Taxation Law: GST, Input Tax Credit, Capital Gains Tax, and CGT Asset

This document discusses the entitlements of GST and the claims relating to input tax credit originating from the sale of creditable transaction. It also explains the cost base of the CGT asset and the exemptions available to the taxpayer for assets that are purchased before 20 Sept 1985.

Running head: TAXATION LAW
Taxation Law
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Table of Contents
Answer to question 1:.................................................................................................................2
Answer to question 2:.................................................................................................................4
References:.................................................................................................................................8

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Answer to question 1:
Issues:
The present case scenario is engaged with the entitlements of GST and the claims
relating to input tax credit originating from the sale of creditable transaction.
Laws:
The tax treatment associated to the land and the proceeds that are originating from the
sale of land is commonly reliant on whether it is treated as the capital asset or it is subject to
business or commercial transaction. Vacant land is observed as capital asset and it is
commonly attracting capital gains tax (Deepshikha 2018). Nevertheless, when land is taken
as commercial transaction or the part of business activity, the sales that are earned will attract
GST.
Taxable supply under “sec 9-5 GST Act”, includes that a supply is made for
consideration and the supply is made at the time of conducting the business activities or for
the continuance of the commercial activity. The law court in “Waverley Council v
Commercial of Taxation (2009)” held that consideration should have connection with the
supply and the supply should be made for consideration (Anthony 2018). As noted from the
judgement of commissioner there must be payment in connection with the supply.
The input tax credit is allowed to be availed by the registered taxpayer only if the
applicable particulars that are prescribed in the invoice rules are stated in it. The GST which
is paid under the reverse charge rules is also allowed for claim as input tax credit. The term
reverse charge denotes the circumstances when the receiver of goods and services is required
to pay the GST rather than the supplier (Bar and Bench 2017). The reverse charge rules are
implemented on the service receiver when they buy anything wholly for business purpose

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that is carried on by them in Australia. The sale of item to the taxpayer is for the payment and
the taxpayer is registered for GST or they are required for obtaining GST registration. An
individual taxpayer is liable for GST within the rules of reverse charge if the thing that is
purchased is carried out in Australia and has connections with Australia.
Application:
The indications that is gained from the City Sky Co case facts it is understood that the
company has acquired a vacant land with the intention of building apartments and selling it in
the market. The vacant land that is acquired by City Sky Co is treated as the immovable
property and also it is a capital asset. No obligations relating to GST arises on the purchase of
vacant land, rather the vacant land is falling within the purview of black credit. This implies
that that any type of goods and service that a taxpayer has received relating to the
construction of the immovable property notwithstanding of ordinary business activities or
continuance of any commercial activity, no eligibility for claiming input tax credit happens
for City Sky Co.
In the later part of the case it is also noted that City Sky Co has obtained the
developmental service of $33,000 from Maurice Blackburn being a legal advisor company.
The services of advocacy that is taken by City Sky Co from Maurice Blackburn amounts to a
reverse charge mechanism where GST liability is falling on the City Sky Co. Additionally,
the services were in course of City Sky Co business activities and also connected to Australia.
With reference to “paragraph 9-5 of the GST Act” the taxable supply of legal services is for
the consideration (Anderson 2018). Stating the situation of “Waverley Council v
Commercial of Taxation (2009)” the payments made by City Sky Co for legal services is
connected with the supply. As a result, the company will be considered eligible for claiming
input tax credit relating to the legal services.

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Conclusion:
The case here is concluded by stating that the vacant amounted to the immovable
property and no input tax credit entitlement arises in this circumstances. While the legal
services from the Maurice Blackburn will be eligible for getting input tax credit for the GST
paid inside the reverse charge mechanism.
Answer to question 2:
Sale of block of land:
Capital proceeds refers to the money which is received or about to receive under “sec
116-20 (1)”. This amounts to the market value of the other property that a taxpayer is about
to get or they are eligible to get (Richard 2015). This provision does not allows any deduction
of cost of sale arising from the sale proceed rather these cost are held as the part of cost base
or the reduced cost base. There are five elements which makes up the cost base of the CGT
asset under “sec 110-25”. These are as follows;
a. Element 1 represents the amount that is paid under “sec 110-25(2)”.
b. Element 2 signifies the incidental cost that are occurred in acquiring as well as selling
the asset under “sec 110-25 (3)”.
c. Element 3 portrays the numerous types of non-capital cost involved in the ownership
of the asset under “sec 110-25 (4)”. This includes stamp duty, loan interest, rates and
repairs that are not allowed for deduction under the general provision of “section 8-1,
ITA Act 97” (Minas, Lim and Evans 2018).
d. Element 4 comprises of the capital outgoings that the asset owners incurs in
improving the asset which is reflected in asset while making its sale under “sec 110-
25(5)”.

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e. Element 5 symbolizes the capital outgoings that a taxpayers sustains at the time of
establishing, preserving or defending their title or the rights they have on the asset
under “sec 110-25 (6)”.
The case of Emma brings up the certain cost that she had occurred prior to selling the
block of land for $1,000,000. The sum of $250,000 that is paid for acquiring the block of land
will be included in element 1 of “sec 110-25 (1)”. She further incurs stamp duty and legal
fees on the block of land. These costs are known as incidental cost under “sec 110-25 (3)”
and will be added up with cost base block of land under element 2.
While the asset was under her ownership she reported council rates, water rates,
insurance and interest on borrowings to fund the purchase of property. Under the element 3 of
the “sec 110-25 (4)” it is a non-capital ownership cost which will be added into the asset cost
base (Friend 2014). There was a legal expense occurred for settling the dispute with
neighbour over use land. The legal fees will be added into the element 5 cost base of land
under “sec 110-25 (6)” because it is capital outgoing occurred for defending the right on
land. Lastly, Emma spend 27,500 for the removal of pine trees from land. This cost is added
up in element 4 cost base of land within “sec 110.25 (5)” as capital outgoing on improving
the asset.

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Sale of shares in Rio Tinto:
There is an exemptions under “sec 104-10 (5)(a)” that are available to the taxpayer
for assets that is purchased by them before 20 sept 1985 (Emma 2018). These assets are
termed as pre-CGT assets and capital gains on the event of sale is allowed for exemptions.
Emma held 1000 shares in Rio Tinto that she purchased for $3.5 in 1982 but sold for 50.85 in
2015. Consequently capital gains that is earned is exempted under “sec 104-10 (5)(a)” as
shares are pre-CGT assets.

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Sale of stamps:
Collectables definition is given in “s.108-10(2)” which consist of artwork, antiques
etc. for private usage as well as enjoyment of taxpayers (Armstrong 2016). Referring
“sec.108-10(4)” capital loss suffered on selling the collectables is allowed for offset from
another gains from collectables. Emma sells stamps in 2015 for $50,000 which satisfies the
definition of collectables in “s.108-10(2)”. The stamps were originally purchased for $60,000
in 2015. Therefore, within “sec.108-10(4)” capital loss suffered on selling the stamps should
carried forward by Emma to next year as no gains were reported from collectables.
Sale of grand piano:
Denoting the definition of personal use asset in “sec 108-20 (2)” it majorly involves
furniture, household items, motor vehicles that a taxpayer keeps for their own use and

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enjoyment. While “sec.108-10 (4)” requires the taxpayer to simply disregard if any capital
loss is suffered by them from personal use asset (Walrut 2013). In 2015 Emma sold the grand
piano for $30,000 which she purchased for $80,000 in 2000. The grand piano is a personal
use asset within “sec 108-20 (2)”. Based on the requirement of “sec.108-10 (4)” the sale of
piano yielded capital loss and this should be disregarded by Emma.

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References:
Anderson, H., 2018. Illegal Phoenix Activity: Practical Ways to Improve the Recovery of
Tax. Sydney Law Review, 40(2), p.255.
Anthony, P, 2018. KPMG Survey On VAT/GST And Cross-Border Services. Mondaq
Business Briefing, pp.Mondaq Business Briefing, Feb 26, 2018.
Armstrong, M., 2016. CGT withholding on real estate transactions in Australia. Mondaq
Business Briefing, pp.Mondaq Business Briefing, March 11, 2016.
Bar and Bench, 2017. GST - 'tryst with destiny' for our generation? Bar & Bench, pp.Bar &
Bench, July 1, 2017.
Deepshikha, S, 2018. GST composition scheme may come under reverse charge mechanism
to curb evasion. The Economic Times, pp.The Economic Times, Jan 22, 2018.
Emma, L, 2018. CGT: changes to threshold and rate for foreign resident capital gains
withholding payments. Mondaq Business Briefing, pp.Mondaq Business Briefing, May 2,
2018.
Friend, R, 2014. The CGT small business concessions: issues, anomalies and opportunities.
(capital gains tax) (Australia). Australian Tax Review, 40(2), pp.108–137.
Minas, J, Lim, Y and Evans, Chris, 2018. The impact of tax rate changes on capital gains
realisations: Evidence from Australia. Australian Tax Forum, 33(4), pp.635–666.
Richard, R, 2015. Goods and service tax and loyalty programs. Keeping Good Companies,
64(7), p.428.
Walrut, B, 2013. Tax files: Absolute entitlement and capital gains tax. Bulletin (Law Society
of South Australia), pp.36–37.

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