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Q. Morten bought the shares on September 15, 1993, for $45,000. In 2020 they have greatly increased in value ($100,000) and Morten realises that he
Q. Morten bought the shares on September 15, 1993, for $45,000. In 2020 they have greatly increased in value ($100,000) and Morten realises that he could dispose of these shares to take advantage of this price movement. Assume that his marginal tax rate is 32.5% and the index number for September 1993 is 61.1, calculate the capital gains tax under both the discount and indexation methods and advise him which method is more suitable and why?
Current valuation $650,000 $950,000 Assets (Ownership) House (Jennifer) House (Morten) House Contents (Joint) Car (Morten) Car (Jennifer) Savings Accounts (Joint) Shares (Morten) Superannuation - Morten $125,000 $21,000 $25,000 $25,000 $100,000 - Jennifer $450,000 $250,000 Current valuation $110,000 Liability (Ownership) Mortgage (Jennifer) Mortgage (Morten) Car loan- (Morten) $35,000 $5,000 Income $23,500 House Rent (Morten) Interest-Savings Account (Joint) Shares Dividends - (Morten) $600 $4,900 ($2,100 Credit Imputation) 2500 $18,000 1700 Expenses Insurance, Insurance Mortgage, Maintenance (Morten's owned house) Mortgage - interest and principal (Jennifer's owned house) Maintenance, Insurance Mortgage (Jennifer's owned house) Car loan (Morten) 8% interest Donations to Charity (Jennifer) Travel between work and home (Morten) Travel between work and home (Jennifer) $2,600 320 700 1,500 Current valuation $650,000 $950,000 Assets (Ownership) House (Jennifer) House (Morten) House Contents (Joint) Car (Morten) Car (Jennifer) Savings Accounts (Joint) Shares (Morten) Superannuation - Morten $125,000 $21,000 $25,000 $25,000 $100,000 - Jennifer $450,000 $250,000 Current valuation $110,000 Liability (Ownership) Mortgage (Jennifer) Mortgage (Morten) Car loan- (Morten) $35,000 $5,000 Income $23,500 House Rent (Morten) Interest-Savings Account (Joint) Shares Dividends - (Morten) $600 $4,900 ($2,100 Credit Imputation) 2500 $18,000 1700 Expenses Insurance, Insurance Mortgage, Maintenance (Morten's owned house) Mortgage - interest and principal (Jennifer's owned house) Maintenance, Insurance Mortgage (Jennifer's owned house) Car loan (Morten) 8% interest Donations to Charity (Jennifer) Travel between work and home (Morten) Travel between work and home (Jennifer) $2,600 320 700 1,500Step by Step Solution
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