The City Sky Question Answer 2022

Question 1:
The City Sky Co is a property investment and development company.
Recently the company purchased a vacant piece of land south of Brisbane
on which it is planning to build 15 apartments to sell. The City Sky Co has
engaged the services of the local lawyer, Maurice Blackburn, to provide
the legal services required for the development for $33,000. Maurice
Blackburn runs an established sole trader business and turns over
revenue of $300,000 per year. Advise the City Sky Co of the input tax
credit entitlements that they may be entitled to. Assume that The City Sky
Co is registered for GST purposes.
Answer:
The City Sky Company is an investment company dealing in property and
engaged in development work. The company is also registered for goods
and service tax purpose, so it will be entitled for the benefit of input tax
credit as applicable.
The City Sky Co also has a plan to purchase a vacant piece of land south
of Brisbane on which the company is planning to build 15 apartments to
sell. Goods as defined “any kind of movable property other than money
and securities but it includes actionable claims ,growing crops ,grass and
things attached to or forming part of the land which are agreed to be
severed before supply or under a contract of supply ‘’.So under the
particular definition immovable property is not considered to be a part of
Goods.
Land is an immovable property so it is neither goods nor services so it
does not belong or fall under the category of Goods and Service Tax.
Therefore, no GST will be levied on any purchase of vacant land
purchased south of Brisbane on which it is planning to build 15
apartments to sell. The company is also planning to build 15 apartments
on the vacant land which comes beneath the provision of black credit
under GST act. Black Credit means any value or amount of goods received
by a person who is register under GST act for the purpose of construction
of the said immovable property whether in his own account or in the
normal process of business are not entitled to reap the benefit of Income
Tax credit. Therefore, the company is not entitled to take any benefit of
income tax credit for the purpose of building an apartment on the vacant
land.
The City Sky Co has engaged the services of the local lawyer, Maurice
Blackburn, to provide the legal services required for the development for
$33,000.Any form of services availed from lawyer will fall under the
category of reverse charge mechanism. Under the concept of reverse
charge mechanism, the goods and service tax will be borne by the person
who is availing such services rather the provider of services. If the person

who has availed such services uses such in its own business than he is
entitled to take benefit for such income tax credit .
The company is a development company who is engaged in the business
of investment and construction of property on the vacant land than the
services of lawyer availed must be used for the purpose o f
business ,therefore the company is entitled for the income tax credit
benefit of the total amount paid as GST.
Maurice Blackburn runs an established sole trader business and turns
over revenue of $300,000 per year. The revenue of the advocate has got
no relevance with the company GST paid nor can claim any amount of
GST on the revenue of the lawyer Maurice Blackburn.
The City Sky Company can avail the benefit of income tax credit on GST
paid on the services mentioned above.
Question 2:
Emma has provided to you a listing of the transactions she has
undertaken throughout the financial year to assist you in completing her
2015 income tax return. Sale of a block of land for $1,000,000: Emma
purchased the land as an investment in 1991. The purchase price was
$250,000, plus $5,000 in stamp duty, $10,000 in legal fees. To fund the
purchase, she took out a loan on which she paid interest totalling
$32,000. During the period of ownership her council rates, water rates
and insurance totalled $22,000. In January 2005 a dispute occurred with a
neighbour over the use of the land and legal fees incurred amounted to
$5,000 in resolving this dispute. Before putting the property on the
market $27,500 was spent to remove a number of large dangerous pine
trees that were on the land. Advertising, legal fees and agent’s fees on
the sale of the land were $25,000. Sale of Emma’s 1000 shares in Rio
Tinto for $50.85 per share: Emma paid brokerage fee of 2% on the sale.
Emma initially purchased the shares for $3.5 per share in 1982. Sale of a
stamp collection Emma had purchased, from a private collector, in January
2015 for $60,000: Emma sold the collection at auction for $50,000.
Auction fees totalled $5,000 for the sale. Sale of a grand piano for
$30,000: It was initially bought for $80,000 in 2000. HI6028 Taxation
Theory, Practice and Law Individual Assignment T2.2019 5 Advise Emma
of the capital gain tax (CGT) consequences of her transitions. Ignore
indexation. Your answer must include references to relevant tax law and
or cases.

Answer:
Part 1
Facts of case
Emma has purchased a plot of land as investment with an intention to
resale the same in future, the land was never purchased for constructing
house or self-usage. Post purchase of property, various expenses were
incurred to obtain legal title of the property encompassing stamp duty and
legal fees. Also, for purchasing the said property Emma took look loan and
paid interest on the same to the tune of $ 22,000. There were also legal
dispute on the property and necessary legal fees were paid to safeguard
the asset. The land was finally put to sale for $ 27,500 in 2015.
Law & Analysis
In terms of Section 6.1 of Income Tax Assessment Act, 1997, the
assessable income also includes income which are not ordinary income
and shall be categorised as statutory income. Since, the income from
investment of Emma may be classified as one off transaction, it shall fall
in the said category.
Further, in terms of the Income Tax Assessment Act, 1997 for computing
the capital gain all the expenses which have been incurred for the
purpose of generating revenue shall be deducted for the purpose of
computing capital gain on the asset. Further, there are two types of cost
that are incurred for holding the property (a) Purchase cost and (b)
Ownership Cost and one is incurred while selling the same.
Further, in terms of Act, there are two method of computing capital gain
(a) Indexation Method and (b) Discount Method. The computation shall be
made using discount method as it shall be beneficial to Emma. Further,
the holding period is greater than 12 months. (Finconnect (Australia) Pty
Ltd, 2018)
Based on above analysis, the computation of capital gain/ loss for the
current transaction has been provided as under:
Sl. No Particulars Amount
1 Sale Price of Land 275000
2 Selling Cost 27500
3 Ownership Cost 27000
- Legal fees
-Water & insurance
4 Purchase cost 265000
-Land Price
-Legal fees
-Stamp duty

5 Capital Loss -44500
Part 2
Facts of case
In the given case, Emma has sold shares which she has purchased way
back in 1982. The cost price of purchase of share was $3.5 and she has
sold the same at $ 50.85. Further, the shares were sold after a brokerage
payment of 2%
Law & Analysis
In terms of Section 6.1 of Income Tax Assessment Act, 1997, the
assessable income also includes income which are not ordinary income
and shall be categorised as statutory income. Since, the income from sale
of shares of Emma may be classified as one off transaction, it shall fall in
the said category.
Further, in terms of the Income Tax Assessment Act, 1997 for computing
the capital gain all the expenses which have been incurred for the
purpose of generating revenue shall be deducted for the purpose of
computing capital gain on the asset.
Further, in terms of Act, there are two method of computing capital gain
(a) Indexation Method and (b) Discount Method. The computation shall be
made using discount method as it shall be beneficial to Emma. Further,
the holding period is greater than 12 months.
However, in the current case since the asset was purchased before
September 20, 1985 the laws of capital gain tax shall not be applicable
and the receipt may be treated as capital receipt and no tax shall be paid
on such receipt. (Finconnect Austraalia Pty Ltd, 2018)
Part 3
Facts of case
Under the third part, Emma has purchased stamps from a private collector
in January 2015 for $ 60,000 and has disposed off the same in the current
year in 2015 for $ 50,000. The auction fees incurred in connection with
the sale has been $ 5,000.

Law & Analysis
In terms of Section 6.1 of Income Tax Assessment Act, 1997, the
assessable income also includes income which are not ordinary income
and shall be categorised as statutory income. Since, the income from sale
of shares of Emma may be classified as one off transaction, it shall fall in
the said category.
Further, in terms of the Income Tax Assessment Act, 1997 for computing
the capital gain all the expenses which have been incurred for the
purpose of generating revenue shall be deducted for the purpose of
computing capital gain on the asset.
Further, in terms of Act, there are two method of computing capital gain
(a) Indexation Method and (b) Discount Method.
Further, in terms of Act, collectable shall not be included for the purpose
of computation of capital gain only when the following circumstances are
satisfied:
(a) Collectable was acquired for $ 500 or less;
(b) Interest was acquired before 16 Dec, 1995;
(c) You acquired interest in collectable when market value was less than
$500
Since the above conditions are not applicable, the sale shall be subject to
capital gain. Further, the holding is less than 12 months, the benefit of
discount method shall not be applicable.
Sl. No Particulars Amount
1 Sale price of Collection 50000
2 Selling cost 5000
3 Purchase cost 60000
4 Capital loss -15000
Part 4
Facts of case
Under the fourth case, Emma has sold a grand piano which was bought in
2000 for $ 80,000 at $ 30,000.
Law & Analysis
In terms of Section 6.1 of Income Tax Assessment Act, 1997, the
assessable income also includes income which are not ordinary income
and shall be categorised as statutory income. Since, the income from sale
of shares of Emma may be classified as one off transaction, it shall fall in
the said category.

Further, in terms of the Income Tax Assessment Act, 1997 for computing
the capital gain all the expenses which have been incurred for the
purpose of generating revenue shall be deducted for the purpose of
computing capital gain on the asset.
Further, in terms of Act, there are two method of computing capital gain
(a) Indexation Method and (b) Discount Method. The computation shall be
made using discount method as it shall be beneficial to Emma. Further,
the holding period is greater than 12 months.
Since, piano has been used for personal use it may be classified as
personal use asset and may not be subject to capital gain tax. However,
for an exemption the purchase value of the asset shall be lower than $
10,000. (Commonwealth Of Australia, 2019)
In the current case since the value is greater than 10,000, CGT shall be
applicable.
Sl No Particulars Amount
1 Sale price of Piano 30000
3 Purchase cost 80000
3 Capital loss -50000
References
Commonwealth Of Australia, 2019. CGT assets and exemptions. [Online]
Available at: https://www.ato.gov.au/general/capital-gains-tax/cgt-assets-and-exemptions/
#Personal_use_assets
[Accessed 28 September 2019].
Finconnect Austraalia Pty Ltd, 2018. How to calculate capital gains tax. [Online]
Available at: https://www.echoice.com.au/guides/capital-gains-tax-calculated/
[Accessed 28 September 2019].
Finconnect (Australia) Pty Ltd, 2018. How to calculate capital gains tax. [Online]
Available at: https://www.echoice.com.au/guides/capital-gains-tax-calculated/
[Accessed 2019 September 2019].