Taxation Law: City Sky Co and Emma Case Study Analysis

This article provides an analysis of City Sky Co and Emma case studies in relation to taxation law. It includes evaluating the Capital gain tax (CGT) of Emma’s by analysing the specific laws laid down by the Australian Tax Organisation (ATO).

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

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Table of Contents
Question 1: City Sky Co case study.............................................................................2
Answer to Question 2: Emma Case Study...................................................................3
Evaluating the Capital gain tax (CGT) of Emma’s by analysing the specific laws laid
down by the Australian Tax Organisation (ATO):.........................................................3
References:..................................................................................................................6

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Question 1: City Sky Co case study
The City Sky Co case is evaluated for understanding the level of CGT credit
input that the organisation could use from their operations. In addition, relevant case
analysis has been conducted for detecting the GST credit input that can be claimed
by City Sky Co for the transactions conducting during the financial year. The case
study analysis of the organisation has relatively indicated that the company engages
in buying relevant plots and developing different departments for their sales revenue.
The further analysis of the case study has specified that the company has bought a
plot of land, which they would use for the development of 15 apartments (Ato.gov.au
2019). In addition, the organisation has also utilised services of a lawyer for the
development purposes, which cost around $33,000. Thus, the company directly aims
to utilise GST input credit to get all the rebate that has been paid by the organisation
for claiming the GST on services, purchase of land and construction cost.
GST input credit is one of the repeat that is allowed by the Australian tax
organisation to be companies which deal in goods and services. Therefore, any kind
of GST that has been paid by the organisations is relatively repaid to them, as tax
rebate, which can be detected from their overall tax payment for the financial year
(Ato.gov.au 2019). The companies have to either maintain adequate GST paid and
GST claims balances to determine the overall GST balance, that is due or need to
be paid by the government to the organisation. As per the GST law, it could be
identified that tax credit has relevant claims that is relatively challenged in a court of
law by many organisations. Some of the claims for GST credit are depicted as
follows.
 Bryxl Pty Ltd as Trustee for the Kypu Trust and Commissioner of Taxation [2015]
AATA 89 (Austlii.edu.au 2019)
 Rod Mathieson Truck Hire Pty Ltd as trustee for the Mathieson Family Trust and
Commissioner of Taxation [2013] AATA 496 (Austlii.edu.au 2019)
 ECC Southbank Pty Ltd as trustee for Nest Southbank Unit Trust v
Commissioner of Taxation [2012] FCA 795 (Austlii.edu.au 2019)
 Wynnum Holdings No 1 Pty Ltd and Commissioner of Taxation [2011] AATA 296
(Austlii.edu.au 2019)
The above cases that was highlighted regarding the GST credit claims has
been dismissed by the commission of taxation, as it did not cover the GST law
relevant GST claims could be credited to the organisation. The above companies are
relatively charged the tax commissioner with the claim for providing the GST rebate
on the overall GST paid for the development expenses that was conducted on a plot
of land (Ato.gov.au 2019). The cases mainly highlighted the overall loopholes that
was being evaluated by the organisations to get there is GST clearance for the
development of a particular land. However, the GST commissioner directly indicated
that as per the taxation law the overall claims of the GST credit is nullified, as the
organisation will not be credited with any kind of GST that has been paid on a
developing or developed land.
The case study has mainly highlighted that the organisation will not be
credited with any kind of GST rebate for the purchase of land and the development
cost of the 15 apartments. The case analysis directly indicates that the overall
purchase of land and expense on the development is under the GST black credit
clause, which directly indicates that only goods and services can be claimed as GST
input credit tax where land and the development expense is not considered as GST

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claimed expenses (Ato.gov.au 2019). However, the overall payment for the services
of the lawyer can be claimed under the GST input credit tax for the overall GST
payment that has been conducted by the organisation for the services.
Answer to Question 2: Emma Case Study
Evaluating the Capital gain tax (CGT) of Emma’s by analysing the specific laws
laid down by the Australian Tax Organisation (ATO):
Capital gain computation of Emma for the Year 2015
Particulars Amount Amount
Shares
Value of Share@50.85 during 2015 $50,850.0
Brokerage expenses on shares -$1,017.0
Value of Share@3.50 during 1982 -$3,500.0
Long term capital gains obtained from Shares $0.0
Land
Land value at 2015
$1,000,000.
0
Total selling and improvement expense -$57,500.0
Purchase and other expenses -$265,000.0
Long term Capital gains obtained from Land $677,500.0
Stamp Collection
Value of Stamp Collection at 2015 $50,000.0
Expenses -$5,000.0
Purchase value at 2015 -$60,000.0
Total loss from Stamp Collection $0.0
Piano
Value of Piano in 2015 $30,000.0
Value of Piano in 2000 -$80,000.0
Total loss from piano sale -$50,000.0
Total taxable CGT of Emma $627,500.0
Capital gain tax rate in 2015 20.0%
Total tax that needs to be paid by Emma during 2015 $125,500.0
Capital gains tax was initiated during 20 September 1985, which directly
allowed the individuals and organisation to determine the level of taxable income for
the CGT. The ATO has mainly described many laws regarding the CGT
consequences and the assumptions that need to be taken into consideration while
determining whether the transaction of the capital asset is under the CGT law.
Emma’s transaction during 2015 is mainly analysed for determine the overall capital
gains that have been made during the financial year of 2015 (Ato.gov.au 2019). The
above calculations have mainly stated about the CGT consequence of Emma for the

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financial year of 2015. The rulings of ATO are depicted as follows, which has been
used for detecting and analysing each transaction that have been made by Emma
during 2015.
 Section 102-5 of the Act, which states about the CGT asset and indicates that
‘any kind of property or any kind of legal or equitable right that is not property’
 Subsection 104-10(5) of the ITAA 1997 indicates about the capital loss or gains
that is disregarded if the acquisition is conducted before 20th September 1985.
 Section 104-10 of the ITAA 1997 states indicates about the non-constitution for
the disposal of land under CGT (Ato.gov.au 2019).
 Taxation Determination TD 97/3 states about the CGT provisions for dividing the
original land into more parcel with new registration titles.
 Section 6-5 of the ITAA 1997 states about the general principle that is used for
the sale of land conducted by businesses or a part of business, where the
proceeds are treated as ordinary income (Ato.gov.au 2019).
 Section 102-20 of the Act states about the overall applications of CGT, which is
only conducted as assets that occurred after the CGT event.
The transaction of shares that was conducted by Emma during 2015 has
mainly allowed her to generate an income of $46,333. Emma mainly purchases a
share of Rio Tinto for $3.5 during 1982, while sold the shares for 50.85 in 2015.
Emma faced an increment in the share value of Rio Tinto for $47.35. Moreover, the
brokerage expenses of $1,017 have been deducted from the total gains for
determining the actual income of Emma after selling the shares. However, the asset
sale is not considered under the CGT act, as it violates the fundamental rule. The
CGT laws, Section 104-10 of the ITAA 1997, Subsection 104-10(5) of the ITAA
1997, Section 102-20 and Section 6-5 of the ITAA 1997 has been violated, which
directly indicates that the sale of shares is not considered under the CGT law, as the
asset was purchased before the CGT event. The shares were purchased in 1982,
which is before the CGT event and therefore, the gains from the asset will not be
considered under the CGT consequence of Emma for 2015 (Ato.gov.au 2019). Thus,
it could be understood that the overall gains of $46,333 that was made by Emma
after selling shares is not taxable under the CGT law.
Emma also conducted a transaction related to the land sale during 2015,
which amount to $1,000,000. The transaction of the land has been conducted by
analysing the overall steps and activities that was taken by Emma on the property for
the duration of 1991 to 2015. The transaction analysis directly states that the capital
assets is taxed under the CGT ruling, as the proper was bought after the CGT event
of 1985. Therefore, the sale of land is taxed under the CGT event, as it fulfils the
requirements of Section 104-10 of the ITAA 1997, Subsection 104-10(5) of the ITAA
1997, Section 102-20 and Section 6-5 of the ITAA 1997. However, the Taxation
Determination TD 97/3 has not been conducted as the land was not subdivided and
sold (Ato.gov.au 2019). The calculations and the derivations of the benefits that have
been obtained by the sale of the land is depicted in the above table where all the
relevant expenses have been deducted for deriving the total taxable CGT value at
$677,500. The deductions such as purchase price, stamp duty, and legal fees during
the purchase consideration is deducted from the gains obtained from the sale of
land. Furthermore, the dispute expense, improvement expense and selling expense
is also deducted from the overall sale value to derive at the CGT taxable values.
The further analysis of the transactions made by Emma mainly indicates
about the sale of Piano, which has been conducted during 2015 for $30,000. The
transaction is considered to be under the CGT law, as it fulfils the requirement of

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having an ownership of more than 12 months. Moreover, the calculation also
indicates that the sale of Piano was conducted on a loss of $50,000, as the total
purchase value of the asset was at $80,000. In addition, the capital asset is
considered to be under the CGT law, as it fulfils the requirements of Section 104-10
of the ITAA 1997, Subsection 104-10(5) of the ITAA 1997, Section 102-20 and
Section 6-5 of the ITAA 1997 (Ato.gov.au 2019). The asset was held for more than
12months, and it was purchased after the GST event, which allows the transaction to
be considered under the CGT law. Moreover, the CGT law further states that any
losses incurring from the capital asset sales can be detected from the total capital
gains that was generated during 2015. Therefore, it could be understood that the
Piano transaction is considered under the capital gains tax calculations and is listed
in the computations of the Emma’s capital asset transactions during 2015.
One of the asset transactions that was conducted by Emma during 2015 was
the sale of her Stamp collection, which was valued at $50,000 at the auction for sale.
However, the purchase price of the stamp collection was mainly at the levels of
$60,000. Nevertheless, the overall selling and buying year of the Stamp collection
assets was same, which indicates that the transaction is not considered under the
CGT law, as it lacked to fulfil relevant requirements of CGT law. In addition, the
analysis has mainly stated that the overall transaction was invalid, as it did not fulfil
the requirements of Section 102-5 of the Act, Section 6-5 of the ITAA 1997 and
Section 102-20 of the Act (Ato.gov.au 2019). Thus, the transaction of Emma for the
Stamp Collection is not taken into consideration, while making relevant calculations
for the capital gains tax for Emma, as the actions is null and void under the CGT law.
The total capital gains tax calculations of Emma have mainly stated about the
overall taxable income that has been derived from the sale of the assets. The case
analysis and calculations have indicated that the transactions related to shares and
Stamp collection is mainly avoided under the capital gains tax. Further analysis of
the calculations has indicated that the overall gains from the land sale are deduced
from the losses generated by the Piano sale. This has mainly amounted the total
taxable CGT for Emma to $627,500. Thus, the 20% tax rate of CGT for 2015 is
mainly used for deriving the total tax amount of $125,500 from the taxable income
generated from the transactions. The relevant law that is depicted by the ATO for
addressing the transactions of Emma that was conducted during 2015 was used for
deriving the actual GST tax amount (Ato.gov.au 2019).

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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 18 Sep. 2019].
Ato.gov.au. 2019. Capital gains tax. [online] Available at:
https://www.ato.gov.au/General/Capital-gains-tax/ [Accessed 18 Sep. 2019].
Ato.gov.au. 2019. Claiming GST credits. [online] Available at:
https://www.ato.gov.au/Business/GST/Claiming-GST-credits/ [Accessed 18 Sep.
2019].
Ato.gov.au. 2019. When to charge GST (and when not to). [online] Available at:
https://www.ato.gov.au/Business/GST/When-to-charge-GST-%28and-when-not-to
%29/ [Accessed 18 Sep. 2019].
Austlii.edu.au. 2019. [online] Available at:
http://www8.austlii.edu.au/cgi-bin/viewdoc/au/cases/cth/AATA/2015/89.html
[Accessed 18 Sep. 2019].
Austlii.edu.au. 2019. [online] Available at:
http://www8.austlii.edu.au/cgi-bin/viewdoc/au/cases/cth/AATA/2013/496.html
[Accessed 18 Sep. 2019].
Austlii.edu.au. 2019. [online] Available at:
http://www8.austlii.edu.au/cgi-bin/viewdoc/au/cases/cth/FCA/2012/795.html
[Accessed 18 Sep. 2019].
Austlii.edu.au. 2019. [online] Available at:
http://www8.austlii.edu.au/cgi-bin/viewdoc/au/cases/cth/AATA/2011/296.html
[Accessed 18 Sep. 2019].