b) A painting by Pro Hart that he purchased on 20 September 1985 for $15,000. The
painting was sold at auction on 31 May of the current tax year for $125,000.
(c) A luxury motor cruiser that he has moored at the Manly Yacht club. He purchased the
boat in late 2004 for $110,000. He sold it on 1 June of the current tax year to a local
boat broker for $60,000.
(d) On 5 June of the current tax year he sold for $80,000 a parcel of shares in a newly listed
mining company. He purchased these shares on 10 January of the current tax year for
$75,000. He borrowed $70,000 to fund the purchase of these shares and incurred
$5,000 in interest on the loan. He also paid $750 in brokerage on the sale of the shares
and $250 in stamp duty on the purchase of these shares. Dave has contacted the ATO
and they have advised him that the interest on the loan will not be an allowable
deduction because the shares are not generating any assessable income.
Dave has also indicated that his taxation return for the year ended 30 June of the previous
year shows a net capital loss of $10,000 from the sale of shares. These shares were the only
assets he sold in that year.
(a) Based on the information above, determine Dave Solomon’s net capital gain or net
capital loss for the year ended 30 June of the current tax year.
(b) If Dave has a net capital gain, what does he do with this amount?
(c) If Dave has a net capital loss, what does he do with this amount?
(10 marks, max. 1000 words).
Case study 2: Fringe Benefits Tax
Periwinkle Pty Ltd (Periwinkle) is a bathtub manufacturer which
