H & R Block Basic Course Chapter 12

HINTS

· The most important figure in calculating capital gains is the cost base. The capital proceeds is just a single figure.

· Remember what 17H and 17A mean:

17H is the 100% gross capital gain before losses are applied, and before discounting.

17A is the assessable capital gain, after the application of capital losses and after discounting.

· You cannot apply capital losses (which are always 100%) to 50% discounted capital gains. You must balance 100% losses against 100% gains, and then discount any outstanding gains as the final step.

· When you are applying capital losses, apply them to non-discountable capital gains first. Only apply the losses to discountable capital gains when all the non-discountable gains have been used up.

· Now is the time to start revising for the final exam. Here are some ideas:

1] A list of all the different kinds of income encountered in tax – I have already mentioned this.

2] A list of codes for the items that require them, such as D1 and D3.

3] A list of the formulae for the various tax offsets, which you could divide into those offsets that go on the I form, and those offsets that don’t go on the I form. There are a lot of tax offsets, and they are easy to forget.

4] An idea: photocopy the I form to A3 size. The larger page will allow you to write a summary of each item actually on the I form.

5] To repeat what I wrote early in the course: read the I form. Understand how it works. Note all the ‘totals’ boxes that have to be filled in. Study the front page carefully – you will lose marks if you do not fill out something that should be filled out.

6] For the front page box ‘Have you included any attachments?’ print N. The final exam return will not require an attachment.

Question 1

	TYPE OF ASSET	SHOULD IT BE ON THE I FORM?	REASONS
a	Other	NO	The asset was acquired before September 20 1985, and so is pre-CGT.
b	Personal use asset	NO	Losses on personal use assets are not permissible.
c	Collectable	YES	She has made a capital loss on a collectable which cost > $500. This can be used to offset a capital gain on a collectible.
d	Other	YES	Dividend reinvestment shares are acquired on the date the dividend was otherwise paid. It is bonus shares that are ‘sent back’ to the date of original purchase.
e	Other	YES	The house is a separate asset, and so is subject to capital gains even though the land was bought pre-CGT.

Question 2

	METHOD OF CALCN	REASONS
a	OTHER	The asset has been held for less than 12 months. The ‘other’ capital gain calculation is compulsory. There is no indexing (this would only be relevant for 2000 and before), and no discounting.
b	INDEXED or DISCOUNT	The asset was acquired before September 21 1999, and disposed of after September 21 1999. Either the indexed or discount method can be used to calculate the capital gain.
c	DISCOUNT	1) The asset was acquired after September 21 1999; 2) The asset was held for more than 12 months. Therefore, the discount method must be used.

Question 3

Property acquired before May 13 1997:

• To calculate a capital loss, any capital works claimed are subtracted from the cost base to arrive at the reduced cost base.
• To calculate a capital gain, the capital works claimed are not considered.

Property acquired on or after May 13 1997:

The capital works claimed are subtracted from the cost base irrespective of whether a capital gain or a capital loss was made.

a) Capital gain = 305,250 - (215,950 – 11,875) = 101,175.

b) Capital gain = 305,250 – 215,950 = 89,300.