HI6028 Taxation theory, practice and law Question 2022

Running head: HI6028 TAXATION THEORY, PRACTICE AND LAW
HI6028 Taxation theory, practice and law
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HI6028 TAXATION THEORY, PRACTICE AND LAW
Table of Contents
Question 1:...................................................................................................................2
Identifying the material facts regarding The City Sky Co goods and services tax
(GST) consequences:...................................................................................................2
Identifying and analyzing the legal issues / legal question and relevant laxation law: 2
Question 2:...................................................................................................................3
Identifying the material facts regarding the capital gain tax (CGT) consequences of
Emma’s transactions:...................................................................................................3
Identifying and analyzing the legal issues / legal question and relevant laxation law: 5
References and Bibliography:......................................................................................7

HI6028 TAXATION THEORY, PRACTICE AND LAW
Question 1:
Identifying the material facts regarding The City Sky Co goods and services
tax (GST) consequences:
The Good and Services Tax (GST) is considered to be one of the major
components of tax revenue that is used by the Australian Tax Organization\ (ATO)
for accumulating the relevant tax on the goods and services that is provided by the
organizations. The GST tax calculations have both credit input and output, where the
companies need to maintain adequate level of track record for detecting the tax GST
that they are liable to pay or is owed by the ATO. Th GST credit input is one of the
measures, where the companies are able to claim the overall GST amount, as
refund for the services in goods used for supporting their operations. This method of
GST credit helps the organizations to maintain a fair value of tax that needs to be
paid to the ATO at the end of each financial year (Ato.gov.au 2019).
The analysis of City Sky Co case study has mainly indicated about their
operations, which has been conducted for detecting the overall GST input credit that
the organization intends to get from its overall transactions. The case study has
indicated that the main operations of City Sky Co is to buy plots of vacant land and
then conduct development activities to building new buildings or sale. This company
has recently purchased a block of land and intends to build 15 apartments.
Moreover, City Sky Co has also used services from a lawyer, which amount to
$33,000 for the construction purposes.
The analysis of the case study has mainly initiated that City Sky Co is not
viable to collect relevant GST credit input from their purchase of the vacant land. In
addition, the GST credit input credit is also not collected from the overall
development expenses that is incurred by the company. The development cost and
land cost are considered to be under the GST black credit, where the companies are
not able to collect the required level of GST credit input from their transactions. The
analysis has mainly indicated that there is not GST credit initiated for the purchase of
land, as it does not fall under goods or services (Ato.gov.au 2019). In addition, the
overall expenses on the development cost is also not considered in GST input credit,
as the GST law indicates that any expense incurred on development of land is not
considered as a GST expense and therefore no GST credit input is initiated.
However, the expense of the services of the lawyers is considered under the GST
credit input, where the City Sky Co is able for a refund on the total GST paid to the
lawyer (Ato.gov.au 2019).
Identifying and analyzing the legal issues / legal question and relevant laxation
law:
There are certain case laws and legal actions that were taken by the ATO
regarding the GST credit input claims that was made by companies to the develop
their property. The case and legal actions are depicted as follows.
Companies Claims from company Legal Actions
MBI Properties Pty Ltd GST-free supplies claimed
for the constructing the
hotel (Chrissievers.com
2013)
GST credit input on land
development is not
allowed under the Rule
39.32 of the Federal Court
Rules 2011
Bryxl Pty Ltd GST input tax credits
claimed for the land
development in respect of
certain acquisitions.
GST credit input on land
development is not
allowed under the Rule
39.32 of the Federal Court

HI6028 TAXATION THEORY, PRACTICE AND LAW
Rules 2011
Wynnum Holdings No 1
Pty Ltd
Claiming GST on the
acquisition of property
GST credit input on land
development is not
allowed under the Rule
39.32 of the Federal Court
Rules 2011
Rio Tinto Services Ltd GST Credits claimed for
the acquisitions of
residential premises
(Chrissievers.com 2015)
GST credit input on land
development is not
allowed under the Rule
39.32 of the Federal Court
Rules 2011
Rod Mathieson Truck Hire
Pty Ltd
Claiming GST on the
entire amount of
consideration payable for
the sale of land
GST credit input on land
development is not
allowed under the Rule
39.32 of the Federal Court
Rules 2011
The above table highlights about the overall case laws that is conducted in
Australia regarding the GST tax input credit on the purchase of land and
development cost. The case analysis has mainly indicated that the overall decision
for not allowing any kind of GST credit input tax on the development cost and
purchase of land, which was conducted by City Sky Co. the case laws mainly state
that the ATO has disallowed major companies in Australia for claiming the GST tax
credit input on development and purchase of land, as it violates the requirement of
GST Act.
Question 2:
Identifying the material facts regarding the capital gain tax (CGT)
consequences of Emma’s transactions:
Piano
Particulars Amount Amount
Piano
2015 Piano price $30,000.000
(Less) 2000 Piano price -$80,000.000
Loss from piano -$50,000.000
Land
Particulars Amount Amount
2015 Land price
$10,00,000.00
0
(Less) Legal fees $5,000.000
(Less) improvements $27,500.000
(Less) expenses on sales $25,000.000 $57,500.000
(Less) 1991 Land price
$2,50,000.00
0
(Less) Stamp duty $5,000.000
(Less) legal fees $10,000.000 $2,65,000.000
Profit from Land sale $6,77,500.000

HI6028 TAXATION THEORY, PRACTICE AND LAW
Shares
Particulars Amount Amount
Shares
2015 Share price $50,850.000
(Less) expense on brokerage -$1,017.000
(Less) 1982 Share price -$3,500.000
Profit from shares sale $46,333.000
Stamp Collection
Particulars Amount Amount
Stamp Collection
2015 Stamp Collection price $50,000.000
(Less) expenses on auction fees -$5,000.000
(Less) 2015 Stamp Collection price -$60,000.000
Loss from Stamp Collection -$15,000.000
The calculations in the above table helps in representing the overall capital
gains tax consequence for each transaction that has been conducted by Emma
during 2015. The CGT analysis has mainly helped in detecting the actions that
needs to be taken by Emma for each of the transactions that have been conducted
during 2015 (Ato.gov.au 2019). The interpretations of the calculations that have been
conducted for each transaction are depicted as follows.
 Stamp Collection: The Stamp collection was manly purchased during 2015 and
sold in the same year with the overall loss of $15,000 which mainly indicated due
to the low selling price and expenses regarding the auction fees. The transaction
is considered to be violating the 12-month rule that was implemented by the CGT
Act for considering any asset as Capital assets. The transaction further violates
the rules Section 102-5 of the Act and Section 104-10 of the ITAA 1997
(Ato.gov.au 2019). Therefore, the Stamp collection is considered to be a non-
capital gains transaction and cannot be listed under the CGT consequence of
Emma for 2015.
 Shares: The second most viable transactions that was conducted by Emma
during 2015 is the sale of Rio Tinto’s shares. The share of the organization was
mainly purchased during 1982 for a price of $3.5 per share, which was later sold
in 2015 for price of $50.85 per shares. The overall gains that was obtained from
the transactions of the shares is at $46,333 after accommodating for the expense
on brokerage. The transaction analysis mainly helps in detecting that the
purchase date of the shares is before the CGT event, which mainly indicates that
the transaction will not be considered under the CGT tax consequence of Emma.
The sale of shares directly violates Subsection 104-10(5) of the ITAA 1997,
Section 6-5 of the ITAA 1997 and Section 102-20 of the Act, which does not allow
the transactions of the shares to be listed in the CGT consequence of Emma for
2015 (Ato.gov.au 2019). Hence, the overall gains obtained from the sale of
shares are mainly not considered under the CGT tax consequence of Emma for
the year of 2015.
 Land: The transactions related to land sale was also conducted by Emma during
the year of 2015, which considered to be under the CGT tax consequence. The
land transactions mainly fall under the CGT law due to the support of laws such
as Section 102-5 of the Act, Section 104-10 of the ITAA 1997, Subsection 104-

HI6028 TAXATION THEORY, PRACTICE AND LAW
10(5) of the ITAA 1997, Section 6-5 of the ITAA 1997 and Section 102-20 of the
Act (Ato.gov.au 2019). The land was mainly purchased during 1991 with a total
cost of 265,000, while the selling price is at the levels of $1,000,000. In addition,
there are other cost related to improvements, selling expenses and law suit,
which has also been deducted from the overall transaction to depict a viable
amount that could be taxed under the CGT law. The land transaction was mainly
conducted during 1991, which fulfills the requirement of the CGT event and 12
months criteria. Therefore, the benefits that was obtained from the overall
transactions is subject to the tax consequence under the CGT law. The gains
obtained from the overall transactions is at the levels of $677,500.
 Piano: The sale transaction of the piano conducted during 2015 mainly resulted
in a loss of -$50,000. The company mainly purchased the asset for $80,000 in
2000, which was sold for $30,0000 in 2015.This transaction mainly resulted a
loss from the sales of capital assets, which can be deducted from the total capital
gains that was obtained by Emma during 2015. As per the CGT Act the losses
obtained by selling the capital assets can be deducted from the capital gains to
obtained the appropriate level of CGT that can be used for tax purposes
(Ato.gov.au 2019).
Capital Gains Tax of Emma during 2015
Particulars Value
Profit from Land sale
$677,500.00
0
Profit from shares sale $0.000
Loss from Stamp Collection $0.000
Loss from piano -$50,000.000
Taxable CGT Amount
$627,500.00
0
Discounting method @50%
$313,750.00
0
Tax percentage on long term capital gain in
2015 20.000%
Total CGT taxes of Emma during 2015 $62,750.000
The above table indicates about the overall CGT taxable amount and CGT
taxes of Emma for 2015. The analysis has mainly stated that the overall tax
consequence of Emma is at the level of $62,750, as discounting method of capital
gains have been used for deriving the appropriate level of tax consequence. The
calculations help in understanding the overall taxable CGT, which was calculated to
be at the level of $627,500. The use of discounting method has mainly reduced the
overall taxable amount to the level of $313,750 for the taxable year of 2015. This
discounting method is mainly used for the assets that have been purchased after
1991, where the Piano loss and the gains from the lands are considered to be falling
under the method. Furthermore, the taxable rate of the CGT for 2015 is at the levels
of 20%, which is used in the calculation for deriving the taxable amount of Emma on
the gains that have been achieved during the period of 2015 (Ato.gov.au 2019).
Hence, utilizing the overall laws and CGT act has mainly helped in deriving the total
amount of taxable income and tax amount for Emma during 2015.

HI6028 TAXATION THEORY, PRACTICE AND LAW
Identifying and analyzing the legal issues / legal question and relevant laxation
law:
The case analysis of Emma has been prepared after analyzing the relevant
legal activities and sections listed with the CGT Act. The sections are depicted as
follows.
 The applications of Section 102-20 of the CGT Act directly implement only on
assets that was acquired after the CGT event (Ato.gov.au 2019).
 The Subsection 104-10(5) of the ITAA 1997 states that capital loss or gains
incurred after 20th September 1985 is mainly omitted.
 The analysis has mainly indicated the assets are considered under CGT when
‘any kind of property or any kind of legal or equitable right that is not property’ is
mentioned under the Section 102-5 of the Act (Ato.gov.au 2019).
 The CGT provisions for dividing the original land is depicted in Taxation
Determination TD 97/3, where the division pf the land is conducted into more
parcel with new registration titles.
 The analysis of the Section 6-5 of the ITAA 1997 directly indicates about the
general principle used for sale of land, as the proceeds are treated as ordinary
income.
 The section 104-10 of the ITAA 1997 indicates regarding the non-constitution for
the disposal of land (Ato.gov.au 2019).

HI6028 TAXATION THEORY, PRACTICE AND LAW
References:
Ato.gov.au. 2019. Acquiring assets and keeping records. [online] Available at:
https://www.ato.gov.au/general/capital-gains-tax/acquiring-assets-and-keeping-
records/ [Accessed 25 Sep. 2019].
Ato.gov.au. 2019. Capital gains tax. [online] Available at:
https://www.ato.gov.au/General/Capital-gains-tax/ [Accessed 25 Sep. 2019].
Ato.gov.au. 2019. Claiming GST credits. [online] Available at:
https://www.ato.gov.au/Business/GST/Claiming-GST-credits/ [Accessed 25 Sep.
2019].
Ato.gov.au. 2019. GST. [online] Available at: https://www.ato.gov.au/Business/GST/
[Accessed 25 Sep. 2019].
Ato.gov.au. 2019. Selling an asset and other CGT events. [online] Available at:
https://www.ato.gov.au/general/capital-gains-tax/selling-an-asset-and-other-cgt-
events/ [Accessed 25 Sep. 2019].
Chrissievers.com. 2012. Case analysis – Wynnum Holdings No 1 Pty Ltd and
Commissioner of Taxation. [online] Available at: https://chrissievers.com/case-
analysis-wynnum-holdings-no-1-pty-ltd-and-commissioner-of-taxation/ [Accessed 25
Sep. 2019].
Chrissievers.com. 2013. MBI Properties Pty Ltd v Commissioner of Taxation [2013]
FCAFC 112. [online] Available at: https://chrissievers.com/mbi-properties-pty-ltd-v-
commissioner-of-taxation-2013-fcafc-112/ [Accessed 25 Sep. 2019].
Chrissievers.com. 2013. Tribunal decision on sale of property under vendor finance
agreement. [online] Available at: https://chrissievers.com/2013/07/16/tribunal-
decision-on-sale-of-property-under-vendor-finance-agreement/ [Accessed 25 Sep.
2019].
Chrissievers.com. 2015. Full Federal Court dismisses Rio Tinto appeal – judgment
now available. [online] Available at: https://chrissievers.com/2015/08/31/full-federal-
court-dismisses-rio-tinto-appeal-judgment-now-available/ [Accessed 25 Sep. 2019].
Chrissievers.com. 2015. Tribunal finds taxpayer was not carrying on enterprise of
land development. [online] Available at: https://chrissievers.com/2015/02/23/tribunal-
finds-taxpayer-was-not-carrying-on-enterprise-of-land-development/ [Accessed 25
Sep. 2019].