ACCA Taxation (F6) Practice Exam

Which asset is specifically excluded when calculating capital gains tax?

1. Fine art

2. Cars

3. Wasting chattels

4. Real estate properties

The correct answer is: Wasting chattels

When calculating capital gains tax, wasting chattels are specifically excluded from the chargeable gains. Wasting chattels are defined as tangible movable property with a predictable life that does not exceed 50 years. Examples include items like certain machinery, equipment, and, crucially, any assets that wear out or deplete over time. The rationale behind this exclusion is that the gain from wasting chattels is typically not regarded as a long-term investment, and thus it is seen differently in the context of capital gains tax. This is designed to simplify the tax implications for assets that do not retain their value over a longer period. In contrast, fine art, cars, and real estate properties are not exempt and are generally subject to capital gains tax when sold for more than their acquisition cost. Fine art can appreciate significantly in value and can be deemed a long-term investment; cars typically depreciate, but they might still incur capital gains tax if sold for more than their purchase price when collectibles or luxury cars are concerned; and real estate properties are classic examples of assets whose appreciated value is taxable under capital gains tax regulations.