Australian Tax Law

This article provides an analysis of City Sky Co. and Emma Case study on Australian Tax Law. It covers the concept of input tax credit, claiming input tax credit, and procedures for claiming Input Tax Credit. It also covers capital gains, capital gains tax, and methods of calculating capital gains tax.

Running Head: AUSTRALIAN TAX LAW
Australian Tax Law
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AUSTRALIAN TAX LAW
Table of Contents
Q 1.........................................................................................................................................................3
Analysis of City Sky Co.......................................................................................................................3
Conclusion.........................................................................................................................................5
Q 2.........................................................................................................................................................6
Emma Case study...............................................................................................................................6
Conclusion.........................................................................................................................................8
References.............................................................................................................................................8

AUSTRALIAN TAX LAW
Q 1.
Analysis of City Sky Co.
The company stands out to be the beacon or the headliner when it comes to investment in
properties in Australia given the fact that the company recently has taken over a land based
area in South Brisbane with a view to construct fifteen apartments therein. For the purposes
of development, a financial allocation of $ 33000 has been made and a lawyer by the name
Maurice Blackburn (having a sole proprietorship turnover of $ 300000) has been hired.
This case study stipulates a situation wherein Maurice is required to advise the company
regarding ways of claiming and utilizing input tax credit on the basis of the assumption that
the company has availed GST registration. Herein, input tax credit is a concept that has been
introduced by the government in lieu of avoiding double incidence of tax payments such that
tax amount paid on any input will be deductible from the net output tax payable (Krever and
Teoh, 2016). Pre – GST regime, the situation was such that every product or service was
subjected to a double taxation scenario (both Central and State) – which has now been
subsumed under a one tax umbrella. In Australia, every entity sporting a minimum turnover
of $ 75000 is required to be GST registered. Herein, the company is under a legal charge
liability to the tune of $ 30000 ($ 33000 * 100/110) with a GST liability of $ 3000 arrived at
applying a 10% tax rate on $ 30000.
However, GST registration is not mandatory for ground level necessities such as health care
based products and services, education and food, etc. (Pearl, 2016) This does entail a
consequent scenario of rules on which credit claiming is not possible. They are :
 Non – registered businesses cannot go for generation of taxable invoices.
 Goods categorized as necessities or goods utilized for personal purposes.
 Remuneration payable to staff workers in the form of wages.
 Purchase of motor vehicles that involve a consideration above the stated limit in the
GST rules.
There are certain cases though in which claiming input tax credit is allowable :
 Goods sent to workers : This is a common scenario wherein goods are sent to workers
or job based workers specifically (contractors) for the purposes of further fine –
tuning or processing the goods. The primary manufacturer is hence eligible to claim

AUSTRALIAN TAX LAW
Input Tax Credit on the same especially in the case wherein such goods sent are
directly shipped from the place of the worker.
 Input Service Distributor: This is yet again a common case wherein every company
perceives to be dealing with a Input Service Distributor (herein referred to as ISD).
The person is responsible for the receipt of invoices relating to the delivery of goods,
products and services to various companies by way of innumerable service branches
for the same. The offices can have a twofold identity – either recognizable as a
registered head office or as a registered branch. On the claim of any Input Tax Credit,
the ISD is responsible for transferring units of such credit to the primary beneficiary
in question.This credit distribution is however, based on the selling potential of the
group in question. Hence, the credit is distributed in various categories such as Cess,
UGST (Union Territories Goods and Service Tax), IGST (Integrated Goods and
Service Tax), CGST (Central Goods and Service Tax) and SGST (State Goods and
Service Tax) (Tang, 2016).
 Capital Goods : If the supply as per s9-10 GSTA is based on influx of products, then
input credit can be claimed on the same with the sole exception that depreciation has
not been charged on the cost of such products. Further, credit claiming is only
possible provided that such goods are acquired for business use and that such products
are not used in the manufacture of such goods that are exempted from the definitions
of tax itself.
 Restructuring : Herein, the term restructuring incorporates the process of merger,
demerger, sale and amalgamation. This entails that the facility of Input tax Credit can
still be utilized by the transferee company and such amount can be claimed to the
extent of the credit not utilized by the transferor company.
Section 16 of the Central Goods and Service Tax specifically lays down procedures for
claiming Input Tax Credit (Freudenberg, Chardon, Brimble and Isle, 2017). They are :
 The company claiming credit must be registered under GST law.
 Generation of tax invoice by the supplier providing input services is mandatory.
 Actual receipt of goods or services must have occurred.

AUSTRALIAN TAX LAW
 On the actual receipt, GST should have been paid to the government in lieu of the
amount liable to be paid by the original supplier.
 The entity claiming credit must have filed Section 39 returns.
 In case of goods that are received on a proportionate basis or wherein payments for
such goods and services are made in equated instalments, then the entity can claim
credit when the goods have been received in entirety or when the payment for such
goods have been made completely.
 In case of claim of depreciation benefit on capital goods, then input tax credit on such
goods cannot be claimed. Further, even if it is claimable in exceptional circumstances,
but the time limit for claiming such credit has passed, then also credit cannot be
claimed.
Conclusion
This answer clearly showcases that certain procedural activities have been put into place for
the efficient working of the GST regime in Australia. Hence, certain conditions have been
explicitly laid out for claiming input tax credit. Taking into account these conditions, we can
safely conclude that City Sky Co. is a GST registered company as per s9-25 of GSTA and
therefore is eligible to claim input credit on the payment of GST on the receipt of legal
services.

AUSTRALIAN TAX LAW
Q 2.
Emma Case study
The given case study showcases that Emma’s involvement in transactions have been
numerous and of variegated nature in the given financial year. Hence, she has been asked to
prepare her 2015 annualized income tax return by not taking into account the benefits of
indexation which would result in a change in the entire arithmetical computation
methodology involved. Emma has also been given a directive of paying a certain amount of
fine in lieu of her recent transaction, which involved capital gains, which would involve a flat
out discounting rate of 50%, provided the asset have been held for a period exceeding 12
months.
To be precise, capital gains or capital losses arise when the capital asset in question is sold
either at a profit or at a loss which boils down to the difference in prices involved relating to
the cost of the asset sold and the price at which such asset was sold off. This price differential
is termed as capital gains and this attracts a differential rate of tax which is herein known as
capital gains tax (Murphy, 2018). This Capital Gains Tax forms part of the normal income
tax computation – however no taxes are chargeable in the year when there is a certain amount
of capital loss. Consequently, negative taxes or tax credits are also not allowed in this regard
– such losses are eligible to be carried forward to the next years of tax computation for a
predefined number of years. Certain case scenarios exempt the requirement of capital gains
tax payment provided the ownership for the asset in question was arrived at long before the
incidence of any capital gains such as sale of a private property or vehicle. Capital gains can
hence be calculated using three different methods which involve :
 Capital Gains Tax Discounted Method :This tax structure involves a complete capital
gains liability if the capital asset in question has been sold off before a year of
ownership is completed. However, a 50% slash benefit will be given to the entity
being assessed if the capital asset is held for at least a period exceeding one year.
 Indexation Method : This tax based method is applicable in a scenario wherein the
capital asset in question has been acquired before 21st September, 1999 and such asset
has been brought under ownership for at least 12 months.

AUSTRALIAN TAX LAW
 Capital Loss Method : This tax structure is more like a set – off method wherein a
capital loss incurred is allowed as a deductible item from the set of capital gains
incurred in other areas with a view to provide a tax relief to the entity being assessed
and to decrease the overall capital gain liability (Dowding, Martin and Evans, 2019).
This structure also encompasses a scenario wherein such capital loss is allowed to be
carried forward to the next year or any following financial years if any excess loss
after set – off is still left.
Since this case already gives numerous benefits to Emma, she is not eligible for further
benefits in the form of indexation. Hence, the capital gains liability (s104-10 ITAA97) for the
transactions shall be calculated as here under :
 Land : Certain costs forming part of land acquisition such as council charges, water
charges , insurance charges that in totality amount to $ 22000 are not calculated as
part of any legal rules and hence shall be excluded from the cost aggregation. Further,
legal charges arising on account of a fight with the neighbour and which was
adequately compensated for to the tune of $ 5000 shall also be excluded from cost
computation. Interest on loan to the tune of $ 32000 shall not form part of Emma’s
income and hence shall be disallowed along with the 2% brokerage fees on sale and
the auction fees of $ 5000 which shall be a deductible amount from the net sale
proceeds of the capital asset.
The land’s selling price in the market is $ 1000000 which will affect Emma’s long
term capital standing (s110-25 ITAA97) on account of the fact that she accrues a
capital loss in the initial stage of such property selling which will also affect the entity
purchasing the said property. Hence, these deductions forming part of the Australian
Taxation Rules should be considered by Emma and she should involve her legal
advisor in this regard to act on his / her intimations (Evans, Minas and Lim, 2015).
 Grand Piano : Emma is ready to incur a capital loss by selling the grand piano at a
price of $ 30000 which involved a cost overhead of $ 80000 in the year 2000. Emma
should hence take into account all the limitations put forward by the Australian
Taxation system (s110-25 (1) ITAA97) and also incorporate all such rules and
regulations which are implemented by the Australian Tax Office in relation to any

AUSTRALIAN TAX LAW
asset which is purchased or sold by the entity being assessed disregarding the fact as
to whether such asset is new or old (Grudnoff, 2015). Emma would hence need to
clearly specify the capital loss in this regard when filing her return and also refer to
the capital gains clause in order to capitalize on opportunities or scenarios which can
help her in tax planning for this capital loss in question. This will also require her to
further be in line with all the tax rules that have been put forward by the Government
of Australia.
In Australia, the system of capital gains taxability involves the clubbing of such income in the
entity’s overall income as per the income tax act since there are no specific guidelines
outlining any different tax rates which are required to be implemented when it comes to
capital gains. Hence, Emma would be required to see as to which rules and regulations of the
Australian Tax Law need to be followed when she has decided to sell the Grand Piano at a
capital loss.
Conclusion
Hence, taking into account the scenarios wherein Emma is required to sell off two capital
assets – one being land and the other being the Grand Piano (which is being sold at a capital
loss), Emma would be required to clearly follow the rules and regulations laid down by the
Australian Tax Office in this regard as per s104-10 ITAA97 and also hire a legal practitioner
and follow his / her rules regarding the capital gains tax in question to capitalize on effective
tax planning.
References
Dowding, K., Martin, A. and Evans, R.L., 2019. The Australian Policy Agendas
Project. Comparative Policy Agendas: Theory, Tools, Data, p.51.
Evans, C., Minas, J. and Lim, Y., 2015. Taxing personal capital gains in Australia: An
alternative way forward. Austl. Tax F., 30, p.735.
Freudenberg, B., Chardon, T., Brimble, M. and Isle, M.B., 2017. Tax literacy of Australian
small businesses. J. Austl. Tax'n, 19, p.21.

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Grudnoff, M., 2015. Top gears: how negative gearing and the capital gains tax discount
benefit the top 10 per cent and drive up house prices.
Krever, R. and Teoh, J., 2016. Justice Edmonds and interpretation of Australia's GST
legislation.
Murphy, C., 2018, November. Modelling Australian corporate tax reforms. In Australian Tax
Forum (Vol. 33, No. 1).
Pearl, D., 2016. The Policy and Politics of Reform of the Australian Goods and Services
Tax. Asia & the Pacific Policy Studies, 3(3), pp.405-411.
Tang, C., 2016. Australian GST update—2015. World Journal of VAT/GST Law, 5(1), pp.32-
41.