HI6028: Taxation Assignment - Holmes Institute, T2 2019

This assignment solution addresses two key taxation questions. The first question examines the eligibility of a company, City Sky Company, to claim input tax credits (ITC) on GST paid for the purchase of vacant land and legal services. The analysis applies relevant sections of the GST Act 1999 and case law, concluding that ITC is claimable for legal fees but not for the land purchase. The second question explores capital gains tax (CGT) implications for Emma, covering the sale of a block of land, shares in Rio Tinto, a stamp collection, and a grand piano. It involves calculating CGT liabilities, considering acquisition costs, indexation, and the applicability of CGT rules based on asset purchase dates and personal use, with references to relevant sections of ITAA 97 and other taxation principles.

Running Head: - Taxation 0 | P a g e
taxation
Module Number

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Table of Contents
Answer to the given question no- 1:................................................................................................1
Issues:..........................................................................................................................................1
Rule:.............................................................................................................................................1
Application:.................................................................................................................................2
Conclusion:..................................................................................................................................3
Answer to the given question no- 2:................................................................................................4
References:......................................................................................................................................9

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Answer to the given question no- 1:
Issues:
Whether the tax payer could avail the input tax credit out of his financial transaction
given in the case?
Rule:
In the given case, applicability of the case laws and section 11-5, GST Act 1999” will be
applicable. In this section, it is given that taxpayer could take the input credit only when he has
done the creditable purchase. It is evaluated that the tax credit would be available to the tax payer
on the goods and service which he bought at the time of conducting the business activities not in
the private activities. As in the section held of 11-15 GST act 1999, it is given that a registered
tax payer under the GST rules would be able to claim the GST tax input once if he is qualified
and doing the transaction as his business activities.
It is analysed as given under the sub section of 7-1 (2) that tax payer are liable for the
input tax credit when they have paid GST on the particular goods and service in their business
activities. Anything which they have acquired for the personal use then no GST would be given
on those items. However, it is analysed that creditable purchase is the purchase when the register
Tax payer indulged in buying and selling of the goods and service for the business purpose and
paying the GST tax on the same goods to government. However, GST taxation credit is given to
tax payer to lower down the burden on him so that he could reduce the costing of the products
and services in market (Olbert and Spengel 2017).
In the case of “CT v HP Mercantile Pty Ltd (2005)” taxation authority revealed that GST
tax would be paid by the individual in every single cycle of the commercial transaction of the

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goods and service (Gashenko, Zima and Davidyan 2019). The GST credit tax would also be
given to tax payer to reduce the cascading effect of the tax implication. It helps in reducing the
impact of the tax on tax on individual. By using the GST tax credit, tax payer is allowed to offset
the input tax credit associated with the value of the goods and services and other acquisition of
the creditable things for the business purpose use.
In addition to this, there is another mean which is called reverse charge in which
purchaser of the goods and services are bound to pay tax on the goods and services. In this case,
even if purchaser who is not entitled for the GST tax credit would be still given GST tax credit as
he has given the tax on the behalf of the tax payer.
This shows that taxpayer would still be allowed for the GST tax credit even if he is the purchaser
of the goods and services. Provided that the purchaser is the registered GST tax payer in
Australia as per the Australian taxation rules.
Application:
In the given case, City Sky Company has paid the GST on the goods and service which it
purchased from the other person. Being the registered GST payer, City Sky Company is asking
for the GST input tax credit on its tax payment. In the given case, it is found that there was the
vacant land which was purchased by City Sky Company with a view to construct the 15
apartment for the sale. Land being the immovable assets was purchased by it for the business
purpose considering it goods and services for the business. Therefore, any tax paid by the City
sky Company should fall under the input tax credit and needs to be given back to company
(Gashenko, Zima, and Davidyan, 2019).

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After assessing the case, it is found that land purchased by City Sky Company would be
considered as goods and service not immovable assets therefore, any tax paid by company on it
will be credit back as input tax credit.
However, as per the section of 11-5, GST Act 1999, it is found that any goods and service
purchased by the tax payer for the construction of the immovable property even if it will be used
for the business purpose will not be eligible for the tax credit.
In this case, it could be held that City Sky Company would not be liable to take the input
tax credit on the tax paid by it on the purchase on the land as it is not creditable tax amount
(Huang, Meng and Xue 2019).
However, in other case, City sky company has paid the tax on the fees of the lawyer
amounting to AUD $ 3300. Therefore, the service used by the company from the lawyer would
fall in the reverse tax rule. In the case held of CT v HP Mercantile Pty Ltd (2005)”, it is held
that company would be liable to take input tax credit on the paid amount of service to lawyer and
could take tax credit. Therefore, as per the section 11-5, GST act 1999 if any amount of tax paid
by the City Sky company for the legal service fees paid to the lawyer then the same amount will
be refunded and considered for the GST tax input credit.
Conclusion:
Now in the end, it could be inferred that City sky Company being the registered GST tax
payer would be eligible to tax the GST tax input on the legal fees paid by it to the lawyer.
However, any GST paid for the purchase of the vacant land would not be given as input tax
credit to the City Sky Company.

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Answer to the given question no- 2:
Sale of block of land:
It is analysed that the Capital gain tax is paid by the tax payer on the capital gain earned
by him on the capital assets transaction. It is analysed as per the given section of 104-10, ITAA
97” that capital gain arise when there is changes in the ownership and particular consideration is
given by one party to another (Fleurbaey and Maniquet 2018).
However, in order to compute the capital gain tax, there is requirement of considering the
consideration paid, time of the purchase and sale of the property and applicability of the
indexation.
As held in section of 104-10, ITAA 97”, it is found that tax payer pay the tax on the net capital
gain earned by him in the sale and purchase of the capital assets. However, as per the section
110-25, tax payer needs to evaluate first five aspects to determine the capital gain tax. First
aspect is the cost of the assets which should be determined through the indexation method.
Another method is the time period of the respective assets (Brabazon, 2019). The third element
is related to the total costing of the assets. It reveals the total amount of the cost which was paid
by the owner of assets.
As per the section 110-25 (4) ITAA 1977, it is found that cost of the capital asset would be the
final amount which is paid by the tax payer on the assets consecutively. However, the expenses
incurred by the tax payer on the assets of the company would be the added as it would be the
transaction cost for the capital assets and would add on in the total cost of the acquisition at the
time of computing the capital gain (Sikka 2017).

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In the given case, it has been found that the assets sold by Emma was for AUD $ 10, 00,000.
After that in order to compute the total capital gain, there is need to compute the total acquisition
cost. This will be total amount which Emma paid during the course of life of the capital land
asset. It starts with the initial payment by Emma to buy the land AUD $ 250000 in 1991. After
that she made the several expenses such as payment of AUD $ 5000 for the stamp duty and
AUD $ 10,000 as legal fees. These both will be counted as incidental charges of the acquisition
of the cost of the assets. In addition to this, she also paid interest payment of AUD $ 32000
which will be further added in the costing of the assets as the capital was raised for buying the
land. In addition to this, she also paid other insurance, water and council rate charges of AUD $
22000. Therefore, as per the “sec 110-25 (4), ITAA 1997” these all the expenses would be added
in the acquisition costing of the Block land of the Emma. In addition to this, she also paid AUD
$ 27500 for removing the unnecessary tree. Therefore, the below given the computation of the
capital gain would be done (Jones, and Rhoades-Catanach, 2015).

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Sale of shares in Rio Tinto:
This is the case when the shares purchased and sold by Emma would be put for the
process of the capital gain tax. It is analysed that capital gain tax would be charged on the assets
only when the property and assets are purchased on or after the 20th September, 1985 and any
assets purchased before it will be exempted from the tax purpose (Huang, Meng, and Xue,
2019). Therefore, Emma report that the sale of the 1000 shares which she hold in the Rio Tinto
company was bought in 1982. This shows that Emma would be exempt from paying the capital
gain tax on the profit made by her on these shares.

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Sale of stamp collection:
It is given that as in the section of 108-10 (2), ITAA 1997” , it is held that any unique and
antique if used for the personal purpose will be liable for the capital gain tax if sold and
purchased in market. (Morgan and Castelyn 2018). In this case, if the sale of the stamp sold in
market result to the capital gain then tax payer has to pay tax on these assets. In addition to this,
if it occurred losses then the same would be set off from the other gains.
In this case, Stamps are sold by Emma for AUD $ 50,000 adding the auction fees of
AUD $ 5000. These stamps were purchased in 2015 for the private collector by paying AUD
60,000. Therefore, in this case, Emma is having capital loss of AUD$ 15000 which she could use
to set off from her other capital gain. .

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Therefore, as held in the “sec 108-10 (1), ITAA 1997” Emma could either set off this
capital loss from other capital gain or could carry forward this loss to set off from the next year
capital gain (Fleurbaey, and Maniquet, 2018).
Sale of grand piano:
In this case, tax payer Emma sold the grand piano to other party. As per section 108-20
ITAA 1997, it is held that any property yacht, television which is kept for the personal purpose
by the tax payer would be kept for the capital gain and loss if they are sold in the market. In the
case, Emma purchased the given piano amounting to AUD $ 80000 and sold it for AUD $
30,000 in this case, she held the capital loss which she could either set off this capital loss from
other capital gain or could carry forward this loss to set off from the next year capital gain.
.

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References:
Alt, J., 2018. Tax Justice-Justice of Taxation. Ethics Discussion Paper III of the" Tax Justice &
Poverty” Research Project.
Bittker, B.I. and Lokken, L., 2018. Fundamentals of international taxation. Thomson Reuters.
Bösenberg, S., Egger, P. and Zoller-Rydzek, B., 2018. Capital taxation, investment, growth, and
welfare. International Tax and Public Finance, 25(2), pp.325-376.
Brabazon, M., 2019. International Taxation of Trust Income: Principles, Planning and Design.
Cambridge University Press.
Fleurbaey, M. and Maniquet, F., 2018. Optimal income taxation theory and principles of
fairness. Journal of Economic Literature, 56(3), pp.1029-79.
Gashenko, I.V., Zima, Y.S. and Davidyan, A.V., 2019. Principles and Methods of Taxation.
In Optimization of the Taxation System: Preconditions, Tendencies and Perspectives (pp. 33-39).
Springer, Cham.
Huang, K., Meng, Q. and Xue, J., 2019. Capital Income Taxation and Aggregate
Instability'' (No. 19-00007). Vanderbilt University Department of Economics.
Jones, S. and Rhoades-Catanach, S., 2015. Principles of taxation for business and investment
planning. McGraw-Hill Higher Education.