Taxation Theory, Practice and Law

Running head: TAXATION THEORY, PRACTICE AND LAW
Taxation Theory, Practice and Law
Name of the Student
Name of the University
Author Note

TAXATION THEORY, PRACTICE AND LAW1
Table of Contents
Answer to Question 1.....................................................................................................2
Answer to Question 2.....................................................................................................3
References.....................................................................................................................6

TAXATION THEORY, PRACTICE AND LAW2
Answer to Question 1
Issue
In the given situation, City Sky Co is a company involved in property investment
and development. The company purchased a vacant piece of land recently and is
planning to build 15 apartments in that land which it plans to sell on a later date. They
hired a lawyer named Maurice Blackburn to provide them with legal advice on
developing a property. This cost them $33000. The business run by Maurice Blackburn
is that as a sole proprietor and he has an annual turnover of $300000. It is being
assumed that City Sky Co is registered for GST purposes. Advice has to be given to
them about the GST input tax credit available to them as per the regulations of the
Australian Taxation Office (ATO).
Law
According to the guidelines of the ATO, input tax credit is also known as the GST
credit. This credit is a set-off against the amount of GST that a company has to pay in a
given year for the goods and services procured and used by it in a given financial year
(Palil et al. 2013). However, it is to be noted that the tax credit is only available to
companies that are registered for GST purposes in a given year. The rules of ATO also
suggest that a business is covered under GST if its annual GST turnover is $75000 and
above. Other conditions needed to obtain the benefits of tax credit are as follows:
A tax invoice also needs to be maintained for purchases that cost more than $82.50.
However, this input tax credit is not available on items purchased to make input-tax
sales. Input-taxed sales are the sales in which GST is included in the inputs required for
a product but ultimately, the product is not being sold and being used over a period of
time (Bain 2015). A company involved in letting out residential properties on rent cannot
claim input tax credit on the expenses incurred on repairs and maintenance;
The entity that is providing services to the company should also be registered under the
GST act or is required to be registered under the act;
In case of a company dealing in letting out residential properties, the list of properties is
inclusive of houses, units and apartments and is not just limited to them. It, however,
does not include a vacant land. However, GST need not be paid in case of the resale of
a property on which GST has already been paid;
Hence, ‘new residential premises’ includes properties that were not sold previously as
residential premises and have been created through substantial renovations and in case
of replacing a demolished building, they are being built on the same land and
The party which is providing the goods and services to the business is itself registered
for GST purposes or is required to the same. This is to improve the implementation of
GST with ease (Lang and Lejeune 2015). In case if the service provider is not liable to
pay taxes under the GST Act, the company cannot claim input tax credit against the
services procured by it.
Application
In the given situation, City Sky Co is providing its services as a property
investment and development company. It has also registered itself for GST purposes.
As a part of its business plan, it is planning to construct 15 apartments and sell them at
a future date. Hence, it can be suggested that it is involved in dealing under the
residential properties as the apartments that are being sold by it are new and have not