Australian Taxation Study Manual by Les Nethercott Ken Devos Livia Gonzaga

Author:Les Nethercott Ken Devos Livia Gonzaga
Language: eng
Format: epub
ISBN: 9780190309947
Publisher: Oxford University Press
Published: 2017-11-15T00:00:00+00:00

Since the discount capital gain method results in a lower capital gain for the building, Fred should choose to use that method for the calculation of the capital gain. However, Fred may be entitled to the small business active asset concession under Subdiv 152-E for the building if all of the conditions in that subdivision are satisfied. Because Fred would use the CGT discount method, the $158,556 capital gain would be further reduced by the concession. Hence, the CGT liability for the sale of the building would be $79,278 (ie $158,556 − ($158,556 × 50%)).

The site goodwill of the hotel (the licence to sell alcohol) was also acquired post-CGT and is an asset separate from the land and buildings. In FC of T v Krakos Investments 96 ATC 4063, Hill J recognises four different aspects of goodwill (site, personal, name and monopoly). Site goodwill attaches to the land or location of the hotel and is a separate item of property which can be transferred. Personal goodwill, which depends upon some personal characteristic of the owner of the goodwill, does not attach to property and cannot be transferred.

As the personal goodwill cannot be transferred, can it be a CGT asset under s 108-5? The definition of CGT asset in s 108-5 includes any kind of property or a legal or equitable right. As the site goodwill is property and can be transferred, the CGT provisions may apply, but they are unlikely to apply to the personal goodwill.

Disposal of Fred’s share of the site goodwill

If Fred elects to calculate the capital gain on the site goodwill with a cost base frozen at 30 September 1999, the amount subject to CGT is computed as follows:

Cost base: 70% × ½ × $350,000 = $122,500

$

Indexed cost base: $122,500 × 1.203* 147,368

Capital proceeds 350,000

CAPITAL GAIN – CGT indexation method $202,632

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