HI6028 Taxation Theory, Practice & Law Assignment - Semester 2, 2019

This assignment provides a comprehensive analysis of Goods and Services Tax (GST) and Capital Gains Tax (CGT) within the Australian taxation system. It begins with a detailed examination of GST, focusing on the material facts of a case study involving City Sky Co, a property development company, and the application of GST credits. It explores the legal issues, relevant taxation laws, and the conditions for claiming GST credits, including eligibility criteria and limitations. The assignment then delves into CGT, analyzing the tax implications for an individual, Emma, based on several transactions, including the sale of land, shares, and a stamp collection. The analysis includes detailed calculations of capital gains or losses, considering acquisition costs, ownership costs, and applicable discounts. The assignment applies taxation principles to real-life problems, interpreting relevant taxation legislations and case law to provide a clear understanding of GST and CGT.

Taxation Theory, Practice & Law

Table of Contents
Question 1: The goods and services tax (GST)..........................................................................3
A discussion regarding the material facts with respect to the City Sky Co goods and
services tax (GST)..................................................................................................................3
Analysis of the legal issues & relevant taxation law..............................................................3
In-depth application of taxation laws to the identified material facts regarding the
organization............................................................................................................................5
Conclusion:............................................................................................................................5
Question 2: Capital gains tax (CGT)..........................................................................................6
A discussion regarding the material facts with respect to an individual:...............................6
IN-depth analysis and application of the taxation laws to the identified material facts with
respect to Emma.....................................................................................................................6
Sale of a block of land for $1,000,000:..............................................................................7
Sale of Emma’s 1000 shares in Rio Tinto for $50.85 per share:.....................................10
Sale of a stamp collection Emma had purchased, from a private collector, in January
2015 for $60,000:.............................................................................................................11
Sale of a grand piano for $30,000:...................................................................................13
Conclusion:..........................................................................................................................14
References................................................................................................................................15

Question 1: The goods and services tax (GST)
A discussion regarding the material facts with respect to the City Sky Co goods
and services tax (GST)
The case study organization City Sky Co is engaged in investment and development of
properties. The company has recently been looking to build some 15 apartments in a vacant
piece of land in south of Brisbane and the apartments are to be sold after building them. The
chosen organization of City Sky Co is GST registered and therefore the business organization
is entitled to claim for GST credit from any purchase of inputs that is being conducted for
business purpose.
Analysis of the legal issues & relevant taxation law
The relevant law to be considered here is GST credit and the possible conditions that are to
be met for claiming the GST credit are as follows:
The GST credit refers to the exemption claim that a business organization can claim when a
GST registered business is purchasing raw materials for business purpose and the purchase
price of those input material is including the GST("Claiming GST credits", 2019).
Conditions to be fulfilled for claiming GST:
A business organization will be entitled to claim the GST credit provided the business is GST
registered and the inputs are being purchased for business purpose from a GST registered
supplier as only a GST registered supplier is capable of imposing GST over selling price of
inputs.

A GST registered business organization will be able to claim for GST credit or input tax
credit provided the business is holding the required tax invoice that is being collected from
the supplier and the invoice must contain a purchase value of inputs that must be greater than
the amounts of A$82.50 ("When you can claim a GST credit", 2019)
Generally the invoice collected from the supplier contains the amount of GST being paid with
respect to which a GST registered business of Australia will be able to claim for GST. In case
the invoice is not specifying the amount of GST included in the total amount being paid then
the amount motioned in invoice has to be divided by 11 for calculating the required GST that
is included in the amount being paid as mentioned in the tax invoice("When you can claim a
GST credit", 2019).
GST cannot be claimed in the following cases:
If the business (that is purchasing the inputs for business purpose) is not GST registered or
the supplier is not GST registered or if the business is not holding the required tax invoice
then the business will not be eligible for claiming the required input tax credit
A business organization that is buying the inputs for developing the immovable properties in
their own account is not eligible for claiming the input tax credit. Even if the business is
developing the immovable properties with an intention of selling them out later, then also the
business is not entitled to claim GST credit for purchase of inputs. The underlying reason is
that is if the immovable property is being prepared in the own account of the business, then it
is being assumed that the inputs are being purchased for developing an immovable property
for the private use of the business.

A business that is registered with GST even not entitled for claiming GST on wage paid to
the staffs as wage expenditure does not include any GST
A business will not be able to claim GST over the purchase of products that are already input
taxed; such as the residential accommodation, payment of bank fees and payment of interest
fees paid on loan
The GST credit also cannot be demanded in case of purchase of GST free products; like basic
food furthermore the GST credit is also not applicable in case of payment of entertainment
expense("When you cannot claim a GST credit", 2019)
In-depth application of taxation laws to the identified material facts regarding the
organization
In view of the above discussion it can be seen that the case study organization City Sky Co is
initially building the 15 apartments in a vacant plot in south of Brisbane in their own account
whereas after preparing the building apartments the business has an intention of selling out
those apartments. Thus basically the City Sky Co which is a GST registered company is
preparing those building apartments with an intention of selling them out or for business. But
as initially the City Sky Co is preparing those properties in their own account therefore City
Sky Co is not entitled for claiming the GST credit.
The second incident that is to be considered is that the business City Sky Co has hired a local
lawyer for getting the legal advice that will be required for developing the apartments. The
business is paying out $33,000 to the lawyer for his service. Thus the amount being paid by
City Sky Co to the lawyer should be considered as the wage and in that case as the City Sky
Co is paying the wage therefore the business is not entitled to claim the GST credit on
it("Cases Where Input Tax Credit under GST Cannot Be Availed", 2019).

Conclusion:
The above discussion reveals the crucial fact that mere registration to GST will not enable a
business to claim for GST credit on purchase of inputs for business purpose. But some other
conditions are to be fulfilled. The basic condition that is needed to be fulfilled for claiming
the GST credit is that the purchase price of inputs must include the GST and the inputs must
be purchased for utilization of business purpose and finally the claiming organization as well
as supplier of inputs both must be GST registered.
Question 2: Capital gains tax (CGT)
A discussion regarding the material facts with respect to an individual:
Emma is an individual who is looking for submitting her income tax return for the year of
2015 and in the following part of the assessment the impact of the different transactions that
are being carried out by Emma has been evaluated in order to find out that which of the
following transactions are generating the taxable income that will come under the capital gain
taxation.
The capital gain tax is a kind of taxation that is imposed upon the profit or income being
generated from the sale of assets like immovable properties, shares, real estate properties etc
and the tax on income generated from sell of asset is imposed in the year in which the
transaction has been initiated and not in the year when the deal or transaction has been settled
finally. A 50% discount will be available in case of an individual and 33.3% in case of a
business organization provided the asset is being held more than 1 year before the disposal of
the asset (Tiley and Loutzenhiser 2012)..
The capital gain taxation rate is 30% for the business organization whereas in case of
individual the income generated from transaction of assets is being added to the total taxable
income of an individual and will be taxed as per the declared tax rate (for individual) of a
particular financial year under consideration.

IN-depth analysis and application of the taxation laws to the identified material
facts with respect to Emma
Sale of a block of land for $1,000,000:

Transaction holder’s type INDIVIDUAL
Period of transaction Greater than 1 year
A$ A$
Sale of a block of land (2015) 10, 00,000
Time of acquiring the asset 1991
Purchase price 2, 50,000
Net gain (selling price - purchase price) 7, 50,000
Cost of Ownership
Cost of purchase
Stamp duty 5000
Legal fees 10000
Interest cost 32000
47000
Land maintenance cost
Council rates, water rates
And insurance 22000
Legal fees for resolving land dispute 5000
Removal of dangerous trees 27500
54500
Cost of sales
Advertising, legal fees and agent’s fees 25000
Total ownership cost on the land 3,
76,500
Net Capital gain or loss 3,

The above calculation refers to the fact that the cost of ownership includes the cost of
purchase (A$47000) as well as cost of maintenance (A$54500) and these costs are to be
deducted from the capital gain being generated from the sale of land. Finally, the cost of
sales (A$25000) which is also a part of the ownership cost is being deducted from the capital
gain which is generated from the sale of land and the final net capital gain being calculated as
A$373500. As this is an individual transaction where the asset is being held for more than 1
year, therefore Emma is eligible for 50% discount .thus only 50% of the net capital gain
(A$373500*0.50) = A$186750 will be added to the total taxable income of Emma for the
purpose of taxation ("Capital gains tax", 2019)

Sale of Emma’s 1000 shares in Rio Tinto for $50.85 per share:
Transaction holders type Individual
Period of transaction held Greater than 1 year
A$
Sale of shares [1000 shares @ of $ 50.85] (2015) 50,850
Acquisition time 1982
Purchase cost [1000 shares @ of $ 3.5 ] 3,500
Capital gain or loss 47,350
Less brokerage fees 2% on sales 1017
Net capital gain or loss 46,333
A 50% discount is applicable as transaction is being done by an individual and the asset being held for
more than 1 year before transaction has been done so capital profit of (46333*0.50) = A$ 23166.5 will
be added to the taxable income of the business .

The capital gain being generated from the sale of shares (Selling price of shares – purchase
cost of share) = $47350 and the brokerage fees of 2% on saels (50850*0.02=A$1017) is
being deducted from the derived calculated capital gain in order to calculated the net capital
gain of A$46333, as Emma is an individual and the asset is being held for more than 1 year
before the transaction has been held , therefore a discount of 50% will be applied to the net
capital gain and (A$46333*0.50)= A$23166 will be added to the total taxable income of
Emma from this transaction of sale of shares ("Selling an asset and other CGT events", 2019)
Sale of a stamp collection Emma had purchased, from a private collector, in
January 2015 for $60,000:
Transaction holder’s type Individual
Period of transaction held less than one year
A$
Sale of collected stamps (2015) 60,000
Acquisition cost of stamps (January, 2015) 5,000
Capital gains 55,000
Exemption available for $500, as stamp collection upto
$500 is considered as enjoyment 500
Amount to be added to the taxable income of EMA 54,500

Stamps are being considered as collectable and the values of collectables are not being
considered for taxation up to A$500. But here both the cost of acquisition of the stamps and
selling price of stamp is much higher than the limit of A$500 and therefore the transaction is
generating a capital gain of A$55000 out of which A$500 is being deducted as up to A$500
value of stamps are not being taxed on the basis of the assumption that they are being
collected for enjoyment. Thus the next taxable capital gain generated from the transaction is
A$54500 and no discount of 50% will be applied as the asset holding period is less than 1
year("Calculating and paying capital gains tax", 2019)

Sale of a grand piano for $30,000:
As the sale of Piano is only generating capital loss therefore no capital gain taxation will be
imposed on capital loss.
Transaction holder’s type Individual
Period of transaction held greater than one year
A$
Sale of Piano (2015) 30,000
Acquisition cost of piano (2000) 80,000
Capital loss -50,000

Conclusion:
Thus from the above discussion it can be seen that asset transactions like sale of land , sale of
shares and sale of stamps are generating taxable capital gains but as sell of piano is
generating capital loss therefore no taxation will be imposed on that capital loss (Altshuler, et
al. 2010).

References
Altshuler, R., Harris, B. H., and Toder, E. (2010). Capital income taxation and progressivity
in a global economy. Va. Tax Rev., 30, 355.
Calculating and paying capital gains tax. (2019). Retrieved 24 September 2019, from
https://www.nab.com.au/personal/life-moments/manage-money/money-basics/capital-gains-
tax
Capital gains tax. (2019). Retrieved 24 September 2019, from
https://www.ato.gov.au/General/Capital-gains-tax/
Cases Where Input Tax Credit under GST Cannot Be Availed. (2019). Retrieved 24
September 2019, from https://cleartax.in/s/gst-cases-where-input-tax-credit-is-unavailable
Claiming GST credits. (2019). Retrieved 24 September 2019, from
https://www.ato.gov.au/Business/GST/Claiming-GST-credits/
Selling an asset and other CGT events. (2019). Retrieved 24 September 2019, from
https://www.ato.gov.au/general/capital-gains-tax/selling-an-asset-and-other-cgt-events/
Tiley, J., & Loutzenhiser, G. (2012). Revenue law: introduction to UK tax law; income tax;
capital gains tax; inheritance tax. Bloomsbury Publishing.
When you can claim a GST credit. (2019). Retrieved 24 September 2019, from
https://www.ato.gov.au/business/gst/claiming-gst-credits/when-you-can-claim-a-gst-credit/
#HowToWorkOutAGSTCredit
When you cannot claim a GST credit. (2019). Retrieved 24 September 2019, from
https://www.ato.gov.au/business/gst/claiming-gst-credits/when-you-cannot-claim-a-gst-
credit/