Taxation Theory, Practice and Law: A Comprehensive Report

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Taxation Theory, Practice and Law
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Table of Contents
Introduction:................................................................................................................... 2
Question 1........................................................................................................................2
Question 2........................................................................................................................2
Conclusion......................................................................................................................2
References......................................................................................................................2
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Introduction
This report involves the understanding about the Australian income tax system which
involves the concept of income and the deduction. Report involves the identification and
analysis of the taxation issues and interpreting the relevant taxation legislation and the
case law. Report reflects about the application of the taxation principles in the real life
issues. There are several questions which have been solved under this report which
involves the identification of the material facts regarding. The report further explains
about the analysis of the legal issues and relevant taxation law. The report involves the
finding of the material facts related to the Emma’s capital gain tax (CGT) and its
consequences. The report includes the understanding of the several cases ad several
sections of the legislations.
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Question 1
In this study, a company has been taken which is a registered company under the
relevant law. The name of the company is City Sky Co. which is based in Australia.
Based on the information given in this part, the company was purchased a vacant piece
in the Brisbane for the purpose of constructing 15 apartments for selling purpose. As
per the law of GST, any immovable property which is not considered as the goods or
services are not comes under the GST. It means there is no application of GST law on
immovable property. The company taken service from the local lawyer for the purpose
of knowing whether this company is entitles to avail input tax credit facilities on the
transaction which are occurred during the period. On the other hand if the company
starts to construct building on the vacant land this in such it comes under the law and it
is not avail input tax credit facilities. Therefore, input tax credit is not applicable on the
purchase of vacant land which is purchased by City Sky Company (Ling, et. al., 2016).
As per the information provided, Maurice Blackburn is a lawyer who provides services
related to the legal issues and taken for that an amount of $33000. As per the law of
GST, any service which is related to the law is considered reverse charge. In reverse
charge, recipient of the service is liable to pay tax instead of supplier. This is known as
reverse charge. If such type of service is used by the company for business related
activities then it is eligible to get benefit of ITC. In the case where company is received
service from the lawyer for business related part and such condition create a situation to
avail ITC on the service services which had provided by the lawyer (Cassidy, and
Cheng, 2017).
ITC stands input tax credit which is define as when the supplier of the products or
service paid tax on it final product that he can use ITC facilities in order to reduce the
tax amount by claiming which is already paid up to the amount. ITC claiming facility is
only taken by any registered firm, company, entity, etc. In this case company is not
taken the benefit of ITC.
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Following points help in understanding the law of ITC.
For the Purpose of Business:
Company can avail the advantage of ITC in case when the activity is occurred and done
for business purpose. On this basis, information is obtained that when the company use
assets for personal use instead of business purpose then in such case it not eligible to
claim for ITC. In the other condition when sale of goods or services is some for business
and some for private then the company is only take the ITC on such sale of goods and
services which is relevant to the business (Cassidy, and Cheng, 2017).
Unpaid amount of bills:
In case the amount of invoice is unpaid within 6 months or 180 days from the date of
issuing of invoice, ITC will be reversed, it means now the benefit of ITC is taken by the
recipient.
Need proper Documentation:
To claim ITC, it is mandatory that proper documents which are required to get ITC
benefit needed. Such documents are GST number, relevant accounts and other.
Issue of Credit Note:
When the supplier issued credit note then ITC will be reduce in near future time.
Below are the points where the rule of ITC not applicable:
On Motor Vehicles & Conveyance:
On motor vehicle ITC is not applied, if the capacity of vehicles is 13 persons included
driver along.
On Food, beverages and club memberships:
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Eligibility of ITC is not applicable on perishable products like food and beverage
products, providing service of beauty and cosmetic, catering provided outdoor and
plastic surgery (Ling, et. al., 2016).
The other area where ITC benefits not available are:
 Services of General Insurance
 Sale of membership in a club, health and fitness center
 Construction of immovable Property
 Restaurants.
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Question 2
Income which is generating through the sale of capital assets is known capita gain.
Such gain is of two types either earns on short term or long term depends upon the
nature of assets. In 1985, capital gain law came in to the existence in Australia and it is
applicable to entire country (Cassidy, and Cheng, 2017). Some of the examples on
which the capital gain can be earned are vehicle, house property, Jewellery,
Collectables of personal purpose, shares and trademarks.
Divide capital gain into two parts in the following part:
 Short-Term Capital Assets: The assets which have the ownership on such assets by
company or an individual at maximum period of 12 months.
 Long-Term Capital Assets: Those assets which have right on the use of such assets
for than one financial year is known as long term capital assets.
The concern country government creates and developed law in which it stated that
capital gain law is applicable to the assets and also provides various exemptions on
fulfilling the requirement of exemptions (Maleki, et. al., 2017). Such exemptions are
below which provided by the government on gaining of income on capital assets:
 Profit or income generate from the gambling activity
 Purchased of assets on or before the date of 20th Sept. 1985.
 Capital loss by the buying of assets for personal use.
 Residential property (the area of such property is up to the min. 2 hectares)
In this part showing how much amount of money for tax is payable by Emma or she was
exempted towards the tax liability:
1. Sale of Land
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Sale of Land
Calculation of Capital Gains $
Purchasing Price of Land 250000
Stamp Duty 5000
Legal Fees 10000
Interest Paid 32000
Council rates, water Rates 22000
Total Payment 319000
Transactions in 2005
Legal Fees 5000
Miscellaneous Expenses 27500
Advance Fees 25000
57500
Total Payment 376500
Selling price of Land 1000000
Profit/Loss 623500
As per the above measurement, Emma received a capital gain on the selling of land of
$623,000 which is bought in 1991. Such land is more than 2 hectares so it is expended
under the capital gain law which means no liability for tax is created on her shoulder
(Millar, 2013).
2. Sale of Shares
Sale of Shares
$
Purchased 1000 Shares @ $ 3.5 3500
Sale of Shares @ $ 50.85 50850
(Less) Brokerage Fee @ 2% 1017
Total Amount 49833
Profit/Gain 46333
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1000 shares had been purchased by Emma in 1982 and the value of each share on that
day was $3.5. After that a company named Rio Tinto purchased such shares from her
by paying a total amount of $50,850. She also paid commission to the brokerage such
commission is known by brokerage at 2%. The final amount which was she received
$46,333 (after subtract applicable deductions). The Australian government provides
exemption on selling of shares due to such transaction is related to the development.
Hence no tax payables under capital gain (Pomerleau, and Cole, 2017).
3. Sale of Stamps Collection
Sale of Stamps Collection
$
Purchasing Price of Stamps 60,000
Selling Price at Auction 50,000
Auction Fees 5,000
Amount received 45,000
Loss 15,000
In 2015, Emma bought stamps of $60,000 from a private collector. The actual amount
which was she obtained was $45,000 after deducting auction fess of $5000 from the
amount of sale of $50,000. On comparison between the actual amount received and
purchased amount it was seen that she bear a loss of $15,000. Hence no tax liability
was created on her due to capital gain is only applicable on profit earn situation
(Ramya, and Sivasakthi, 2017).
4. Sale of Grand Piano
Sale of Grand Piano
$
Purchasing price of Piano 80,000
Selling price of Piano 30,000
Loss 50,000
A Piano was purchased by the $80,000 in 2002 and such playing instrument was sold
by her only just of $30,000. It was clearly seen that a loss of $50,000 has been bear by
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her. So this situation is also the same as above situation so the tax liability is not
created. The purpose of this was related to personal purpose of use.
In the light of capital gain, it was suggested that she is responsible to file income tax
return. All the items which were sold by her on different dates, it was analyzed that there
was no tax liability is generated on her due to it not obtained any profit but she incur
loss on transactions (Scafarto, et. al., 2016).
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Conclusion
It was concluded that this report is totally focus on the claiming of ITC and capital gain
on various transactions. In contained two parts in which first part showed the input tax
credit information and other provide information about the tax liability towards capital
gain on the selling of various items by Emma. Under first part, all information about
eligibility for claiming ITC is provided where the City Sky Co. claim ITC. In second part,
showed several transactions this was done by Emma. It was conclude that she was not
liable to pay tax on capital gain as there was not capital gain on each transaction.
Hence she was free from tax liability. This report also showed reverse charge and
where it is applicable and on applicable of this, a recipient is liable to pay tax rather than
the seller or supplier of services of goods.
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References
 Cassidy, J. and Cheng, A., 2017, January. Legislative Responses to GST Tax
Avoidance in Australia and New Zealand: Lessons for China?. In 2017 International
Conference of Chinese Tax and Policy: The Function of Tax in the New Wave of
Economic Development in China.
 Ling, S.C., Osman, A., Arman Hadi, A.B., Muhammad Safizal, A. and Rana, S.M., 2016.
Public acceptance and compliance on Goods and Services Tax (GST) implementation:
A case study of Malaysia. Asian Journal of Social Sciences & Humanities, 5(1), pp.1-12.
 Maleki, B., Sameti, M., Sameti, M. and Ranjbar, H., 2017. THE EFFECT OF CAPITAL
GAIN TAX ON CAPITAL FORMATION, FINANCIAL DEVELOPMENT AND ECONOMIC
GROWTH, CASE STUDY OF IRAN.
 Millar, R., 2013. Smoke and mirrors: Applying the full taxation model to government
under the Australian and New Zealand GST Laws. VAT EXEMPTIONS:
CONSEQUENCES AND ALTERNATIVES, Rita de la Feria, ed., Kluwer Law: The
Hague.
 Pomerleau, K. and Cole, A., 2017. International tax competitiveness index
2015. Washington, DC: Tax Foundation.
 Ramya, N. and Sivasakthi, D., 2017. Gst and its impact on various sector. Journal of
Management and Science,(November), pp.65-69.
 Scafarto, V., Ricci, F. and Scafarto, F., 2016. Intellectual capital and firm performance in
the global agribusiness industry: the moderating role of human capital. Journal of
Intellectual Capital, 17(3), pp.530-552.
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