Case 5

a. Princess Town Insurance Inc., located in a country which has a capital gains tax, purchased a building in February 2018 for $26,000,000.

In March 2019, they spent $1, 800,000 to install solar panels for electricity in the building.

The building was sold for $39,000,000 in 2020.

The annual maintenance cost was $500,000.

The cost of advertising the sale of the building and the legal fees amounted to $1,950,000.

Capital losses were as follows:

2017 - $200,000

2018 - $250,000

Required:

Calculate the capital gains tax in 2020, assuming

a capital gains tax of 20% (9 marks)

b. Explain whether the following transaction would give rise to a capital gain charge:

(a) Winnings from legal gambling

(b) Gains on disposal of copyright for a play by the Institute of Culture.

(c) Gains arising from damages to a warehouse building which contained goods for resale.

The damage was so severe the building had to be demolished. A large sum of insurance proceeds was received.

(d) Gains on the disposal of shares in an unlisted company.

(e) Gain on disposal of an antique piece of furniture. Be sure to give the reason for your answer (2 marks each) (10 marks)

c. Explain three main reasons expenses may not