Understanding Input Tax Credit and Capital Gains Tax in Australia

This article explains the concept of Input Tax Credit and Capital Gains Tax in Australia. It discusses the conditions required to claim Input Tax Credit and the tricks to lower the charged Capital Gains Tax. It also provides examples of calculating Capital Gains Tax on the sale of land, stamp collection, shares, and personal use assets. Subject: Taxation, Course Code: TAX101, College/University: Not mentioned

STUDENT DETAILS:
TAXATATION LAW
Running head: TAXATION LAW 0

QUESTIONS 1
Answer 1:
The input tax credit is considered as GST credit. This is a credit that may claim for the amount
of GST involved in a price related to services and goods (input) one purchase for utilisation in
the business. It is essentially required to be registered for GST to claim the input tax credit. It is
credit, which one can claim for amount of GST included in a price related to input service and
service and one may buy for using in the business. Following conditions are required to be
fulfilled by the suppliers of the goods and services -
1. The ITC may be claimed only in case when it is registered for GST.
2. It is required to have debit note or tax invoice rendered by the supplier of the services
along with input services.
3. Not everything would have Goods and Service tax involved in a price, for instance if one
will purchase fresh vegetables for the utilisation in restaurant, then it will be sales free of
Goods and service tax.
4. In case of purchasing the item for the purpose of business as well as individual purpose,
then it is only allowed to claim the ITC for a part of business.
5. It is required to keep the tax invoice for purchases that cost above 82.50 $ (involving
Goods and Service tax credit)

QUESTIONS 2
6. It is not possible to claim the input tax credit on item that is purchased for making the
input tax sales. For instance, in a case when someone rents out residential sites, then it is
not possible to claim the credit on maintenance and repairs (Adam, Miller and Pope,
2017).
In a provided case study, City Sky Co will have eligibility to avail the input tax credit wherever
this is applicable. For the reason that City Sky Co is registered organisation. The corporation has
purchased portion of vacant land at south of Brisbane. At this portion of vacant land at south of
Brisbane, the company is making plan to build the apartments to sell. The portion of vacant land
covers in the category of immovable property. Therefore, the land does not cover under goods
and services. Therefore, the Goods and Service tax cannot be levied at land. The capital gain tax
is applicable at vacant land for the reason is that it is covered into capital asset. Hereafter, the
Good and Service tax may not be levied on vacant land. In this way, City Sky Co desires to
construct the apartments on vacant land, and then it will cover under the black credit’s provision.
Hence, the ITC is not entitled for it. In addition, City Sky Co has undertaken development
service worth thirty three thousand dollars from the local advocate. Advocates have certain
privileges of not to pay Goods and Service Tax on the outputs supply, when the tax on the
supplies has to be provided by the receiver in the Reverse charge Method. The services provided
by the lawyers are covered under the reverse charge method. The reverse charge mechanism is
considered as mechanism in which services and good’s recipient is liable to make the payment of
Goods and Service Tax. The supplier of the services and goods is not liable for paying Goods
and Services tax in the reverse charge system. According to the reverse charge system’s
provisions, the GST is required to be paid by the products and service's providers. In this way, in
a case when someone is recipient of the goods along with services under the reverse charge

QUESTIONS 3
mechanism, in that case it is essential for remitting only the purchase amount to the suppliers
(Babbel, Pronobis and Hundsdoerfer, 2018).
As per the provision of the GST, the recipient of goods and services is required to the deposit tax
in a direct manner with the relevant tax authority. The taxation collection is aimed at reducing
the taxation evasion majorly from the unorganised sectors. Additionally, in a case when the
person is a recipient as well as he or she is eligible to make payment of tax in the reverse charge
system, then it will be possible to claim the input tax credit for payment of tax. Moreover, it can
be claimed only if the goods and services would be helpful for business. The individuals, who
are needed to pay the tax as per reverse charge mechanism, have to forcibly register under GST.
In this way, it is required by the reverse charge mechanism that the registered recipients of the
services and goods should remit the tax to taxation authorities in a direct way if buying the
particular listed goods and services, or performing with unregistered dealer. Subsequently, the
company is Development organisation, in that case the services of lawyers are used for a purpose
of business only, hence this is eligible for ITC of GST paid on the services availed by the
advocate, Maurice Blackburn. Additionally, the revenues of the advocate is stated in the
question; however, it is not important for the company for claiming the input tax credit on the
development service. As per the above analysis, it can be concluded that City Sky Co can have
the ITC for the tax paid on services availed from advocates for development services (Chow and
Wang, 2017).

QUESTIONS 4
Question 2:
Emma has provided the transaction’s lists undertaken by the financial year for assisting in to
prepare the ITR-2015. The capital gain tax occurs at the time when the sale price of disposing of
asset is more than the purchasing price. In this way, the tax levied on profit made from sale.
There are some tricks that can be employed to lower the charged capital gain tax. The capital
gains tax is considered as the tax at profits realized on non-inventories asset’s sales. The capital
gain tax is levied on person or company that takes decision to sell the profits of assets. There are
some traders, who have some exceptions. These traders are traders who take participation in the
selling as well as purchasing of the assets for the living (Schanz, et. al, 2017). For the day
traders, the profits made by them are taxed as per the revenue business in place of the capital
gains. It is so important to know that the capital gain tax is charged upon the numerous types of
assets, whether they involve real-estate property, inventories, and bonds. In general, the capital
gain is realized from sale of stocks, precious metals, along with real-estate properties. Regarding
the Australian tax system, the capital gain tax is considered as tax levied on capital gain made on
removal of asset, with the number of particular exemption, the most significant one being family
house. The CGT operating by net capital gain as taxable income in year of taxation wherever the
assets are sold (Wilkins, 2015).
Moreover, while the assets are kept for at least one year, then the profit would be discounted at
first by 50% for taxpayers in individual capacity, or by 33% regarding the superannuation fund.
The capital losses may be off-set by the capital gain (Burton, 2017). Furthermore, this is

QUESTIONS 5
impossible for offsetting the net capital losses against the normal earnings within the taxation
year, however may be eligible to carry forward indeterminately. In addition, the personal use
assets along with collectables are covered under the separate category and losses, which are
confined so they can only be levied in against the similar gains, not other advantages. It will stop
the taxpayers by taking the investment earning. Furthermore, it is required by the company
owner to think through that assets are not taxed equally, specifically when it comes to investment
earning. The charged tax amount will be depended on the asset’s holding period. There are 2
kinds of profits, which the company can generate, when this disposes of short term and long term
capital gain. On the other hand, the short-term gain is realized on investment held for not more
than twelve months. In contradiction of this, the long-term capital gains take place when other
investments along with assets are held for more than 12 months (Faccio and Xu, 2015).
 Sale of land block for 1,000,000 $-
Capital proceeds 1,000,000
Less: Stamp duty 5,000
Cost base 2 50,000
Interest 32,000
Legal fee 10,000
Water rates & Insurance 22000
Legal fee on dispute 5000
Tree-removal cost 27500
Cost of disposal 25000 (151500)
Capital gain 848500

QUESTIONS 6
Thus, at the time of selling, the capital gains tax will be chargeable in a case when sale is
profitable. Further, if the depreciated lands improvement, then it would be required to pay the
depreciation recollect tax on them (Hulse and Burke, 2016).
 Sale of a stamp collection Emma had bought from the private collector for $60,000
in January 2015 –
The collectables involve certain items that are used majorly for personal utilisation along with
enjoyment (Ehling, Tompaidis and Yang, 2019). These are below-
 sculpture, painting, drawing, engraving or photos, regeneration of properties and items of
the same description or utilisation
 postage stamp along with first day cover
 antiques
 coins and medallions
 jewellery-item
 books and journals
The collectable includes the interest in any items listed, the debt that arises from any items, or
the option or right for purchasing the items. The capital loss from collectables may just be
utilised for decreasing capital gains (covering upcoming capital gains) from collectable.
However, the capital gains and losses made from the collectable are disregarded (Yagan, 2015).
Proceeds from capital 50,000
Auction fees in relation collection (5,000)

QUESTIONS 7
Cost base (60,000)
Capital losses (15,000) [capital losses disregarded]
Thus, the capital losses on the collectables are disregarded.
 Sale of 1000 shares in Rio Tinto for 50.85 dollars per share-
In case of selling the capital asset like shares or real-estate properties, it means that the capital
gains or the capital losses have been created. It is a difference between what it costs to purchase
the assets as well as what is received at the time of dispose of.
Capital proceeds (1000*50.85) 50,850
2% on brokerage (50850*2/100) (1017)
Cost base (1000*3.5) (3,500)
Capital gain 46,333
In this way, Emma is permitted to get fifty per cent CGT discount. For the reason that the shares
are kept for more than 12 months. Because of no other capital loss or deduction, the shares are
hold for more than 12 months (Hulse and Burke, 2016).
 Sale of grand piano for 30,000 dollars-
Capital proceed = 30,000 (as per section 116-20)
Base of cost = -80,000 [as per section 110-25(2)] First Element
Capital loss = -50,000 [as per section 108-20(1)] (capital loss disregarded)

QUESTIONS 8
Other than collectables, personal use asset refers to the assets, which are utilised majorly for
personal utilisation or enjoyment and associate. Personal utilisation assets that purchased for not
above ten thousand dollars is disregarded for capital purpose. At the time of disposal of personal
use assets autonomously that will normally be sold as the set; then an exemption will be allowed
just when a person bought a set for the ten thousand dollars or less. The capital loss on personal
use assets are omitted. Therefore, the capital loss on personal utilisation assets cannot be utilised
for reducing the capital gain on personal utilisation asset (Balachandran, et. al, 2017).

QUESTIONS 9
References
Adam, S., Miller, H. and Pope, T. (2017) Tax, legal form and the gig economy. Green
Budget, 2017.
Babbel, M., Pronobis, P. and Hundsdoerfer, J. (2018) Tax Incentive Heterogeneity Between
Shareholders, Voting Rights Power, and Capital Structure. Voting Rights Power, and Capital
Structure (September 17, 2018).
Balachandran, B., Khan, A., Mather, P. and Theobald, M. (2017) Insider ownership and dividend
policy in an imputation tax environment. Journal of Corporate Finance, pp. 48(9)
Burton, D. (2017) The Tax Code as a Barrier to Entrepreneurship. Available at SSRN 2992805.
Chow, W.S. and Wang, J. (2017) Capital Gains Tax with Hong Kong Characteristics: Necessity,
Feasibility and Design. In 6th Annual International Conference on Law, Regulations and Public
Policy (LRPP 2017). Global Science & Technology Forum (GSTF)
Ehling, P., Tompaidis, S. and Yang, C. (2019) Tax Collection from Realized Capital Gains on
Equity. Available at SSRN 3349058.
Faccio, M. and Xu, J. (2015) Taxes and capital structure. Journal of Financial and Quantitative
Analysis, 50(3), pp.277-300.
Hulse, K. and Burke, T. (2016) Private rental housing in Australia: political inertia and market
change. Housing in 21st-century Australia: People, practices and policies, pp.139-152
Schanz, D., Keller, S., Dinkel, A., Fritz, J. and Grosselfinger, C. (2017) The tax attractiveness
index: Methodology. Available at SSRN 3013603.

QUESTIONS 10
Wilkins, R. (2015) Measuring income inequality in Australia. Australian Economic
Review, 48(1), pp.93-102.
Yagan, D. (2015) Capital tax reform and the real economy: The effects of the 2003 dividend tax
cut. American Economic Review, 105(12), pp.3531-63.