CASE STUDY -1
INTRODUCTION:
For the application of Capital Gain Taxation (CGT) provisions under the Australian taxation system, the happening of a CGT event is must. The most common capital gain tax event is a sale of assets. These assets may be generally the either the real estate or the shares. However, there are other events also which are considered as CGT events.
TO WHOM APPLICABLE:
The provisions of the capital gains or losses are applicable on the following three kinds of legal personalities: • Individuals. • Companies. • Trusts.
The CGT is applicable only on the residents of Australia. It may be applicable on the foreign nationals only if they hold an Australian property.
PROPERTIES THAT CAN BE TAXED:
The provisions of the CGT are available only on the properties which are acquired by any individual company or trust after 20th September, 1987. The CGT provisions were introduced on the above mentioned date and it was applied prospectively. Thus, the properties acquired before 20th September 1987 are not meant to be taxable under CGT.
The capital assets under CGT may be defined as either of the following: • Property of any kind. • Legal or equitable rights.
Some exemptions are also been provided under the legislation. Most of the personal assets like residential homes, vehicles and other personal assets have been exempted from the provision.
DETERMINATION OF THE HAPPENING OF THE CGT EVENTS:
Capital gain taxes are
Maria defers $100 of gain realized in a section 351 transactions. The stock she receives in the exchange has a fair market value of $500. Maria 's tax basis in the stock will be $400. True
A2c. Profit or Loss from the Sale of Property: The taxpayer couple sold personal and rental property for this tax period. Both sales have potential gains. However, the gain from the sale of the personal residence qualifies for exclusion up to $500,000 under Section 121 as they lived in and used the residence at least two of the five years prior to the sale. The gain or loss is calculated as the sale price less selling costs and adjusted basis of the property. Proceeds from the sale of the rental property are taxable because it is an income producing property and would be considered normal income. However, Section 1231 designates that exchanges of business property held longer than one year may be considered a long-term capital gain if there is a gain realized and any loss would be considered an ordinary loss. Any depreciation taken in past tax years will need to be recaptured in the tax year of the sale.
• Whether the transfer of chattels and other personal property attached to the land were not fixtures under the general law definition.
Capital gain or loss that happens to a dwelling that is a taxpayer’s main residence is
* Australian residents are liable for tax on their worldwide income. While Non-residents are liable for their income with an Australian source.
Parent Corporation owns 85% of the common stock and 100% of the preferred stock of Subsidiary Corporation. The common stock and preferred stock have adjusted bases of $500,000 and $200,000, respectively, to Parent. Subsidiary adopts a plan of liquidation on July 3 of the current year, when its assets have a $1 million FMV. Liabilities on that date amount to $850,000. On November 9, Subsidiary pays off its creditors and distributes $150,000 to Parent with respect to its preferred stock. No cash remain to be aid to Parent with respect to the remaining $50,000 of its liquidation preference for the preferred stock, or with respect to any common stock. In each of Subsidiary’s tax years, less than %10 of its gross
Once a gain or loss is recognized, a taxpayer must determine how the recognized gain or loss affects the taxpayer’s tax liability. The character depends on a combination of two factors: purpose or use of the asset and holding period. The purpose or use of the asset is important because the law does not treat all assets equally. The general use categories are: (1) trade or business, (2) for the production of income (rental activities), (3) investment, and (4) personal. Based on these criteria, we can categorize an asset into one of three groups: (1) ordinary, (2) capital, or (3) section 1231. Characterizing the gain or loss is important because all gains and losses are not equal. Ordinary gains and losses are taxed at ordinary income rates, regardless of the holding
Hot assets cause a portion of the gain or loss on the sale of a partnership interest to be classified as ordinary rather than capital.
According to the fact of this case, Parent Co. (Parent) wholly owns Poor Son Co. (Poor Son) as a legal subsidiary, and both of them all nonpublic companies. However, in January 2007 Poor Son filed a voluntary bankruptcy under Chapter 11 of the U.S. bankruptcy code because of its inability of meet obligations as they became due. Then, Parent claimed the loss of control of Poor Son and deconsolidated Poor Son from its financial statement. Through the bidding process in May 2009, Poor Son and OtherCo, the winning sponsor, filed a joint plan of reorganization to the bankruptcy court, but the plan was rescinded by OtherCo later due to significant market value shrink of Poor Son. After that, the
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