SALLY BOUGHT AN INVESTMENT PROPERTY IN AUGUST 1999 FOR $350,000 AND THEN SOLD IT IN DECEMBER 2019 FOR $750,000. WHICH STATEMENT CORRECTLY DESCRIBES SALLY’S CGT POSITION AND OBLIGATIONS RELATED TO THE SALE OF THE PROPERTY?

Question

BlackTom AI · Accepted Answer

Since the property was acquired in August 1999 (before 21 September 1999), Sally qualifies to use the indexation method for calculating her capital gain but not the post‑1999 CGT discount method.

1) Relevant knowledge points and concepts
- Australian CGT rules distinguish assets acquired before 21 September 1999 from those acquired on/after that date. 
- For assets acquired before 21/9/1999, taxpayers may use the indexation method (index the cost base up to 21/9/1999) to calculate the capital gain. 
- The CGT discount (commonly 50% for individuals) applies to assets acquired on or after 21/9/1999; it is not available for assets held from before that cut‑off in the same way.
- A capital gain must be reported in the tax return for the year the asset is disposed of (2019–20 in this case).

2) Step-by-step reasoning
- Purchase: $350,000 in August 1999 (pre‑21 Sep 1999).
- Sale: $750,000 in December 2019.
- Because acquisition was before the 21 September 1999 cut‑off, Sally is entitled to apply the indexation method to adjust her cost base to 21 September 1999, then calculate the capital gain on disposal. She is not eligible to use the post‑1999 discount method in place of indexation for this pre‑cut‑off acquisition.

3) Calculations and intermediate steps (formulaic, as CPI figures are not provided)
- Indexed cost base = Original cost × (CPI at 30 Sep 1999 / CPI at acquisition date). Because acquisition was August 1999, the indexation adjustment to 21/9/1999 will be very small.
- Capital gain (indexation method) = Sale proceeds − Indexed cost base.
- Numerically, approximately: CG ≈ $750,000 − $350,000 = $400,000 before any allowable cost adjustments (since indexation change was minimal). The full gain (not a 50% discounted portion) would then be included in taxable income unless other specific concessions apply.

4) Why the correct answer is correct
- The key legal cut‑off is 21 September 1999. Assets acquired before that date can be indexed; the post‑1999 discount regime does not apply as an alternative for such pre‑cut‑off acquisitions in the way described by option (a). Therefore Sally can use indexation but not the discount method.

5) Why the other options are incorrect
- (a) Incorrect: it claims Sally can choose discount or indexation. For an asset bought before 21/9/1999 the applicable treatment is indexation (the post‑1999 discount does not apply as the alternative stated). 
- (c) Incorrect: purchasing before 21/9/1999 does not make the asset exempt from CGT; it only affects the calculation method.
- (d) Incorrect: a specific correct statement exists — option (b).

6) Conclusion confirming the answer
- Therefore the correct statement is (b): Sally will be entitled to calculate her capital gain under the indexation method but not under the discount method. This matches the provided answer.

SALLY BOUGHT AN INVESTMENT PROPERTY IN AUGUST 1999 FOR $350,000 AND THEN SOLD IT IN DECEMBER 2019 FOR $750,000. WHICH STATEMENT CORRECTLY DESCRIBES SALLY’S CGT POSITION AND OBLIGATIONS RELATED TO THE SALE OF THE PROPERTY?单项选择题

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