Taxation Theory Practise Law Report 2022

Running Head: TAXATION THEORY, PRACTICE & LAW
Taxation Theory, Practice & Law
Name of the Student:
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TAXATION THEORY, PRACTICE & LAW
Executive summary
This report is discussed about the Australian accounting system and its different
concepts like GST and capital gain tax. Then the City Sky co is advised about the input
tax credit that they can avail. And lastly Emma’s capital gain has been calculated to find
the capital gain tax.

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Table of Contents
Introduction........................................................................................................................3
Goods and Service Tax (GST)..........................................................................................3
Capital gain tax..................................................................................................................3
Question 1..........................................................................................................................4
Question 2..........................................................................................................................6
Conclusion.......................................................................................................................10
Reference list...................................................................................................................11

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Introduction
With the growth of the country Australian taxation system has also grown
significantly. Australia tax to GDP ratio is around 11 percent which remained constant
until the introduction of federal income tax. Federal government relies on direct tax as
the primary tax collection. In past 30 years both personal and business taxation has
changed to income tax and GST (Adair et al., 2013). Standard year of income for tax
calculation is from 1st July to 30th June which can also be changed by the Australian
commissioner according to the need. Income tax for companies irrespective of
residential status is 30 percent. Australian taxation system allows the Australian
company to pay tax and take credit on the tax paid. Deduction is allowed for decline in
the value of depreciable assets which was used for generating income.
Goods and Service Tax (GST)
Goods and service tax is a tax of 10 percent on most of the goods and services
that are sold or consumed in Australia. Companies register under GST will have to put
GST in there invoice for goods and services and they can claim for credit on the GST
paid on purchase invoice. Company need to register under GST when the turnover is
more than $75000 and $150000 for non-profit making organization (Auerbach et al.,
2013).
Capital gain tax
Capital gain tax or CGT is the part of the income tax which is chargeable on the
positive amount of difference between the sale price of capital asset and its original

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purchase price. Selling capital asset usually incurs capital gain or capital loss which is
needed to be disclosed in the income tax return and pay tax on capital gain. Capital
gain is added to the assessable income to calculate the total income on which tax is
required to be paid. Capital gain can be used to reduce the capital loss occurred due to
sell off assets at price below purchase amount. All Australian resident assets anywhere
in the world is applicable to CGT (Aust 2013.
Question 1
Issue: The City Sky co is a property investment company who purchased a vacant land
to build apartments. They incurred legal services by appointing lawyer for development
for $33000. The City Sky Co need advice on input tax credit that they are entitled.
Law: Input tax credit in GST is also known as the GST credit. It is a credit which a
business can take by reducing the tax liability during sale by claiming credit to the extent
of GST paid by them during purchase. To claim GST credit the following condition need
to be fulfill:
 A business has to be registered under GST and it can find the amount of GST
paid on the tax invoice issued by the seller.
 Purchase price must include GST.
 Supplier of goods or service must have paid the GST to the Government.
 Purchase can be for both business and private but GST credit can be claimed
only for the purchase of business portion.
 Returns has been filed (Bannerman 2013).

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 One can claim for GST credit if the invoice of purchase is more than $82.5
including GST.
Law also states that when a taxpayer cannot claim for GST credit are as follows:
 When someone is not registered under GST.
 When the purchase does not includes GST or the sale is GST free.
 When the purchase is made from a non-registered supplier.
 When the purchase amount does not exceeded $82.5 including GST.
 When property is purchased under margin scheme.
 Where the time limit for claiming GST credit for a particular purchase has been
ended (Bartlett, Rhode and Grossman 2016).
Some specific law for GST credit are as follows:
1. Pre-establishment cost – This is the cost which company bears before its
existence like legal expenses, registration expenses, premises and others on
which the company can claim GST credit for the GST paid on purchase price. So
to claim GST credit under pre-establishment cost the following condition must be
fulfill:
 Purchase must be done to bring the company into existence.
 Company must come into existence within six month of the purchases.
 Purchases must not be done for private purpose.
2. Second hand goods – One can claim for GST for purchasing second hand goods
from unregistered seller for the purpose of sale but cannot claim credit if
purchased for manufacturing (Brigham et al., 2016).

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3. Other special rule – Some special rules are also provided to claim GST credit
includes purchases made by using corporate credit cards, supplies of gas and
electricity by public utility, and purchase of land under standard land contracts.
Conclusion: As per given City Sky Co is registered under GST they can claim for GST
credit on the expenses they made to purchase the land. They can claim for the
deduction of business purchase in tax return claiming for the amount of purchase less
any GST credit they are entitled. Under specific rules of GST City Sky co can also claim
GST credit on purchase of land under standard land contract (Hanley, Shogren and
White 2016).
Question 2
Issue: Emma has some capital assets which has been sold. It consist of sale of land,
sale of shares, sale of stamps and sale of grand piano on which Emma needs advice for
the capital gain tax that she has to pay for all his sale of capital assets.
Law: Capital gain tax is applied on all real estate, shares, long term investments, crypto
currencies, goodwill, valuable collections, foreign currency and personal assets above
certain value (Filatova 2014). But some assets are exempted from CGT like
 Residential property for own.
 Motor vehicles which is designed to carry load of less than a ton and nine
passengers.
 Depreciating assets
 Assets that are acquired before 20th September 1985.
 Most of the personal assets acquired for less than $10000

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 Collectable items like painting, antiques, stamps and many other items whose
value is less than or equal to $500.
To pay capital gain tax taxpayer need to establish the date of acquisition or the date
from which he is the owner of the asset and have to keep the records of every
transaction related to the capital assets from the first day. Capital gain tax event occurs
when the asset is disposed of or sold and the point of capital gain or loss occurs.
There are three method to calculate the capital gain are as follows:
1. Discount method – It is eligible for the assets held for 12 month or more, it is for
resident individual and nonresident can be eligible after removing the 50 percent
discount rule. This method is applicable when the individual did not choose for
indexation method. Under this method capital gain is calculated by subtracting all
capital loss and 50 percent discount from the total capital gain (Lanis and
Richardson 2013).
2. Indexation method – Under this method assets are eligible for capital gain if it is
hold for 12 month or more and acquired before 21 September 1999. This method
allows to increase the cost base by applying the price index method. It is
calculated by deducting the index cost from the amount of sale of capital. This
method is applicable to the company but an individual can avail this method if he
fulfil the condition. This method is compulsory for the companies who fulfill the
conditions.
3. Other method – This method is eligible for the assets which are held for less than
12 month. It is the simplest method for calculating the capital gain as it calculated
by deducting the cost from the sale amount (Thuronyi and Brooks 2016).

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To calculate capital gain and pay the tax one need to keep the records up to date and
organized by keeping records like interest on borrowing, any expenses, selling prices
and purchased price. Capital gain tax is the part of the income tax of the income year.
When there is a capital loss there is no need to pay capital gain tax or it can be carry
forwarded. If asset is purchased before the introduction of capital gain that is 20
September 1985 capital gain tax is not allowed. Company and individual pays different
rate of taxes whereas the company is not allowed to take discount and pays 30 percent
tax on net capital gain. Individual can apply 50 percent discount on their total capital
gain and pay the normal rate of income tax for the remaining amount for the year ( Molle
2017).
Conclusion: Emma being an individual made capital gains on assets holding for more
than 12 months is eligible to get 50 percent discount on the total capital gain. Her capital
gain is calculated by applying discount method. Then capital gain tax has to be paid on
the net capital gain at the rate which is paid by the individual as his own income tax rate
of the year. Emma shares which is acquired in 1982 is exempt from the capital gain tax
as the shares are sold before capital gain tax was introduced on 20th September 1985.
Emma capital gain is calculated by using discounted method as it is available for
individual only.

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Conclusion
Australian tax system charges high rate of tax on high income as it is a marginal
income tax system. Tax returns of individuals, companies, trusts and others are
collected by the Australian tax office which uses self-assessment tax system. So every
tax payer is responsible for reporting his own tax at the Australian tax office every year.
Australian tax aims to prevent double taxation and promote international tax authority.
The key taxes that affect the businesses are capital gain tax and goods and service tax.

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Reference list
Adair, A., Downie, M.L., McGreal, S. and Vos, G., 2013. European valuation practice:
Theory and techniques. Taylor & Francis.
Auerbach, A.J., Chetty, R., Feldstein, M. and Saez, E. eds., 2013. Handbook of public
economics (Vol. 5). Newnes.
Aust, A., 2013. Modern treaty law and practice. Cambridge University Press.
Bannerman, P., 2013. Islam in Perspective (RLE Politics of Islam): A Guide to Islamic
Society, Politics and Law. Routledge.
Bartlett, K.T., Rhode, D.L. and Grossman, J.L., 2016. Gender and law: Theory,
doctrine, commentary. Wolters Kluwer Law & Business.
Brigham, E.F., Ehrhardt, M.C., Nason, R.R. and Gessaroli, J., 2016. Financial
Managment: Theory And Practice, Canadian Edition. Nelson Education.
Burman, L.E., Gale, W.G., Gault, S., Kim, B., Nunns, J. and Rosenthal, S., 2016.
Financial transaction taxes in theory and practice. National Tax Journal, 69(1), pp.171-
216.
Filatova, T., 2014. Market-based instruments for flood risk management: a review of
theory, practice and perspectives for climate adaptation policy. Environmental science
& policy, 37, pp.227-242.
Hanley, N., Shogren, J.F. and White, B., 2016. Environmental economics: in theory and
practice. Macmillan International Higher Education.

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Lanis, R. and Richardson, G., 2013. Corporate social responsibility and tax
aggressiveness: a test of legitimacy theory. Accounting, Auditing & Accountability
Journal.
Molle, W., 2017. The economics of European integration: theory, practice, policy.
Routledge.
Pavkovic, A. and Radan, P., 2016. Creating new states: theory and practice of
secession. Routledge.
Thuronyi, V. and Brooks, K., 2016. Comparative tax law. Kluwer Law International BV.
Ulbrich, H.H., 2013. Public Finance in Theory and Practice Second edition. Routledge.
Wagner, R.E., 2013. Charging for Government (Routledge Revivals): User charges and
earmarked taxes in principle and practice. Routledge.
Watt, E. and Coles, R., 2013. Ship registration: law and practice. Informa Law from
Routledge.