Tax Treatment for Capital Assets: Sale of Land, Shares, Stamp Collection and Piano

Ques 1:
Facts of the case:
The city sky co., which has property investment and development as its main
business activity, has availed the service of a lawyer for a fee of $ 33,000.
Services were availed in relation to a proposed purchase of a piece of land,
which the company intends to use, for the purpose of construction of residential
premises.
Lawyer operates as a sole trader and has an annual turnover of $ 300,000.
Law and statute:
Applicability of GST on the provider of taxable supply depends on the nature of
entity, if the provider of taxable supply is operating in an entity, it is required to
register in GST, and charge GST on taxable supplies, irrespective of the amount
of turnover, whereas, for a sole trader doing business individually, is required to
register in GST, when the turnover thresholds given in section 23-15 of Goods
and Services Tax Act 1999, is crossed, the turnover thresholds given in the said
section are:
 $ 50,000 or
 The amount decided by the regulations, whichever is higher
(Ref: Goods and Services Tax Act 1999. Section 23(15), retrieved from
https://www.legislation.gov.au/Details/C2014C00008, viewed on 25 September,
2019).
Further, Australian Tax Office has increased the threshold for applicability of GST
on sole traders to $ 75,000. This implies that a sole trader is required to register
in GST and charge GST on the taxable supplies, once his turnover exceeds $
75,000 (Ref: Business.gov.au (n.d.). Register for Goods and Services Tax (GST).
Retrieved from
https://www.business.gov.au/registrations/register-for-taxes/register-for-goods-
and-services-tax-gst. Viewed on 25 September 2019)
.
From the perspective of the receiver of taxable supply, GST paid on the taxable
supply availed for the purpose of business of the entity, is allowed to be claimed
as a credit from the GST payable on the output taxable supply, this effectively
reduces the net cost of the taxable supply for the service receiver. The amount
of Input Tax credit that is to be claimed by the entity, will be shown as credit in
the activity statement for the tax period when the settlement of tax for the
period will be made.
In relation to the real estate developers, there are certain exceptions for claiming
the input tax credit, implying that GST paid on these assets wouldn’t be allowed
to be claimed as a credit. The exceptions spelled out in the law, is as under:
 GST on deposit made under a standard land contract
 When the land developer opts for margin scheme
 Property has been purchased for personal use.

 In cases where the received of taxable supply is not registered for GST, when
the purchase was made.
As per the provisions of section 23-15 of Goods and Services Tax Act 1999, a
sole trader is required to register in GST, if his turnover threshold limit for the
year crosses:
 $ 50,000 or
 The amount decided by the regulations, whichever is higher
(As per the regulations of Australian Tax Office, threshold requirement for
registration under GST regime for a sole trader has been increased to $ 75,000,
i.e. any person having a turnover of more than $ 75,000 annually, is required to
register under GST). These provisions are not applicable to any entity other than
sole trader, for example, an enterprise needs to get register under GST,
regardless of the turnover.
GST provisions also provides the benefit of Input Tax credit, which implies that
the amount of GST that has been paid while making payments for the expenses
incurred, can be set off from the output tax liability of the company. Such
amount of Input Tax credit will be shown as credit in the activity statement for
the tax period when the settlement of tax for the period would be made.
However, there are certain exceptions to this rule, which means that, some
expenses for which GST has been paid, will not be allowed to be taken as Input
tax credit. They are as follows:
 When the amount has been paid for the deposit under a standard land
contract
 Purchase of Property or land under margin scheme
 purchase of property as a private sale
 purchase the property as part of a GST-free supply of a going concern or GST-
free farmland
 when the entity is not registered (or not required to be registered) for GST at
the time of purchase
 have purchased residential premises, such as a room, unit or an apartment
which you lease to a business that then supplies it as hotel accommodation
with other facilities.
Presently the GST rate in Australia is 10% of the amount of taxable supply. In
case of entities involved in property development, taxable supply means the
residential unit sold by the entity, whereas, given the amount involved in terms
of value of residential unit, developers of residential units is given an option, to
pay GST only on the Margin amount on the sale consideration of the flat, this
scheme is known as “Margin scheme”.
In order to avail the Margin scheme, the developer is to fulfil certain conditions,
the conditions have been defined in a way, that it is ensured that deduction is
claimed by the developer of residential houses and not the reseller of the
houses.
Application of laws to the facts of case: -

In the present scenario, The City Sky Co has availed the services of a local
lawyer, who works as a sole trader, in relation to purchasing a piece of land on
which the company intends to carry out the development of residential units. The
company paid $33,000 to the lawyer for his service.
Since the lawyer is operating individually as sole trader, he would be required to
register in GST, in case his turnover crosses the specified limit, i.e. $ 75,000 in a
year. It is given that, his turnover for a year is $ 300,000 and hence, he is
required to register in GST and thus, $ 33,000 charged by him, would include $
3,000 for GST. (33,000*10/11).
Conclusion:
The amount that has been paid on account of GST on the taxable supply
provided by the lawyer, is in relation to the business activity of the entity. Thus,
the city sky co. can take the credit of GST amount that has been paid to the
lawyer, the eligibility of credit could be affected by the output tax treatment, the
company has opted for.
Since the company is engaged in the business of constructing residential
premises, it is also entitled to opt for margin scheme, which implies that the GST
would be required to be charged on ly on the margin earned by the entity, if the
entity decides to opt for margin scheme, it wouldn’t be entitled to input tax
credit on the input taxable supplies availed by the company.
Question: 2
Facts of the case:
The present case involves providing the tax treatment for four transactions
pertaining to capital assets, such transactions are:
i. Sale of block of land for $ 1,000,000:
A block of land, which was purchased in the past for $ 250,000 has now
been sold for @ 1,000,000. During the purchase of land, there were
other expenses incurred, such as stamp duty of $ 5,000 and legal fees
of $ 10,000.
During the period of holding of the said land, following amounts have
also been incurred by Emma:
a. Interest on loan : $ 32,000
b. Council rates and insurance : $ 22,000
c. Legal fees for resolving dispute: $ 5,000
d. Removal of pine trees: $ 27,500
And during the sale of the land, Emma incurred $ 25,000on advertising,
legal fees and agent’s fees, etc.