Taxation and Accounting Principles

This project report explores various aspects of taxation, including GST, CGT, and stamp duty. It explains how these taxes are calculated and their implications on individual and business income. The report also delves into the accounting principles for assets, such as land, shares, and antiques, and discusses capital gains and losses. By examining these concepts, the report aims to provide a comprehensive understanding of taxation and accounting principles.

Taxation law

Table of Contents
INTRODUCTION...........................................................................................................................1
Question 1........................................................................................................................................1
Question 2........................................................................................................................................4
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................8

INTRODUCTION
Australian tax law is created by statute and this becomes one of the primary
source lies in legislation. Legislations are the act of parliament that governs all the
country to provided basis of implication of taxes. Legislations in Australia are interpret
by decisions of various cases provided by courts and tribunals and they become second
source for tax law in the country. The Australian Tax Office is responsible for ensuring
individuals, companies, trust and other entities lodge their returns appropriately. In this
project report GST consequences of two cases will be discussed with relevant taxation
law. Together with this material facts regarding Capital Gain Tax with all the material
facts will be elaborated in this project report (Avi-Yonah, 2012).
Question 1
Identification of material facts:
In the present case The City Sky Company made an investment in a vacant land
for business purpose. The company plans to build 15 apartments on that land and sell
them. To initiate all the activities in legal manner, services of a local lawyer are
consulted by the company that cost $33000. The company was registered under GST
and lawyer was a sole trader with annual revenue of $300000.
Application of Tax legislations relating to GST:
As per taxation law in Australia registration under GST Act 1999 as per section 17(5)
(Goods and Service Tax) is required within 21 days. When GST turnover of businesses
or enterprises exceeding the turnover (gross income minus GST) is of $75000 or more.
In the present case scenario City Sky Co is a property investment and development
company (Goods and Service Tax, 2019). Vendors are required to registered for GST
purpose when they fall under any of the following situations-
 the turnover from any of the property transactions and other transactions are
more than the GST registration threshold
 activities are registered as enterprise for buying a land with an intention of
developing it for immediate resale at certain amount of profit.
Application of tax law to material facts:
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The City Sky Co is already registered for GST purpose that reflects that company
has already crossed threshold limit required for registration under GST. An Australian
Business Number is required by City Sky Company to get registered under GST in
Australia. When an organisation or individual who is required to get registered under
GST and do not get registered. This leads to imposition of amount of GST on the sales
made since the date business become liable to pay GST. This amount of GST will be
paid even the amount of GST is not charged by seller from buyers (Jördens, 2012).
There are certain types of property whose purchase and sale will not be included
in calculating turnover for registration. Such as-
 the sale of a residence that is old one but not a new premise to reside
 sales are made and no payments is received unless it is given for some
settlement
 sales made of some private property that do not belongs to enterprise through
which business operations are performed
 when residential home is given on rent and income earned as rent from that
property
City Sky Company is registered under GST and possess an Australian Business
Number that provides business following benefits as per taxation law-
 amount of GST will be included in the price charged by City Sky company in
taxable supply of goods and services in certain property transactions
 claim of GST credit for the amount of GST that is included in goods and services
purchased for providing property development by City Sky company. The cost of
developing property includes architect's fees, consultant’s fees and construction
fees. All these cost must be incurred for the purpose of making taxable supplies
in the future.
Input tax credit means that amount of tax that is paid in the process of
manufacturing goods or providing services is reduced at the time of output tax
payments. The input tax credit mechanism allows GST registered businesses to receive
refunds on GST paid for the purpose of such inputs this helps in preventing the
cascading effects of tax on general public (Kopczuk, 2013). When amount of tax is
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imposed at each level of sales made and no reduction is provided on the tax that is
already paid on initial stage. This act will create a negative impact on ultimate
consumers as at last tax burden is imposed on them by charging high prices for the
goods and services offered.
There are certain restrictions to claim GST credit which are as follows-
 businesses that are not registered under GST
 when purchase of goods do not include GST price
 amount of wages paid to employees as wages are GST free
 no valid invoice is present for payment made in relation to GST
 to the extent purchase are made for private or domestic use
 real state property is purchased under margin scheme
 time limit for claiming GST credit for the purchase has ended.
From the above implication provisions of GST and certain restrictions for
enterprises to claim credit. It is seen that City Sky company is registered and taking
services of lawyer for its business only. This entitles City Sky organisation to claim
amount of $3000 paid as GST in the process of development of property as credit
(Lang, 2014). This credit will be used at the time when any liability of GST will be
created when sales of the property developed will be made in future.
Detailed and accurate conclusion:
The City Sky organisation for dealing the legal issues appointed Maurice
Blackburn, to guide them in property development issues. Amount of $33000 is paid to
Maurice Blackburn for his services. Business run by Maurice is a sole trader business
with revenue of $300000 per year. As the amount of revenue earned from business
operations is much more than the minimum amount required for registration under GST.
This creates legal obligation on business of Maurice Blackburn to be registered under
GST provisions in Australia. When business of Maurice Blackburn will be registered
under GST provisions then amount charged from The City Sky company for lawyer
services will be included with GST. In Australia rate of GST charged on most of the
goods and services is 10% except some (Kemmeren, 2014).
The amount of $33000 is including GST amount that means it is 110% of the
base amount. Calculation of the amount of only GST is as follows-
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33000*100/110 = $30000
Amount of GST= $33000 - $30000 = $3000
This $3000 will be used as GST credit for City Sky company and can be used to
settle the tax liability under GST.
Question 2
Identification of material facts:
In the given case Emma is an individual undertaking various capital transactions
in an accounting year. All the assets used in the transactions are different and can be or
cannot be termed as a capital asset as per Capital Cain Taxation Act.
Identification of the relevant taxation law:
As per Income Tax Assessment Act, 1997 capital assets are termed as some
significant pieces of property such as house, cars, properties investments, stocks,
bonds and collectibles or art. When capital assets are considered in terms of
businesses these are those tangible assets having a useful longer life more than a year
and are not intended for sales in the regular course of business. Taxation in relation to
sale and purchase of capital assets are governed as per capital gain taxation. When
any capital asset is sold it gives rise to capital gain or capital loss. Capital gain or loss is
the difference between cost of acquisition of the asset and the amount received at the
time of disposal of the asset. Tax paid on amount of capital gain is part of income tax
and it is not a separate tax (Mason, 2015).
Application of tax law and material facts:
When capital gain earned in a financial year will be added to other incomes
earned in that financial year for taxation purpose. Amount of capital loss can be settled
against income earned through capital gain only and cannot be reduced for any other
income. Income earned on asset held for less than one year then it will be taxable as
normal income. Gain on some type of sales such as real estate and collectibles may be
taxed at different rates.
 To calculate the amount of purchase of an asset purchase price plus any
commission paid and legal expenses incurred on the asset will be added to
purchase price.
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 Sales price will be determined by sales amount deducted with any commission
paid for sales.
 The amount spends in purchase of a capital asset is lees then amount earned as
sales price, this leads to generation of capital gain. when sales price is less then
purchase amount then it will be termed as capital loss.
As per Australian taxation law rate of tax applied on Long term capital gain is as
follows-
 0% when income earned is below $38700 and income tax return is filled as
single and if married person fills return then income must be below $77400
(Radu, 2012).
 15% rate of tax will be applicable on the amount earned as capital gain when
income earned is between $38701 and $500000 for single. When married person
fills return jointly then limit varies from $77401 and $600000.
 20% rate of tax will be applicable if the income earned is more than $500000 for
single and $600000 when married filling the return together.
Detailed and accurate Conclusion:
Emma is an individual filling provided with some transactions that may results in
capital gain or loss that are represented as follows-
Calculation of Capital gain for Emma for the year ending 2019
Particulars Amount ($) Total Amount ($)
Sale of land 1000000
Less: Advertising and legal fees for sale 25000
Less: Purchase price of the asset 250000
Less: Stamp duty at the time of purchase 5000
Less: Legal fees at the time of purchase 10000
Less: Interest on loan taken on purchase of
land 32000
Less: Legal fees for dispute 5000
Capital gain through sale of land 673000
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Sale of shares (58.85*1000) 58850
Less: Brokerage paid @2% 1177
Less: Purchase price of shares (3.5*1000) 3500
Net capital gain through shares 54173
Sale of Stamp collection 50000
Less: Purchase of stamp 60000
Less: Auction fess 5000
Capital loss through sale of stamp -15000
Sale of grand piano 30000
Less: Purchase of piano 80000
Capital loss through sale of piano -50000
Net capital loss/gain 662173
Calculation of tax on capital gain= 662173*20% = $ 132434.6
Individuals and small businesses can generally discount a capital gain by 50% if
they hold the asset for more than one year (Schön, 2012). So the amount of tax payable
on capital gain by Emma will be $132434.6* 50% = $ 66217.3
Notes:
 When expense related to commission and legal expenses made at the time of
sale of a capital asset then such amount will be deducted from the sales price.
 Expenses related to stamp duty and legal fees paid at the time of purchase of an
asset will be included in the cost of that asset.
 When a loan is taken for the purchase of an asset then amount of interest will be
paid is considered as cost of that asset and will be added in the cost.
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 Expenses that are recurring in nature incurred on the land such as water and
insurance will not form part of the total cost of that asset.
 When any legal fees are paid to resolve the dispute of the related asset then it
will form part of cost of that asset and amount will be added after indexation.
 Calculation of capital gain on shares will be done by multiplying the amount of
sales price to number of shares and amount of brokerage for sale will be
deducted from sales price (Computing Capital Gain, 2019).
 Stamps will be assumed as precious and considered as capital goods and profit
or loss on sale of which will be treated as capital gain or loss.
 Piano will be assumed to be an antique asset to Emma and sales of which will
bring capital gain or loss as per Australian accounting standard 138 in
subheading 8.
CONCLUSION
From the above project report it has been concluded that taxation plays important
role in guiding individuals and business organisations to file their returns specifying
income earned in the year with amount of tax to be paid. Taxation is segregated into
various headings that helps in guiding and calculating amount of tax generated from
different types of income such as GST, CGT etc.
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REFERENCES
Books and Journals
Avi-Yonah, R. S., 2012. Slicing the shadow: A proposal for updating US international
taxation.
Jördens, A., 2012. Government, taxation, and law. In The Oxford Handbook of Roman
Egypt.
Kemmeren, E. C., 2014. Where is EU Law in the OECD BEPS Discussion?. EC Tax
Review. 23(4). pp.190-193.
Kopczuk, W., 2013. Taxation of intergenerational transfers and wealth. In Handbook of
public economics (Vol. 5, pp. 329-390). Elsevier.
Lang, M., 2014. Introduction to the law of double taxation conventions. Linde Verlag
GmbH.
Mason, R., 2015. Citizenship Taxation. S. Cal. L. Rev. 89. p.169.
Radu, M. E., 2012. International double taxation. Procedia-Social and Behavioral
Sciences. 62. pp.403-407.
Schön, W., 2012. Transfer Pricing–Business Incentives, International Taxation and
Corporate Law. In Fundamentals of International Transfer Pricing in Law and
Economics (pp. 47-67). Springer, Berlin, Heidelberg.
Online
Goods and Service Tax. 2019. [Online]. Available through:
<https://www.ato.gov.au/Business/GST/>
Computing Capital Gain. 2019. [Online]. Available Through:
<https://www.ato.gov.au/General/Property/Land---vacant-land-and-
subdividing/Vacant-land/#Land_as_a_capital_asset>
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