Taxation Theory, Practice, and Law: Input Tax Credit Mechanism and Capital Gains Tax

This article discusses the input tax credit mechanism and capital gains tax in the context of taxation theory, practice, and law. It explains the conditions for claiming input tax credit and how capital gains tax is calculated. It also covers the taxation of personal use assets and collectibles. The article provides examples of how capital gains tax is calculated for different types of assets, such as land, shares, collectibles, and personal use assets.

Running head: QUESTIONS 0
TAXATION THEORY, PRACTICE, AND LAW
SEPTEMBER 21, 2019
STUDENT DETAILS:

QUESTIONS 1
Question 1:
For avoiding the ‘tax on tax’, the input Tax Credit mechanism was integrated in Goods and
Service tax system. For claiming the input tax credit, it is required to fulfil all the conditions
stated in the section 16 of the Central Goods and Service tax Act (Wilkins, 2015). The supplier
of services or goods requires following conditions
1. At first, it is required to be registered in the Goods and law.
2. Afterwards, it is required to have tax invoice or debit note provided by a dealer of the
input services as well as input.
3. It is also required to get goods, services, or both.
4. Moreover, the inputs supplier should have paid the government good and service tax
charged in relation to this supply.
5. It is also required to file the return under section 39.
6. In case of receiving the goods in the instalment or in lot, one may claim input tax credit
while last lot is attained.
7. In case of claiming, the depreciation on tax portion of a cost of the capital good, then it is
not possible to avail the ITC on tax components.
8. It is also not required to be entitled to have input tax credit, when it is not claimed in a
specified period (Dixon and Nassios, 2016).

QUESTIONS 2
In the given case study, City Sky Co is a registered corporation. In this way, City Sky Co would
be eligible to avail the input tax credit where it is applicable. The corporation has bought the
vacant land’s part south of Brisbane as well as this is planning to create fifteen apartments for
selling.The land comes under the immovable property. In this way, the land is neither service nor
good. In this way, the land is not covered in the ambit of the Goods and Service tax. The
unoccupied land is also known as capital asset. Because it covers under capital asset, it is eligible
for capital gains tax. Henceforth, Good and Service tax cannot be applicable on the vacant land.
Furthermore, City Sky Co is planning to build the apartment on vacant land, this would under the
provisions of black credit (the services and goods taken by the taxable individual to construct the
immovable property whether on the own account or in a course or the persistence of the business
is not eligible for theITC). Henceforth, the input tax credit is not entitled for this (Huizinga,
Voget and Wagner, 2018).
In addition, the company has undertaken the development services of 33,000 dollars from the
lawyer of local area. These services undertaken from an advocate come under reverse charge
method. A reverse charge is the mechanism wherever the recipient of the services and goods is
accountable for paying the GST. Within reverse charge mechanism, a supplier of the services
and goods is not liable to pay the Goods and Services tax. As per reverse charge mechanism, the
GST is required to pay by receiver of products and services. Therefore, if anyone is the recipient
of the services as well as goods in the reverse charge, then it is required to remit just the payment
of the purchase to the supplier. As for Goods and Service Tax, in the capacity of recipient, it is
required to the deposit tax in a direct manner with the relevant tax authority. The mechanism of
tax collection is aimed at decreasing the evasion of tax, mainly from the disorganised sector.
Further, if a person is the recipient and isaccountable for paying the tax on reverse charge

QUESTIONS 3
mechanism, in that case one can claim ITC for paid tax. On other hand, this may be claimed only
if these services and goods are or would be utilised for the business. The people who are required
to make the payment of tax under reverse charge mechanism, has to compulsorily register under
the Goods and Service tax. Therefore, the reverse charge mechanism needs the registered
recipient of the services as well as goods to remit the tax to the authorities in a direct way if-
– performing with unregistered dealer, or
– buying the particular listed services along with goods
Since the City Sky Co is Development Corporation, then the lawyer’s services are utilised for the
business purpose only, henceforth this is eligible for the input tax credit of Good and Service Tax
paid on the service availed from Maurice Blackburn (lawyer). In addition, the revenue of the
lawyer is stated in a question; however, this is not relevant for an organisation to have the ITC on
service related to a development. As per above analysis, it can be concluded that City Sky Co
can have the ITC for a tax paid on service availed from lawyers for development service.
Question 2:
It is provided that Emma has given the listing of the transactions undertaken by her through the
financial year to making help in completing the income tax return 2015.The capital gain tax takes
place while the sale price taken from disposing of asset is greater than the buying price. It is
that tax levied on the profitgenerated profit from the sales (Kouparitsas, Prihardini and Beames,
2016). On the other hand, there is a trick, which may be employed to the lower the capital gain
tax levied. Capital gains tax is tax upon profits realized on non-inventories asset’s sale. If
possible, a capital gain tax is applied upon a company or individual that takes decision for selling
the profits for assets. The only exception is for day traders that involve in the trading or

QUESTIONS 4
purchasing of asset to have the livings (Jacob, 2018). In relation to day trader, the profits he or
she makes will be eligible for tax as per the business revenues in place of capital gain. This is
very significant to consider that the capital gain taxes applied on various kinds of the assets,
whether they include bonds, real estate properties, or stocks (Evans, Minas and Lim, 2015).
Generally, a capital gain is realized from sale of bonds, stock, valuable metal, real estates, as
well as properties. In relation to Australian tax scheme, capital gain tax is taxation applied to
capital gain creates on disposal of asset, with some particular exemptions, the most important
one being a family house. The capital gain tax ran by taking a net capital gain as taxable
incomes in year of taxation where assets are disposed of or else sold (Fehlberg and Smyth,
2017).
In case when any asset is held for the minimum one year, in that case the gain will be first
discounted by fifty per cent for the taxpayers (individual taxpayers), or by thirty –three per cent
for the superannuation funds. The capital losses may be off-set in opposition to capital gain.
Further, in the taxation year, it is not possible to offset the net capital loss in against of the
normal earning, however can be carried forward indeterminately. The collectables as well as
personal use assets are considered as individual categories along with the losses that are confined
so they may only be implemented in against of the gain in the same types, not other gain. This
work for stopping the taxpayers subsidising hobbies from the investment earning (Balachandran,
et. al, 2017).
Further, one thing that the owners of company requires to consider is that asset is not taxed in
equal, particularly while it comes to the investment incomes (Feld, et. al, 2016). The tax amount
applied would be based on holding period of assets. Fundamentally, there are two types of the
profit that the organisation may create, while it disposes of the assets, long-term capital gains

QUESTIONS 5
along with short-term gains. The long term capital gain takes place while other assets and
investmentare held forabove twelve months. In contradiction of this, the short-term gain is
realized on investment held for not more than twelve months (Richardson, Taylor and Lanis,
2015).
 Sale of a block of land for1,000,000 $-
Capital proceeds 1,000,000
Minus: Base of cost 250,000
Stamp-duty 5,000
Judicial fee 10,000
Interest 32000
Water rates & Insurance 22000
Legal fee 5000
Removal cost 27500
Land cost 25000 (151500)
Capital gain 848500
Thus, at a period to sell, capital gains tax would be chargeable within a case when sale is
profitable. Further, if the depreciated lands improvement, then it would be required to pay the
depreciation recollect tax on them (Hulse and Burke, 2016).
 Sale of 1000 shares in Rio Tinto for 50.85 $ per share-

QUESTIONS 6
In case when the capital asset is sold, for example stakes and real-estate, then it mean someone is
making capital losses and capital gains. It is called difference of purchasing cost of assets and the
amount attained on dispose-off (Wong, 2017).
Sale of collection (1000*50.85) = 50,850
Less: 2% on brokerage (50850*2/100) = 1017
Less: cost base (1000*3.5) = 3,500
Capital gain = 46,333
As per this, Emma entitled to 50% capital-gain tax discount. The reason behind of this is that the
shares are hold for above the twelve months. Supposing had no other deductions or capital
losses, holding shares for more than twelve months (McCluskey,2018).
 Sale of a stamp collection Emma had bought from the private collector for $60,000
in January 2015 –
The collectables involve below mentioned items, which are utilised majorly for enjoyment and
private utilisation-
 painting, drawing, sculpture, engraving or photograph, reproduction of the items or
properties of the same description or utilisation
 antiques
 medallions or coins
 jewellery
 manuscripts as well as books

QUESTIONS 7
 postage stamp and first day cover
The collectable includes the interest in any items listed; the debts that arise as of the item stated,
or the rights and options for purchasing the items. Capital loss as of collectables may be utilised
for decreasing the capital gains (covering upcoming capital gains) by collectable. On the other
hand, the capital losses or gain generated form collectables are disregarded (Thuronyi and
Brooks, 2016).
Sale of collection = 50,000
Less: Auction fee for collection = 5,000
Less: base of cost = 60,000
Capital losses = (15,000) Loss Disregarded
Thus, capital losses made on the collectables are disregarded.
 Sale of grand piano for 30000 $-
Piano comes under personal utilisation asset as it cost above $20,000 [section 108-20(2)]
Capital proceeds = 30,000 (section 116-20)
Minus: base of cost = 80,000 [Section 110-25(2) First Element]
Capital loss = (50,000) [section 108-20(1) Loss Disregarded]
The personal utilisation assets are considered as the assets excluding collectables utilised majorly
for enjoyment or own utilisation and the associates. The personal use asset that purchased for not
more than 10,000 $ is disregarded for the purpose of capital. In a case of disposing the personal
use assets independently that will normally be sold like the set. It will easy to get the exemption

QUESTIONS 8
in a case if someone purchased a set for ten thousands $ or lesser. The capital losses on own
utilisation assets are disregarded. In this way, capital loss on the personal utilisation assets may
not be used to reduce capital gain on the personal utilisatione assets.

QUESTIONS 9
References
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Centre of Policy Studies (CoPS), Victoria University.
Fehlberg, B. and Smyth, B. (2017) Binding Prenuptial Agreements in Australia: The First Year.
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Huizinga, H., Voget, J. and Wagner, W. (2018) Capital gains taxation and the cost of capital:
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Kouparitsas, M., Prihardini, D. and Beames, A. (2016) Analysis of the long term effects of a
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Evans, C., Minas, J. and Lim, Y. (2015) Taxing personal capital gains in Australia: An
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effect of corporate capital gains taxes on acquisition activity. New York: Routledge

QUESTIONS 10
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BV.