Computation of Taxation for the year 2013/14
|
In the Books of Marty
|
Particulars
|
Amount
|
Base Income
|
1000000
|
Tax on Income (30%)
|
300000
|
Medicare Levy
|
0
|
Total tax Payable
|
300000
|
Computation of Taxation for the year 2014/15
|
In the Books of Marty
|
Particulars
|
Amount
|
Base Income
|
2500000
|
Tax on Income (30%)
|
750000
|
Medicare Levy
|
0
|
Total tax Payable
|
750000
|
2: Computation of Capital gains tax:
Computation of CGT of Rommy for the year 2015
|
Particulars
|
Amount ($)
|
Amount ($)
|
Sales Price of the property
|
1500000
|
|
Less: Cost of sales
|
0
|
|
Adjusted selling price
|
|
1500000
|
Purchase Price
|
500000
|
|
Add: Cost of purchase and Ownership
|
0
|
|
Adjusted purchase price of asset
|
|
500000
|
Capital gains / (loss)
|
|
1000000
|
CGT under old Regime
|
|
|
Indexed capital gains / (loss)
|
|
1000000
|
Tax payable under old regime (marginal tax rate * Indexation factor * capital gains)
|
|
472865
|
Assessable income:
At the time of carrying on the business activities income generated from the business undertakings will be considered for taxation. A person with an investment property used for building or renovating with the objective of generating profit will be considered for taxation (Cao et al., 2015). From the existing scenario, it is understood Rommy carried on the hobby of selling wine that was made from farming of grapes of small quantity at weekends. Rommy had sold 20 boxes in the local market and disposed another 20 boxes outside his property with the help of honesty box. It is worth mentioning that it is important to understand the difference amid the hobby and business with the objective of taxation and other purposes (Newman 2016).
From the following case study, it is evident that Rommy had regularly engaged in the activities of farming of grapes at weekends. The activities conducted by Rommy does not results in regular business activities however selling of wine made of grapes attracts liability of tax. Usually, while determining the taxable income a person is under the obligation to consider the gross amount of his earnings or proceeds derived from the ordinary course of business together with the profit (Saad, 2014). Earnings generated from the activities of farming of grapes and converting the same into wine of reserved quality is required to included into the assessable income of Rommy.
Assessment of capital gains:
Capital gains or capital loss, which is generated from the sale of assets, consists of the difference amid the purchase price and the selling price on its disposal (Lang, 2014). A person paying tax on their capital gains will be considered as the income tax and it will not be taken into the considerations as the separate tax despite being regarded as the capital gains tax. As evident from the following case study Rommy had bought the land in the year 2000 for $500,000 and the land was subdivided and disposed for a sum of $1,500,000 which constituted in the form of capital gains from such sales. As stated by the Australia taxation office, an asset, which is acquired on or after 20 September, will be treated as the capital gains tax if not specifically excluded (Woellner et al., 2013). As evident from the case study, it is understood that Rommy had bought the land in the year 2000 and capital gains generated from the sale of property represents capital gains tax.
Profit generated from the disposal of subdivided land may be treated as the capital gains or ordinary income depending upon the circumstances. If a person subdivides the block of land and sales the land with the purpose of generating profit from the sale of land leads to capital gains and will be treated as capital gains tax (Mishra & Anwar, 2017). As noticed from the case study the sale of subdivided land and earnings in the form of profit will be treated as the ordinary income and will be treated for tax assessment. According to the case study, the objective of Rommy on entering the transaction to generate profit from the disposal of subdivided land will be treated as the capital gains and will be considered for assessment.
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