Tax Theory, Practices and Laws Assignment on GST and Capital Gain Tax

This assignment covers the concepts of GST and Capital Gain Tax. It explains the Reverse Charge Mechanism, Input Tax Credit, and Cost of Acquisition. It also covers the calculation of Capital Gain or Loss and the purchase and sale of collectibles and shares.

HI6028
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Table of Contents
Introduction...................................................................................................................3
Task1.........................................................................................................................3
Introduction................................................................................................................3
GOODS AND SERVICE TAX...................................................................................3
Reverse Charge Mechanism.................................................................................3
Input Tax Credit......................................................................................................3
Reference of the law..............................................................................................4
Task 2...........................................................................................................................4
Capital Gain Tax........................................................................................................4
Cost of Acquisition.................................................................................................5
Collectibles.............................................................................................................5
Section 1................................................................................................................5
Section 2................................................................................................................6
Section 3................................................................................................................7
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Introduction
This is the report prepared over the two questions given in the assignment and these
questions are related with two different taxes i.e. GST and Capital Gain Tax
respectively. In the next part of the report, both the tasks are been explained along
with the tax and law implications according to the situation explained in the question.
Task1
Introduction
Most of the nations promote the idea of “One Nation- One Tax” and GST is the tax
which promotes this saying. Whenever there is a transaction either of goods or
services or both then it attracts GST. (GST)
GOODS AND SERVICE TAX
The Australian GST is been levied on most of the goods and services. The rate of
tax is not fixed but most of the goods and services attract the rate of 10%. Value of
the commodity is increased by imposing the tax over it this makes the burden over
the consumer and hence increasing the value of the commodity. This is a tax which
is paid by the consumer who is actually using the commodity. This is the tax which is
implemented by the government so that the commodity can have a complete value.
(When to charge GST (and when not to))
This is the tax which has certain distinct rules, provisions, and schemes and there
are distinctly different ways to levy this tax over certain distinct commodities and
services. There are a number of commodities and a service which does not even
attract the tax and are exempt from the GST tax.
There is a certain limit specified and any of the people or firm which crosses this limit
has to get registered under this tax and has to follow all the rules, provisions and
schemes specified under this tax.
Reverse Charge Mechanism
This is a charge in which the burden of the tax is to borne by the person who is
paying the fees as in this case a list is been specified which gives the burden to the
firm or the person who is registered under this tax as if they will focus on the
collection from the small taxpayers than it would become difficult for them collect
them and hence decreasing the revenue of the Australian Government.
This charge specifies a particular list giving the services in which the company or
firm which is receiving the services are liable for the payment of the GST. If they are
not the actual consumers of these goods or services then they will be eligible to
claim the credit over the tax they have paid. (When to charge GST (and when not
to))
Input Tax Credit
This theory means that the credit would be availed on the taxes which are paid by
the people who are the part of the supply chain. A chain involves a number of people
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involved starting from the manufacturers to the consumer. Everyone is liable to pay
the tax in the chain and hence is eligible to claim the credits and hence the credits
will be given to the people who are not the actual consumers.
Reference of the law
There is a company named Sky City Company is a company which is receiving the
services of a lawyer and theses services are received for the construction of the
apartments which the company will be further selling in the near future to the ultimate
consumers.
The service of the lawyer is chargeable under the scheme of reverse charge and
hence makes the company liable to pay the tax on behalf of the lawyer. As the
reverse charge mechanism suggest this only. As collecting the tax from the lawyer is
difficult for the government and hence the complete burden lies over the company.
(GST)
The fee of the lawyer is paid by the company and hence the tax would be chargeable
on this amount only as this is the actual fees that the company is paying to the
lawyer for his services.
As the tax is paid by the government so it is ultimately the liability that company is
fulfilling and this is obvious that the benefits that could be availed from this would be
received by the company only as it is the tax bearer.
The Australian Tax Office is the creator of the laws and the provisions of the law in
Australia. This deals with the provision in which the law states that who is paying the
taxes when he is going to pay the taxes and what benefits they will receive.
There are a number of things involved in this case that the charges are been paid by
the company on the behalf of the lawyer and the input tax credit over this tax would
be received by the company only. The credit would be availed by the company as it
is not the final consumer of the goods on which these services are received. The
company is only a part of the chain who is supplying the services in the form of the
apartments to the consumers. (GST)
Task 2
Capital Gain Tax
Capital assets are the assets which are taken for a specific period of time. The sale
of these assets is made after a long time of possession. The income earned from
this is the income which is known as capital gain and hence the tax is chargeable
over this income in the same way as charged over other incomes.
If there are losses occurred from the sale of these assets then this does not attract
capital gain tax as it is not a part of the income. These losses can be set off from the
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income under this head only. If there are no incomes under this head in this year
than these could be carried forward to the indefinite financial years.
The Australian tax is completely based on this concept and these are specified by
the Australian Tax Office. This tax also says that resident of Australia has to pay the
tax in every situation and to every asset all around the world. (Elements of the cost
base and reduced cost base)
The shares are considered as capital assets if their possession is taken for more
than 12 months. Only the investors in the shares are liable for tax payment and
attract the tax. The regular dealers are not considered in this tax payment of shares.
Cost of Acquisition
The costs which are included are-
 Purchase price
 Brokerage charges
 Commission charges
 Stamp duty
 Transportation charges
 Asset acquired and up to put to use costs
At the time when loss or gain is calculated all these costs become part of the
acquisition costs. There is an additional cost which comes out to be the part of
acquisition costs after 21 August 1991 is the costs of repairs and maintenance.
There are numerous costs which are directly or indirectly attributable and hence
forms an important and a major part of the cost.
Collectibles
There are few points that should be kept in mind so that it could easily be said that
they are considered as capital gains or losses or are not considered:
 Price of the collectible is less than or equal to $500
 Before 16 December 1995,the acquired interest in any collectible $500 or less
 Purchase is less than $500 as in terms of market price
These are the conditions that are to be fulfilled which will make the collectibles liable
for the tax payment and would make them attract the taxes of capital gain.
Collectibles are the commodities bought and used up for personal uses.
The income earned is taxable f theses conditions are fulfilled and if there are losses
than they could be carried forward for an indefinite period. They are carried forward
only if they cannot be set off from the income of collectibles, if the incomes are not
sufficient to pay out the losses. (Working out your capital gain or loss)
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Section 1
Cost of acquisition is calculated as follows-
Particulars $
Purchase price 250,00
0
Stamp Duty 5,000
Legal Fees 10,000
Interest on Borrowed Loan 32,000
council rates, water rates and insurance 22,000
Legal Fees Against Neighbor 5,000
Removal of Pine Trees 27,500
Advertising, legal fees and agent’s fees
on the sale
25,000
Total Cost of Assets 376,50
0
Calculation of Capital Gain or Loss
Calculation of capital Gain
Particulars $
Sale Price 1,000,000
Purchase price 376,500
Capital Gain 623,500
There are two tables given which shows the calculation of the cost of acquisition as
well as the gains and losses of the asset.
Emma a lady who has bought a particular asset as the amount of that calculation is
been carried earlier. This table shows the cost of the purchase cost and along with
these other costs which are directly or indirectly attributable to the asset and its
installation. These costs form the part of the acquisition costs at these are the
inclusion made in the cost of calculating the capital gains or losses incurred by the
assessee.
The second table gives the description about the calculation of the gains and losses
of the firm and this is calculated using the sale price $1,000,000 which is provided in
the question and the cost of acquisition is considered which is been calculated in the
first table. (Shares, units and similar investments)
These give the actual gains of the company which an asset has given. The tax would
calculate the rate of indexation and this question says that indexation is not to be
used. So its alternate method named as Discounted method is been used. The tax
would be calculated as follows-
623500 * 50%
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311750
This is the actual and the base amount which is attracting the tax and hence the tax
would be calculated on the same.
Section 2
Rio Tinto shares
Emma bought the shares and was purchased before the date when the tax over
these was attracted. So hence this result with o taxation laws to be implemented and
no taxes are t be paid.
Section 3
Purchase of collectible by Emma and their sale
The case of the year 2015
There was a purchase made by Emma of the stamps-
The costs at which the goods are acquired are $60,000. This price is only the
purchase price and hence other additional charges of $5000 are also included in the
list and hence the total cost of the acquisition comes out to be $65,000.
In the upcoming months, the sale of these goods was charged out to be $ 50,000.
This is the price at which the asset was disposed of and hence giving rise to the
capital losses to Emma. These losses can only be set off in this financial year if there
is any income of the same head otherwise the management can carry these
expenses forward in upcoming financial years and thus reducing the profits of the
year in which it would be utilized. (Modifications and interaction with other rules)
Grand Piano
The total costs which were incurred to buy the piano were $80,000. This is the actual
cost of inclusion and no additional information is given and hence considered to be
as the actual acquisition cost.
The price at which the piano was sold to the other party was $30,000.
From the above data now we have both the cost of acquisition as well as the sale
price and hence the gains or losses occurred could be calculated.
Gain/ Loss
Sale price=$30000
Minus
Cost of acquisition=$80000
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Therefore, the losses of $50000 have occurred from this sale.
This asset was bought and used for the personal use so this does not attract any of
the taxes and hence is not liable which ultimately means that in the present financial
year there are no profits and losses occurred due to the piano sale or purchase.
(Modifications and interaction with other rules)
Conclusion
This assignment gives a conclusion that the company skies City in task 1 completed
all its workings according to the specified rules and provision of the GST and hence
working in accordance with that. In Task 2 the assignment focused on the capital
gain tax and these are the taxes which are to be paid on the transaction of capital
asset. Certain distinct cases are solved based on this study and their result is been
given.
References
Calculating the cost base for real estate. (n.d.). Retrieved from https://www.ato.gov.au:
https://www.ato.gov.au/General/Capital-gains-tax/Your-home-and-other-real-estate/
Calculating-the-cost-base-for-real-estate/
Capital gains tax. (n.d.). Retrieved from https://www.ato.gov.au:
https://www.ato.gov.au/General/Capital-gains-tax/
CGT assets and exemptions. (n.d.). Retrieved from https://www.ato.gov.au:
https://www.ato.gov.au/general/capital-gains-tax/cgt-assets-and-exemptions/#collectables
Cost base. (n.d.). Retrieved from www.ato.gov.au: https://www.ato.gov.au/General/Capital-gains-
tax/Working-out-your-capital-gain-or-loss/Cost-base/
Elements of the cost base and reduced cost base. (n.d.). Retrieved from https://www.ato.gov.au:
https://www.ato.gov.au/general/capital-gains-tax/working-out-your-capital-gain-or-loss/
cost-base/elements-of-the-cost-base-and-reduced-cost-base/
GST. (n.d.). Retrieved from https://www.ato.gov.au: https://www.ato.gov.au/Business/GST/
Modifications and interaction with other rules. (n.d.). Retrieved from https://www.ato.gov.au:
https://www.ato.gov.au/general/capital-gains-tax/working-out-your-capital-gain-or-loss/
cost-base/modifications-and-interaction-with-other-rules/
Shares, units and similar investments. (n.d.). Retrieved from
https://www.ato.gov.au/general/capital-gains-tax/shares,-units-and-similar-investments/:
https://www.ato.gov.au/general/capital-gains-tax/shares,-units-and-similar-investments/
When to charge GST (and when not to). (n.d.). Retrieved from https://www.ato.gov.au:
https://www.ato.gov.au/Business/GST/When-to-charge-GST-%28and-when-not-to%29/
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Working out your capital gain or loss. (n.d.). Retrieved from https://www.ato.gov.au:
https://www.ato.gov.au/general/capital-gains-tax/working-out-your-capital-gain-or-loss/
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