Salary received by an employee.

TUTORIAL 4

Whether the following are likely to be ordinary income:

Salary received by an employee. Ordinary

Compensation received by an injured worker for loss of salary because he was unable to work for four weeks. Ordinary

A Christmas present received by a daughter from her mother. Not assessable

Proceeds from selling the copyright to a book. The recipient was an employee accountant who wrote a novel in her spare time over a number of years; Capital

proceeds from selling the copyright to a book, where the recipient is in the business of writing books and selling his copyright. Ordinary

$10,000 win in ordinary lottery, game show or gambling. Not assessable

(f ) A holiday taken by an employee using ‘flyer points’ awarded whilst on overseas travel for the employer. Payne v FCT (1996). Not assessable

(g) The aged pension payment rate for single is $907.6 from the Government to an eligible Australian resident. Ordinary

907.6 x 2 x12 = $21782.4 per year; above the threshold 18,200;

Income tax = (21782.4 – 18,200) x 19%

(h) Funds given to a club from its members and the refund of those fees back to the members. Mutual receipts are not income

What are the main forms of property income?

Your client was injured in a work-related accident and has received damages of $300,000 for the loss of his ability to work. In the final judgment the Court awarded $12,000 in pre-judgment interest and $5,000 in post-judgment interest. Which amounts, if any, are ordinary income? Whitaker v FCT (1998) Post-judgement interest

To fund her business, Anita sold her flat, art collections, personal use items. It consisted of:

An antique ceramic bowl purchased in February 1985 for $4,000. She sold the bowl on 1 December of the current tax year for $12,000. General exceptions – disregarded
A sculpture purchased in December 2001 for $5,500. She sold the sculpture on 1 January of the current tax year for $6,000. $500 capital gain

A bronze ﬁgure purchased in October 1996 for $14,000. She sold the bronze ﬁgure on 20 March of the current tax year for $13,000. $1000 capital loss

A flat purchased in March 2001 for $210,000 which was her main residence throughout the whole ownership without subletting it. She sold the flat on 10 April of the current tax year for $450,000. Exception – disregarded

A set of furniture purchased in April 2001 for $12,000. She sold the furniture on 20 April of the current tax year for $8,000. $4,000 Capital loss (disregarded)

A second-hand car purchased in January of the current tax year for $14,000. She sold the car on 4 May for $15,000. General exceptions – disregarded

$ 500 capital loss from collectibles can roll-over, but only be applied to reduce capital gains from collectibles.

Working Out Your Capital Gain

For most CGT events, your capital gain is the difference between your capital proceeds and the cost base of your CGT asset. You can choose the method that gives you the best result – that is, the smallest capital gain.

CGT discount method

Eligibility: For assets held for 12 months or more before the relevant CGT event.
- Not available to companies.
- For foreign resident individuals, the 50% discount is removed or reduced on capital gains made after 8 May 2012.
- Certain CGT events do not attract the CGT general discount, e.g. D category events
Description: Allows you to reduce your capital gain by
- 50% for resident individuals (including partners in partnerships) and trusts
- 33.33% for complying super funds and eligible life insurance companies.
How to do it: Subtract the cost base from the capital proceeds, deduct any capital losses, then reduce by the relevant discount percentage.

Indexation method(Will not be assessed in this unit)

Eligibility – For assets
- acquired before 11.45am (by legal time in the ACT) on 21 September 1999
- held for 12 months or more before the relevant CGT event.
Description: Allows you to increase the cost base by applying an indexation factor based on the consumer price index (CPI) up to September 1999.
How to do it: Apply the relevant indexation factor, then subtract the indexed cost base from the capital proceeds.

If the CGT event happened on or after 11.45am (by legal time in the ACT) on 21 September 1999, you can only index the elements of your cost base up to 30 September 1999. You use this formula:

If the CGT event happened before 11.45am (by legal time in the ACT) on 21 September 1999, you use this formula:

Quarter ending rates
Year	31 March	30 June	30 September	31 December
1999	67.8	68.1	68.7	69.1
1998	67.0	67.4	67.5	67.8
1997	67.1	66.9	66.6	66.8
1996	66.2	66.7	66.9	67.0
1995	63.8	64.7	65.5	66.0
1994	61.5	61.9	62.3	62.8
1993	60.6	60.8	61.1	61.2
1992	59.9	59.7	59.8	60.1
1991	58.9	59.0	59.3	59.9
1990	56.2	57.1	57.5	59.0
1989	51.7	53.0	54.2	55.2
1988	48.4	49.3	50.2	51.2
1987	45.3	46.0	46.8	47.6
1986	41.4	42.1	43.2	44.4
1985	37.9	38.8	39.7	40.5

Taking sub-question (b) as an example, if the sculpture was purchased in December 1993 for $5,500 and sold on 1 January of the current tax year for $6,000, the capital gain calculation will be:

As the sculpture was acquired for more than $500 and acquired after 20 September 1985, any gain from the CGT event will be a taxable capital gain.

If she uses the discount method her capital gain is $500. The 50% discount can only be applied after any losses are taken into account, so that will be done at a later stage.

If she uses the indexation method, the capital gain is determined as follows:

Indexation figure for December 1993 = 61.2

Indexation figure for September 1999 = 68.7

This gives an indexation factor of 1.123 (rounded to 3 decimal places).

The indexed cost base is $5,500 x 1.123 = $6,176

As indexation cannot be used to create a capital loss, the result is taken to be 0 – Anita will have neither a capital gain nor a capital loss using the indexation method. Under discounting, there is a capital gain. Anita can use whichever method gives her the best result. For this event she will use indexation.