Taxation Law Australia Case Study 2022

Running head: TAXATION LAW
Taxation Law
Name of the Student
Name of the University
Authors Note
Course ID

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Table of Contents
Answer to question 1:.................................................................................................................2
Answer to question 2:.................................................................................................................5
References:...............................................................................................................................10

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Answer to question 1:
Issue:
The readings of this case is concerned with the entitlements associated to the input tax
credit which the taxpayer in the current case may be considered eligible for certain
transaction.
Laws:
The goods and service tax came into the existence during July 2000 and it replaced
the numerous indirect taxes that also included the whole sale tax and the indirect state taxes.
GST is treated as the tax on final consumption inside Australia and imports that are made
inside the Australia. With regard to
“sec 7-1 GST Act”, GST is generally considered payable
on the assessable supplies and the assessable imports (Hellerstein 2015). GST is usually
lowered through input tax credits related to the creditable purpose and creditable imports.
Under
“sec 9-10 (1)”, GST Act there must be a supply of goods and service by the
supplier. The term supply refers to any type of supply of any kind (May 2016). Particularly it
comprises of goods and services, advice or information, rights associated to the real property
and an entry in or release from any form of obligation.
“Sec 9-5, GST Act” defines the
taxable supply as;
a. There should be a supply
b. The supply is made by the taxpayer for consideration
c. The supply has the connection with Australia
d. The supply is made by the taxpayer during the ordinary business course and for
continuance of a business activity

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e. The supplier is treated as registered for GST or they are under obligation of obtaining
registration for GST.
It is necessary for a taxable supply to have the consideration. This would immediately
include the price which is inclusive of GST. The relation between consideration and supply is
given in
“paragraph 9-5 of the GST Act”. According to the
“paragraph 9-5 (a)” it
requires that for a taxable supply a taxpayer makes the supply for consideration (Millar
2014). As understood from the above given explanation, the meaning of consideration under
“sec 195-1” includes the payment that is made in relation with the supply. As held in the case
of
“AP Group Ltd v Commissioner of Taxation [2013]” the law court verdict denoted that
the consideration should have connection with supply however the supply should also be
made for consideration.
Apart from the taxable supply there is also an area that taxpayers needs to place
emphasis as well. This includes the reverse charge mechanism. Under this method the
receiver of goods or services is under obligation of paying GST rather than the supplier. The
rules of the reverse charge says that things apart from the goods and services will be the
subject of GST when the Australian business makes purchase and things are done out of
Australia or it is made with the help of business that is carried on by seller out of Australia
(Feria 2019). The rules of reverse charge is applicable if the purchase is successful in meeting
both the conditions and circumstances that are given below
 The reverse charge rule is applicable on the conditions that taxpayer has purchased a
thing that is completely for business they are carrying on Australia
 The sale is exchange for payment
 The receiver is registered for GST or they are required to be registered for GST.

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There are also the circumstances of purchase that must be made for reverse charge
mechanism
 The sale is related to Australia because the things purchase is having the right or
option of acquiring another thing (Scandroglio 2015).
 The things purchased by the business is for the activities done out of Australia.
Application:
As obvious from the case that City Sky Co is the registered GST Company and hence
the company can be said as eligible to access the input tax credit as when needed. During the
year the company bought a vacant land on which it has the plan of building 15 apartments for
sell. In the current case of City Sky Co, land is an immovable property. It can neither be
regarded as the goods nor will the land be viewed as service. Consequently, no GST is
required to be paid on the land and also no GST is applied while purchasing the land. The
intention of building apartment falls inside the black credit provision. In other words the land
received by City Sky Co for the construction of immovable property whether in the ordinary
business course is not considered eligible for claiming input tax credit.
Later it is noticed that City Sky Co has availed the service of an advocate and paid a
sum of $33,000. The service from Maurice Blackburn regarding the developmental of
building on vacant land is a supply under
“sec 9-10 (1), GST Act”. The legal services falls
under the reverse charge mechanism for City Sky Co and the company will be considered for
paying the GST on the services received (Pfeiffer 2017). Referring to the case of
“AP Group
Ltd v Commissioner of Taxation [2013]” the consideration holds connection with the
supply and it is exclusively for the business purpose of City Sky Co. The company will be
treated eligible for claiming the input tax credit from services availed from Maurice
Blackburn.

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Conclusion:
The case analysis contributes to the fact that City Sky Co is eligible for accessing the
input tax credit for the development services since it meets the conditions and circumstances
of the reverse charge mechanism.
Answer to question 2:
Under
“sec 104-10(4)” the disposal proceeds obtained from selling the asset is
compared with the cost base of the CGT asset. As a general note there are five elements of
the cost base. The detailed elements of cost base are as follows;
Element 1: The money that a taxpayer has to pay for purchasing the asset or the market value
of any other property that is given to purchase the CGT asset under
“sec 110.25 (2)”.
Element 2: This element mainly deals with the acquisition cost and sale of CGT asset. Under
“sec 110.25 (3)” this element includes the stamp duty, legal expenses, agent commission etc.
to buy or sell the asset (Duncan et al. 2018).
Element 3: This element includes the non-capital cost that is paid by the taxpayer for the
asset ownership that does not qualifies for deduction.
“Sec 110.25 (4)” includes the land tax,
repairs, insurance, rates and interest on borrowings that are non-deductible.
Element 4: This element mainly deals with the expenses that are occurred by the taxpayer in
increasing the value of CGT asset. Under
“sec 110.25 (1)” the expenses include, capital
improvements such as renovations or extension (Mahar 2016).
Element 5: This element involves capital outgoings that are occurred in preserving,
defending the title or rights to the CGT-assets under
“sec 110.25 (6), ITA Act 97”.

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Emma is selling her block of land for $1,000,000 while the purchase price paid was
$250,000 for acquiring the land. Under the Element 1 of cost base the price paid for acquiring
the land will be included based on the legislative provision of
“sec 110-25 (2)”. During
purchase Emma paid $5000 for stamp duty and $10,000 for legal fees. Therefore, under
“sec.110.25 (3)” these expenses are incidental cost of purchasing the block of land incurred
by Emma which will be included in element 2 cost base of land. She further paid council and
water rates, insurance and interest on loan which amounted $22,000 and $32,000
respectively. So under
“sec 110.25 (4)” these costs will be included in element 3 of the cost
base of land as non-capital ownership cost. A disputed was reported by Emma on property
with neighbours and the settlement of disputed cost Emma $5000. Under
“sec 110.25 (6)”, it
is capital expense occurred by Emma in defending her rights on the land and will be included
in element 5 cost base of asset. Finally, she reported an expense of $$27,000 for removing the
pine trees on land (Huizinga, Voget and Wagner 2018). Under
“sec 110.25 (5)” this cost will
be included in element 4 of the cost base of land as a capital improvement cost.
Referring to
“s104-10 (4)” the proceeds of land following disposal is compared with
cost base for CGT purpose.

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Sell of Emma’s share in Rio Tinto:
The general provision of the CGT is implemented on assets that are acquired or events
that are taking place on or after the date of 20 September 1985. In order to refer the assets or
in regard to any event that are taking place before or after that date the word pre-CGT and
post-CGT is used (Kirchner 2014). Only those gains are taxed where events takings place
after 20 September 1985. Emma has sold the 1000 shares of Rio Tinto in 2015. The sells
price fetched for each shares were $50.85 however it was bought in 1982 for $3.85. These
shares must be classified as pre-CGT asset since Emma purchased it earlier to introduction of
CGT regime. So the capital gains made are exempted from CGT.

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Sale of Stamp collections:
When a taxpayer enters in the contract for sale then a “CGT event A1” happens under
“sec 104-10 (3)”. Defined in
“sec 108.10(2)” collectables are specifically items such as
antiques, artwork, jewellery etc. that is kept for private use and satisfaction (Gitman, Juchau
and Flanagan 2015). Other special rules that are applied on collectables is that capital loss
from collectables is permitted only for offset against the capital gains from other collectables
under
“sec 108.40 (4)”.
The stamps were sold by Emma in auction for a sale price of $50,000 while the
stamps were purchased for $60,000 in 2015. The stamps are falling within the meaning of
collectables under
“sec 108.10(2)”. When Emma entered in the contract for sale of Stamps
then a
“CGT event A1” happened under
“sec 104-10 (3)” (Clark 2014). The stamps yielded
capital loss. So under special rules of
“sec 108.10 (4)” the capital loss is not allowed for
offset against any gains, instead Emma should carry forward to next year because no
alternative capital gains from collectables were reported.

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Sale of grand piano:
Defined in
“s.108.20 (2)”, personal use asset refers to furniture, household items,
vehicles etc. that are kept for own enjoyment of taxpayer (Edmonds 2015). Capital loss from
personal use asset under
“sec 108-20 (1)” is simply ignored. The piano sold by Emma is a
personal use asset under
“sec 108.20 (2)”. She suffered a capital loss when she sold the
piano. Under
“sec 108.20 (1)”, the capital loss suffered from her personal use asset must be
ignored by Emma.

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References:
Clark, J., 2014. Capital gains tax: historical trends and forecasting frameworks. Economic
Round-up, (2), p.35.
Duncan, A., Hodgson, H., Minas, J., Ong, R. and Seymour, R.G., 2018. The income tax
treatment of housing assets: an assessment of proposed reform arrangements.
Edmonds, R., 2015. Structural tax reform: What should be brought to the table. Austl. Tax
F., 30, p.393.
Feria, R.D.L., 2019. The New VAT General Reverse-Charge Mechanism. EC Tax
Review, 28(4), pp.172-175.
Gitman, L.J., Juchau, R. and Flanagan, J., 2015. Principles of managerial finance. Pearson
Higher Education AU.
Hellerstein, W., 2015. A Hitchhiker's Guide to the OECD's International VAT/GST
Guidelines. Fla. Tax Rev., 18, p.589.
Huizinga, H., Voget, J. and Wagner, W., 2018. Capital gains taxation and the cost of capital:
Evidence from unanticipated cross-border transfers of tax base. Journal of Financial
Economics, 129(2), pp.306-328.
Kirchner, S., 2014. Taxing Consumption, Not Saving: New Zealand’s Rejection of a
Comprehensive Capital Gains Tax. CAPITAL GAINS TAX REFORM IN CANADA, p.47.
Mahar, F., 2016. The distortive effects of the capital gains tax regime. Tax Specialist, 20(1),
p.16.
May, S., 2016. Applying the GST to imported digital products and services: Problems and
solutions. Tax Specialist, 19(3), p.110.

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Millar, R., 2014. VAT/GST in a Global Digital Economy: Looking Ahead-Potential
Solutions and the Framework to Make Them Work. Sydney Law School Research Paper,
(16/30).
Pfeiffer, S., 2017. A VAT/GST Perspective on Crowdfunding. In VAT and Financial
Services (pp. 223-255). Springer, Singapore.
Scandroglio, R., 2015. Recent developments in international VAT/GST tax policy. Global
Trends in VAT/GST and Direct Taxation: Schriftenreihe IStR Band 93, 93, p.1.