Question

As at 30 June 2017, Joe Tang had disposed of the following assets: (a) A holiday house. The house was purchased on 1 March 2001 for $200,000 and was sold for $600,000. At the time of acquisition Joe spent $2,000 on surveyor’s cost, $15,000 on stamp duty and $3,000 for a valuation. On 1 February 2010, Joe spent $100,000 adding a second floor to the house. On 15 June 2014 he spent $20,000 in a successful court action to establish that his neighbour’s new fence had encroached on Joe’s property by 15 centimetres. In the previous income year he had rented the property out for a total of six months during school holiday periods. At all other times he used it personally. During the period that he owned the house he had paid a total of $80,000 in interest, rates and insurance. He had claimed $20,000 of the $80,000 in respect of interest, rates and insurance as a tax deduction in his personal tax return in respect of the six months that he had rented the property in the 2007-8 financial year. (b) A pair of David Beckham socks that he bought at Sotheby’s Auctions on 1 January 2005 for $12,000. He sold the socks for $22,000. (c) A painting that he had bought on 2 February 2005 for $20,000. He had recently had the painting valued at $40,000. He gave it to his daughter as a wedding present on 30 June 2017. (d) A house and land. He had bought the property as vacant land on 1 June 1984 for $100,000. He completed the building of a house on the land on 30 May 2010 at a cost of $200,000. He sold the house and land for $800,000. Independent valuations indicate that the value of the land at the date of sale was $500,000. (e) He purchased a 1965 Jaguar E Type motor car in 2002 for $15,000. He sold the motor car for $125,000. Joe has capital losses from previous years. The losses are: (i) $15,000 capital loss from the sale of a rare coin (ii) $220,000 capital loss from the sale of shares. Joe has no other assessable income for the income year ending 30 June 2017. He made a trading loss of $75,000 in respect of the operation of his supermarket business for the year ending 30 June 2017.

REQUIRED: Calculate Joe’s net capital gain and his taxable income for the year ending 30 June 2017

Answer 1

(a) Generally if any asset has been purchased then the Cost of such asset shall be included all expenses incurred till like transportation , Freight, Stamp Duty, Valuation fees , Surveyor fees and other fees that expenses also should be included..

I am calculating the capital gain as per Income tax act 1961.

​​​​​​Computation of cost of asset of Holiday House:

​​​​​​Cost of asset: 200000+2000+15000+3000=220000

Generally Cost of Inflation Index will be there like for F.Y 2000 - 01 it's 100.

​​​​​​Computation of Capital Gain for Holiday House:

Particulars	Amount
Sale Value	600000
Less : Cost of asset : 220000*272/100	598400
Additional second floor. 100000* 167/100	167000
Other	20000
Long term capital loss	185400

(b) I assumed David Beckham socks also an Capital Asset.

Computation of capital gain for socks:

Sale value. 22000

-Cost (12000*272)/113 28800

Long term Capital loss. 6880

(C) The definition of Capital asset includes Paintings, Sculpture, Arts .

So if we are selling that capital asset also capital gain tax has to be paid . But giving gift to the Daughter on the occasion of marriage does not attracts Tax. As per income tax act 1961 any gift given by any one on the occasion marriage does not attracts tax it is fully exempted.

(D) As per the Definition of Capital asset. It includes Land and Building. For calculation of Capital gain I am not considering the Cost of Inflation index. I am calculating directly.

Sale Value. 800000

Cost of land. B. (100000)

Cost of Building. (200000)

Long term. Capital gain. 500000

If sale value shown by Tax payer is more than value given by valuation authority. Then the value should be consider by as pee tax payer. If taxpayer shows less than that then we have to consider as per valuation authority

(E) Generally For depreciable asset even though if asset is used for any number of years for that it will come Short term capital gain / loss only. As per sec 50 of income tax act 1961.

computation of Capital gain for motor vehicle:

Sale Value. 125000

- cost of asset. (15000)

Short term Capital Gain. 110000

Computation of Net Capital gain after set off

Parriculars	Amount
Long term capital loss (a)	-185400
Capital loss for Stocks (b)	-6880
Capital gian for building (c)	500000
P.Y losses 220000 + 15000( given)	-235000
NET LONG TERM CAPITAL GAIN	72720

Business loss can not be set off with the Long term capital gain . so assessee has to pay tax @ 20% on long term capital gain .

Computation of Taxable income of Joe's for the year ending 30.6 2017

Particulars	Amount
Business loss	-75000
Capital Gain	72720
Taxable Income	72720

If return has been filed with in the due date then only assessee is eligible to carry forward loss otherwise he is not eligible.

It is assuming that rent received from holiday house related to another financial year.So it is not taxable in this current financial year.

CII has been calculated based on the respective financial year of 2011- 2012 like that.