Taxation Theory, Practice & Law: GST, CGT, and Tax Implications

This assignment solution addresses key aspects of Australian taxation, specifically focusing on the Goods and Services Tax (GST) and Capital Gains Tax (CGT). The first question examines whether a company involved in real estate investment and construction can claim an input tax credit for legal fees incurred during land development. It analyzes the relevant provisions of the New Tax System Act 1999, considering the company's business activities and the GST registration status of the legal service provider. The second question explores CGT implications for an individual who sold land, detailing the calculation of the cost base and deductible expenses. It examines which costs are included in the purchase price and which expenses can be claimed as deductions, providing a comprehensive overview of CGT events and their impact on an individual's income tax return.

TAXATION THEORY,
PRACTICE & LAW

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
QUESTION 1...................................................................................................................................1
Issue.............................................................................................................................................1
Rule..............................................................................................................................................1
Application...................................................................................................................................2
Conclusion .................................................................................................................................2
QUESTION 2...................................................................................................................................2
Issue.............................................................................................................................................2
Rule..............................................................................................................................................3
Application...................................................................................................................................4
Conclusion...................................................................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
Goods and Service Tax Act, 1999 was established in year 1999 and was brought into
operations from July, 2001. GST was introduced with idea of distributing all the revenues
generated by GST in states. GST replaced all other taxes, levies and duties that are imposed on
consumption over time. Every individual having revenues and income beyond the threshold limit
has to file annual return under Income Tax Assessment Act, 1997. The act lays norms and
provisions for the all incomes and expenses which are assessable the expenses which are
allowable for deduction (Australia, 2018). The report will give an understanding about the the
input tax credit that can be claimed under GST. Further it will reveal about CGT events and
about their tax implications on the income tax return of an individual.
QUESTION 1
Issue
The question is about the GST and implications on transactions of business. In the given
case company named City Sky is involved in business of real state investment and construction.
Company has invested recently in a vacant land for constructing fifteen apartments in south
Brisbane. The apartments are constructed for resale which is the business of company. The land
involved some legal compliance work for building the apartments and for dealing with the same
accurately company took services of lawyer. Maurice Blackburn provided legal services
amounting $33000 to company related to the development of land and building of apartments.
Company wants to avail input tax credit on money paid to lawyer. The question is whether
company can claim input tax credit for the fees of lawyer. Do the services were for business
activities and it satisfies the criteria for claiming the input tax credit under GST.
Rule
A New Tax System Act 1999
Every Australian having turnover above minimum threshold limit which is $75000 are
compulsorily required to registered under GST. It is charged over the taxable services and goods
and credit is available for only those GST expenses which are incurred on those goods and
services. Business is required to lodge the activity statement of business periodically and GST
amount owed to tax office (Hudson, 2015). There are goods & services which are exempted
from GST, others also include input taxed where on sale GST has not been charged. Input tax
credit cannot be claimed on services or goods which are input taxed.
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Division 9 of New Tax System Act, 1999 stipulating the application to supply of services,
goods & transactions relating to real estate property, rights or obligations. The supply should be
made to GST registered enterprise for claiming the input credits. Supplies that are made in
Australia are only taxable supplies relating to real property (Kraal and Kasipillai,2016). When
any company consumes goods or services which are to be resupplied to end users than the
company may claim refund for GST on price that means GST is not paid on that supplies (GST
Credits. 2015).
Application
As per the Australian Taxation Office GST credit can be claimed for the goods or services
which are undertaken for business. In the given case Sky ltd has purchased the land for building
apartments that would be sold by company as it deals in business of real estate property. For
complying with the legal regulations related to the construction of apartments amounting to
$33000. The services availed are related to the business activities of company. For claiming the
GST credit the supply must be made by an registered supplier (Nguyen, 2016). The supply
made should be invoiced with GST amount on it for claiming the input tax credit on GST.
Lawyer is having an annual turnover of $300000 which means that he is registered under GST.
So the invoiced raised for the legal fees is inclusive of GST and also the supply is made by
registered supplier. As per the taxation office and GST guidelines credit is available as the
services are undertaken for the business of the company which will be further resold to
consumers (Jaidi, Noordin and Kassim, 2017). The lawyer is hired for helping the company to
comply with legal regulation relating to the construction of business.
Conclusion
On the basis of guidelines and provisions provided for GST by the act and taxation office it is
concluded that company can avail the input tax credit. The input tax credit will be availed over
the invoice of legal fee raised by the lawyer. Credit is given because it is related to the business
activity of company and the apartment will be sold to customers.
QUESTION 2
Issue
Every individual has to file income tax return after assessing income under each head. Along
with other there is also a capital gain or loss section. Capital gain can significantly increase the
tax liability of the assessee. Therefore it should be computed very accurately confirming all the
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applicable provisions and laws related to the event. In the present case Emma an Australian
resident has undertaken some transaction in the year 2015 which are attracting capital gain tax.
Emma has sold land for $1 million which was purchased by her for $250000 in year 1991. She
has paid stamp duty and legal fees at time of purchase totalling $15000. land was purchased on
loan on which interest of $32000 has been paid. She also incurred council and water expenses
during her ownership period. The land was covered with pine trees and for removing the same
she incurred expense amounting to $27500 before putting it on sale. Advertisement expense of
$25000 has been incurred for selling the land. She want to know which costs will be included in
the purchase price and what expenses could be claimed as deduction.
Capital Gain Tax. 2019.[Online]. Available through : <https://www.ato.gov.au/General/Capital-
gains-tax/Your-home-and-other-real-estate/Calculating-the-cost-base-for-real-estate/
#Costsofowning>.
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