Taxation Law Assignment: GST, Income Tax, and Capital Gains Tax

This taxation law assignment provides a detailed analysis of various tax scenarios under Australian law. The assignment covers several key areas, including Goods and Services Tax (GST) liability and credit availability for property sales, the tax implications of residential rent, and the calculation of annuity income. It further examines tax expenditures, the temporary budget repair levy, and the tax treatment of jewellery sales. The document also addresses income tax consequences of remuneration, the treatment of capital gains on property sales, and the tax implications of share trading. Additionally, it explores income tax liability on compensation received and provides a comprehensive analysis of capital gains on the sale of property and vacant land, including relevant case law such as Scottish Australian Mining Co ltd v FC of T. The solution thoroughly examines the tax implications of different financial transactions and investments, providing a robust understanding of taxation principles.

TAXATION LAW

TABLE OF CONTENTS
QUESTION 1...................................................................................................................................1
QUESTION 2...................................................................................................................................4
REFERENCES................................................................................................................................6
BIBLIOGRAPHY............................................................................................................................7

QUESTION 1
1. Tax liability and credit availability to Jason
 Construction of residential property for sale
 Jason is liable to pay GST on sale of such property
 Jason can claim credit for construction cost and purchase made for sale of property.
Amount of GST Payable: One eleventh of sales price of residential house.
If he is registered under Margin Scheme, he has to pay GST as one eleventh of margin of
sales. This is calculated as sales price deducted by amount paid for property or sum of money of
place valuation (Ford & Van, 2016). But in this case, GST credit cannot be availed by Jason that
paid on purchase made by him for construction of the residential home.
(b.) Tax liability and credit availability to Ivy:
Subdivision 40 B—Residential rent
40-35 Residential rent
1. Sale of a residential premise by way of lease, Hire purchase or license are liable for input
tax.
2. The extent of input tax is up to an extent for which it is used predominately for residential
settlement. Objecting decisions of ATO:
 An objection must be filed in written format (letter/form of ATO) within the prescribed
time limit.
 Friend can also file his compliant through fax or posts
 He can also authorise another person to file his complaint, who can be
1. Friend, Spouse or a tax agent
2. Personal Legal Representative
Inclusion in objection form: Add the information about why you think decision given by ATO is
incorrect.
 Providing a declaration that all info and documents supporting objection are true and
correct.
 Must be signed and dated.
To avoid any delay, one must include following in his/her objection:
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 complete personal details must be declared , if it is filed form another Australian
taxpayer, full name, contact detail and tax file number of that person must be mentioned
in form (Bryant, 2017).
 Complete details like decision, year, or tax period must be provided with objection.
 Relevant facts, information and arguments must be attached with objection along with
this supporting document must be attached which must be true and fair to its facts.
3. Tax liability of annul annuity instalment
A part of the instalment is taxed as ordinary income, which is calculated as:
Section 27A of income tax assessment Act, 1936
This is a case of immediate annuity which is returned in equal tax free instalment over
payment period (Butler, 2016). Instalment received are subjected to tax and withholding amount
of annuity is determined by formula
 Annuity Payment- [Deductible Amount/Number of Instalments (For Monthly Or Weekly
Instalments)]
 Deductible Amount = [Purchase Price of Annuity- Residual Value] / Expected Life Of
Annuity
Case
Annuity Amount = $100000
Annual Instalment = $8000
Expected Life = 20 years
= 8000- [100000/20]
= 3000 will be taxed as ordinary income
4. Tax expenditure and its different treatment
Tax expenditure arises when there is a reduction in normal tax, liability from benchmark
tax treatment by use of tax exemption, deduction, offsets, concessional rate of tax for a particular
class of taxpayer or related with a specific activity (Lawrence and Bennett, 2017). Benchmark
means standard treatment which is related with all types of taxpayers/activities. Income Tax
Assessment Act, 1997
Section 4-10 working out how much income tax a person pays
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As per this section, an individual can plan to reduce his/her taxable income through
proper planning which include working out tax offsets for income of a financial year resulting in
decreasing tax liability.
Section 4-15 working out taxable income
As per this section, a taxpayer can work out his/her tax liability as assessable income
which is reduced by applicable deduction (Section 4-15, Income Tax Assessment Act 1997,
2018). These are defined in Division 8 of this act and all deduction in total, reduces taxable
income of a taxpayer.
5. Temporary budget repair levy
This was introduced in 2014-15 as a part of Federal Budget by the government;
as per this additional tax, it will be withheld by employer for individual’s taxpayer with income
more than $180000 per year with effect from 1st July 2014. This was calculated as 2% of each
dollar for income group of above $180000 (Jones,2016). In certain cases, this levy was
applicable to those who had an annual income less than the prescribed limit.
It was applicable to both resident and non-resident individuals for income years from
2014-15, 2015-16, and 2016-17. This levy ceases to apply with effect from 1st July 2017.
Calculation method
For individual tax payer, it was calculated separately from basic income tax liability. The
tax offset in form of non-refundable expenses are not allowed to be used for reducing tax
liability. In case, non-refundable tax offset are more than basic income tax then also the
individual had to pay it compulsorily.
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6. Tax liability on sale of jewellery
Income Tax Assessment Act 1997
Section 100-25
As per this section, net capital gain or losses for an income year attracts capital gain taxes
from sale of collectables such as jewellery or an artwork which have a cost of over $500 (Foley
& Williams, 2016).
Section 118-12 exemption:
In this case, asset is acquired for less than $10000, it is exempted from tax liability.taxation
Dixon, 2016).
For this case, jewellery is collectable, so any capital gain arising out of its sales must be
included in capital gain for that income year.
Case:
Property valuation= $9000
Sales price= $12000
Capital gain= $3000
Not included in capital gain in income.
7. Income tax consequences
Section 15(2) of the Income Tax Assessment Act 1997 provides definition of Assessable
income which includes allowances, gratuities compensation benefits, bonuses of all the
premiums directly or indirectly for any type of employment or any services b provided which
also includes any services given by the defence member whether money is rendered in any form.
In this case, remuneration of $ 100000 paid by employer is a compensation given
against bonus provided by previous employer so it is taxable in hands of employer when it is
received as in this case it is in 3 monthly instalments.
8. Treatment of capital gain
Section 100(30) of the Income Tax Assessment Act 1997, provides an exemption list of
the capital assets which are exempted.
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The asset which are exempted are given below-:
1. Cars
2. Compensation for personal injury
3. whenever tenancy comes to end
4. Family Home is also exempt but may change depending upon what have you done with it
fox example if they are having house to live and another property which they have rented
so the another property will be not exempt.
Section 104 (10) – the event given in the case will be considered when it has entered into
contract. In the given case, it is a holiday home which is to be sold out so it was assumed that it
has not been treated as Family Home, otherwise it would be exempt from Capital Gain tax and
will be taken as capital gain as the contract has been taken place on 1/06/2018 and deposit for it
has been received.
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9. Treatment of income on sale of share
As per Income Tax Assessment Act 1997, any individual capacity may trade in shares but
there is need to determine whether the shares have been purchased for investment or for trading
because treatment of CGT changes accordingly so to calculate we should see-:
 Nature of Business- Profit making i.e. buying and selling of shares
 Repetition Volume- Depends upon how much they trade i.e. frequency of transactions
 Capital Invested -:Thus, in the given case, it can be said that in the first 6 months, share
trading is frequent so taxable income will be calculated as share trader and thereupon in
next six months, it can have calculated as an investment.
Hope v. Bathurst City Council
Shields v. Deputy Commissioner of Taxation
10. Income tax liability on compensation received
Section 6(5) of Income Tax Assessment Act 1997, defnes that income includes income
according to ordinary concepts i.e. called ordinary income (Legal database, 2018). Ordinary
income is derived directly or indirectly from any sources, whether in or out of Australia.
Compensation received from any of cancellation of ordinary business contracts will be deemed
to be taxable in hands of receipt of assessee,
Heavy Minerals Ply Ltd V/s FCT.
Allied Mills Industries Pty Ltd. V. FCT
QUESTION 2
1. Taxation of amount received by Hannah
Inducement amount-=$50000
Allowance for relocation =$70000
This income will be added in taxable income of Hannah and she cannot claim any
deduction for this amount as taking up a transfer in the existing employment in form of
relocation and inducement allowances.
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CAPITAL GAIN ON SALE OF PROPERTY
2. Residential house
Purchased in 1998= $250000
2007 renovation= $200,000
Sale, October 2017 = $3,000,000
Real estate commissions and advertising fees = $60,000
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Legislation: Section 100-30 (ITAA,97)
Main resident of a person in Australia is exempted from capital gain tax (Schedule 6 -
Tax table for annuities, 2018). For this, property must have a dwelling on it and person have
lived in it.
A dwelling is considered as main residence when A person and his family live in it House have their personal belongings Mails get delivered on that address. This is the address on elective roll House has gas and power connections
Full main resident exemption
 the house on the property was used for purpose of resident form the date it was owned, by
a person, his family and dependents.
 House was not used to generate any income, which means that a business was not carried
from there, and not a single part was rented out.
 The land on which such house is situated of two hectares or less.
3. Block of land
Purchase in 2005 for business purpose (business not yet started)
Sale at profit of $2000000
Legislation: Section 104-10, (fundamentals of CGT)
As per Australian taxation office, on sale of vacant land, which is held as either for
private or investment purpose is considered as Capital Assets. In the given case study, the couple
had purchased property for business purpose but did not started any business and land was
vacant form the data it was purchased. So in this case, vacant land is capital asset for Hannah and
Hugo (Vacant land, 2018). Any profit earned on sale of such property is liable for capital gain
tax.
Case law
Scottish Australian Mining Co ltd v FC of T (1950) 81 CLR 188 ISSUE
This case was related with determination of whether taxpayer is liable to pay tax on sale
of land. Assessee realised a huge amount of profits of sale of subdivided land. As per Section
104 of ITAA, 97 an event of CGT arises when a capital asset is disposed off. The contention
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was that subdivided land do not fall under category of capital asset. In this case, it was held that
mere sub division of land and selling it in to parts/division does not change the fact that land is a
capital asset and taxpayer was asked to pay taxes on profits made on sale of such land in sub
parts.
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Capital gain tax on sub divided land
The profit from selling of a land is liable for capital gain taxes when it is sold ordinarily
not in course or furtherance of business to make profit. For this case, land w not sold to earn
profit and in course of business It was sold out as Hannah and Hugo were shifting to Sydney.
Capital gain arises on a block of land when it is divided in more than two sub parts and will
result in separate registration for each block. The time period for application of tax liability on
such capital profit is when all subdivided blocks are sold, not at the time of subdivision of the
land into small bloacks of 700 hectares
In this case capital gain of $200000, it will be liable to be taxed under capital gain tax and
but as last block was sold in July 2018, so capital gain will be added in income of the financial
year of 1st July 2107 to 30th June 2018. Proportion of capital profit to be added in income of
Hannah and Hugo can be 50-50% or in proportion they decide.
QUESTION 3
A.
Calculation of Capital Gain Tax
Apartment
Calculation of Cost Base
Purchase Price 580000
Add Stamp Duty 29870
Add Auctioneer and Advertising Cost 12000
Cost Base Unindexed 621870
Proceeds from selling house 800000
Less Cost Base Unindexed 621870
178130
As property purchase after 11.45 am on 21st sept 1999 the Discount model will
be applied
Capital Gain will be 89065
Car Toyota Exempt
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