Alec Smart 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, Alec wants to contribute funds to his self managed super 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.
Alec has provided you with the following details of the assets he has sold:
1. A two-storey residence at Toorak in which he has lived for the last 30 years. He paid $70,000 to purchase the property and received $850,000 on 27 May 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 Alec on 1 May of the current tax year. The real estate agents then negotiated the sale of the residence to another interested party for $ 850,000. 2. A painting by Sidney Nolan that he purchased on 21 September 1985 for $15,000. The painting was sold at auction on 31 May of the current tax year for $125,000. 3. A luxury yacht that he has moored at the Sandringham Yacht Club. He purchased the yacht 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. 4. On 5 June of the current tax year he sold a parcel of shares in a newly listed mining company for $80,000. 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. Alec 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.
Alec 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.
BBAL501 Taxation Law
Term 3 2013
Assignment Tasks
Part A: (25 Marks)
a. Based on the information above, determine Alec Smart’s net capital gain or net capital loss for the year ended 30 June of the current tax year. Show the various steps involved in the determination such as: i. CGT Events ii. Capital Proceeds iii. Cost Base iv. Eligible Discounts etc. for each item. (20 Marks) b. If Alec has a net capital gain, what does he do with this amount? If Alec has a net capital loss, what does he do with this amount? (5 Marks)
Part B: (25 Marks)
Alec and his wife Mary plan to roll their existing superannuation, currently with AMP Capital into a self managed superannuation fund. They seek your advise in relation to the following matters:
a. What is the maximum amount they can contribute into their superannuation fund by way of non-concessional contributions? (5 Marks) b. Can the fund invest in a holiday apartment on the Queensland Gold Coast to be used by their family? (5 Marks) c. Can the fund purchase some art work by Picasso to be hung at their apartment? (5 Marks) d. Can the fund invest in shares in a golf club so that Bruce and Mary can play golf for no cost to themselves? (5 Marks) e. Alec understands that once he turns 60 he is entitled to withdraw all the money from the superannuation fund tax-free. Is this correct? If so are there any tax benefits for keeping the money in the fund? (5 Marks)