Taxation Law Assignment: Finance, Capital Gains, and GST Analysis

This taxation law assignment addresses two key questions. The first question analyzes the case of City Sky Co, focusing on the issue of input tax credit claims related to a land purchase for apartment construction, referencing relevant GST rulings and legislation like the "GSTR 2008/1" and various sections of the "GST Act 1999". The analysis determines whether the acquisition qualifies as a creditable acquisition, considering the company's GST registration and the intended use of the land. The second question examines the capital gains tax (CGT) implications of various transactions by Emma, including the sale of a block of land, shares in Rio Tinto, and a collection of stamps. It applies relevant sections of the "ITAA 1997", such as "sec 6-10", "sec 102-5 (1)", "sec 104-10", and "sec 110-25", to calculate capital gains, considering cost bases, incidental costs, capital enhancements, and the impact of pre-CGT assets and collectibles. The assignment demonstrates the application of taxation principles to real-world financial scenarios.

Running head: TAXATION LAW
Taxation Law
Name of the Student
Name of the University
Authors Note
Course ID

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Table of Contents
Answer to question 1:.................................................................................................................2
Answer to question 2:.................................................................................................................4
References:...............................................................................................................................10

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Answer to question 1:
Issue:
The main issue that is related to the case of City Sky Co is regarding the claim for
input tax credit originating from the creditable transaction under “sec 11-5, GSTR 1999”.
Rule:
The goods and service tax ruling of “GSTR 2008/1” provides the guidelines regarding
the input tax credit originating from the creditable transaction. The ruling is largely related to
the GST that is payable or the input tax credits under the “GST Act of 1999” (Kraal and
Kasipillai 2016). The ruling also provides the explanation when the taxpayer should maintain
their books of accounts for the GST payable or the input tax credit regarding the sale of land
under the standard agreement of land.
According to this ruling, to claim the input tax credit the taxpayer should make the
creditable acquisition or the importation. As stated under this ruling, to make the creditable
acquisition or the import the taxpayers should make the acquisition or import completely or
partially for the creditable purpose only (Ramli et al., 2015). The general claims relating to
the tax credit originates from making the creditable acquisition and creditable import. A
supplier who makes the chargeable supplies will be accountable for the GST on the supplies.
Furthermore, the supplier is also permitted to get the input tax credit for acquisition it makes
that is associated to those supplies.
Under the “sec 11-20, GST Act 1999”, a company which is registered for the GST
purpose will be permitted to obtain the input tax credit for the creditable acquisition the
business during their business course (Tran-Nam, 2019). According to the “section 11-5,
GST Act 1999” a creditable acquisition generally happens if the business makes the

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acquisition completely or partly for the creditable purpose and other related requirements of
the “section 11-5, GST Act 1999” are satisfied. As per the “section 11-15, GST Act 1999” a
business that purchases or acquires a thing for the creditable purpose up to the level that the
company acquires the item in conducting its business activities.
There are also rules regarding the reverse charge mechanism where the purchaser is
required to pay the GST. The reverse charge rules are applicable when the purchaser buys a
thing that is completely for the business purpose. The circumstances where the reverse charge
mechanism is applicable denotes that the supply is connected with Australia and the purchase
done or performed is within Australia.
Application:
The case facts obtained suggest that City Sky Co is property development and
investment company that has purchased a vacant land in Brisbane. The company bought the
land for the purpose of building 15 apartments for sale. With regard to the “section 11-5,
GST Act 1999” the acquisition of land by City Sky Co cannot be regarded as the creditable
acquisition since it is a capital asset and it amounts to an immovable property because the
land was acquired completely for constructing apartment (Verikios, Patron and Gharibnavaz
2017). Furthermore, the company is also registered for the GST purpose.
As noted under “sec 11-15, GST Act 1999”, Sky City Co acquired the land for
creditable purpose up to the level that it is carrying on its enterprise for making taxable
supplies in future (Ranjan, 2018). As eminent, Sky City Co prepares to make the taxable
supply by building 15 apartments on the land and the same will not be considered liable for
GST. Sky City Co would not be permitted to obtain the input tax credit relating to the
acquisition associated to the supplies.

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The case study evidently provides the company Sky City Co is registered for the GST
purpose. The company cannot obtain the GST credit nor will it be allowed to obtain the input
tax credit for the creditable purpose regarding the acquisition of land that is made by the
company. The company here Sky City Co has made the creditable purchase of land since the
company has bought the land in conducting its business activities (Schenk, Thuronyi and Cui
2016).
Additionally, the company will only be permitted to claim input tax credit for the
legal services sought from the Maurice Blackburn since it is a taxable supply “sec 11-15,
GST Act 1999”. The legal services sought is falling inside the mechanism of reverse charge
and as a result City Sky Co being the service receiver will be liable for paying GST. The
company will be held eligible for claiming the input tax credit regarding the GST that is paid
to avail the services from the advocate.
Conclusion:
The above stated analysis can have concluded by stating that the company here Sky
City Co will be permitted to obtain the input tax credit under the “sec 11-15, GST Act 1999”
for the legal services sought from Maurice Blackburn. This is because the creditable
acquisition that is made by the company is entirely or completely for the use in business.
Answer to question 2:
Sale of a block of land for $1,000,000:
The provision of capital gains is applied on all the actual or realised gains. Under the
“sec 6-10, ITAA 1997” the capital gains are considered taxable as statutory income and it is
included into the assessable earnings of the taxpayer. Accordingly, “sec 102-5 (1)” is
regarded as the main operational provision of the CGT regime it comprises of the net capital
gains in the chargeable earnings (Hickman 2018). Capital gains are usually held taxable on

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the basis of the individual marginal rate however discount implies that only 50% of the
capital gains are taxed.
Whereas, “sec 104-10, ITAA 1997” is associated with the CGT event A1 that mainly
deals with the sale of the CGT asset (Krever and Sadiq 2019). This is applied on the CGT
asset that is bought following 19/9/85. As defined in the “sec 110-25, ITAA 1997” the cost
base of the CGT asset is generally made up of five elements. This comprises of the following;
Element 1: Money that is paid and the market value of the property that is needed to be paid
for purchasing the asset.
Element 2: This includes the incidental cost that has occurred for the acquisition of the asset.
Element 3: The cost involved in the ownership of the asset such as the loan interest, repairs
and insurance.
Element 4: The capital expenses occurred in increasing the value of the asset or which is
associated to the installation of the asset.
Element 5: The capital expenses that is occurred while maintaining the assets title and rights.
The taxpayer should denote that they are not permitted to obtain deduction for the
costs that are occurred in acquiring or selling the property. These costs are added into the cost
base of the property for the purpose of CGT.
Emma here sells the block of land for $1,000,000. The sale of land has resulted in the
CGT event A1 under “sec 104-10, ITAA 1997” (Bentley 2019). The acquisition price that
was paid for acquiring the land by Emma was $250,000. The cost that is occurred in
acquisition should be viewed as the cost paid to acquire the property based on the available
market value. The sum of $250,000 will be included in the first element of the cost base of
the land for CGT purpose.

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Emma is also seen to have paid a sum of $5000 in the stamp duty and $10,000 as the
legal fees to acquire the property. Neither of the above listed expenditure can be considered a
tax deductible. Nevertheless. Along with the purchase price of $250,000, these expenses will
be included under the second element of the cost base as the incidental cost of the property.
Emma paid a council fees, insurance, rates and water charges that totalled $22,000.
These expenses are non-capital ownership expenditure and these costs have not been claimed
by Emma as tax deduction. Under the third element of the cost base and reduced cost of the
land it will be added for CGT purpose.
She later reports that she had paid a sum of $5000 as the legal expenditure for solving
the dispute with the neighbours. These cost will be identified as the capital expenses that
Emma has incurred in maintaining the rights of the title to the asset. Hence, as the cost is non-
deductible it would be added into the cost base of the asset under the fifth element.
Emma also incurred an expense of $27,500 for removing the pine trees that were on
the property. The expenses incurred should be viewed as the capital expenditure that is
occurred in increasing the value of the asset. Under the fourth element of the cost base it
would be added for the CGT purpose. The overall cost base for the CGT purpose is computed
below;

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Computation of Capital Gains
Particulars Amount ($) Amount ($)
CGT Event A 1 [s.104-10 (1), ITAA 1997]
Sales Proceeds 1,000,000
Less: Cost of Sale 25,000
Gross Proceeds 975,000
Element 1 [s.110-25(2) ITAA 1997]
Cost of Acquisition 250,000
Element 2 [s.110-25 ITAA 1997]
Add: Incidental Cost
Stamp Duty 5,000
Legal Fees 10,000
Element 3 [s.110-25 (4), ITAA 1997]
Non-Capital ownership cost
Interest on Loan 32,000
Element 4 [s.110-25 (5) ITAA 1997]
Capital enhancement cost
Removal of Pine trees 27,500
Element 5 [s.110-25 (6), ITAA 97]
Capital Expenditure
Legal Fees 5,000
Total Cost Base 329,500
Capital Gains 645,500
50% CGT Discount 322,750
Net Capital Gains 322,750
Sale of Emma’s 1000 shares in Rio Tinto for $50.85 per share:
“Sec 108-5, ITAA 1997” explains that the CGT asset includes any form of property
or the legal or the equitable rights which is not the property. The examples of the assets
include the shares in company or units in the trust (Steyn et al., 2018). When a taxpayer
makes the capital loss then the capital is only allowed to be offset against the capital gains
and it is not deductible. The net loss should be carried forward by the taxpayer to the next
year. The regimes of CGT was introduced in 20th September 1985 and assets that are acquired

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after that date are taken into the consideration only while assets that are purchased before that
date are exempted from capital gains tax and classified as pre-CGT asset.
Emma here purchased shares in the Rio Tinto for $3.5 in 1982 while she sold it for
$50.85 per share in the present tax year.
Computation of Capital Gains
Particulars Amount ($) Amount ($)
CGT Event A 1 [s.104-10 (1), ITAA 1997]
Sale of Shares in Rio Tinto
Sales Proceeds 50,850
Less: Brokerage Fees 1,017
Gross Proceeds 49,833
Element 1 [s.110-25(2) ITAA 1997]
Cost of Acquisition 3500
Net Capital Gains (Exempted) 46,333
The sale of shares has resulted in the CGT event A1 under “sec 104-10, ITAA 1997”.
The shares were bought by Emma before the introduction of the CGT regimes hence the asset
will be classified as the pre-CGT asset. The capital gains that are made from the shares will
be exempted from the CGT purpose because the shares are pre-CGT asset.
Sale of stamps for $60,000:
As noted in “sec 108-10 (2)” collectibles represent the items that kept by taxpayer for
their own personal enjoyment and usage (He et al., 2019). The examples of the collectables
include the following;
a. Antiques
b. Artwork involving paintings, sculptures
c. Jewellery
d. Rare stamps and coins

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The capital loss that is produced from the collectables must be disregarded and it is only
allowable to be offset alongside to the capital gains made from the collectables.
Emma in this situation has bought a collection of stamp from the private collector by
paying a price of $60,000. The collection of her stamps were sold by Emma for $50,000 in
the auction with total fees for sale standing $5,000. The stamps can be classified as the
collectable under “sec 108-10 (2)” which Emma had kept for her use enjoyment and usage.
The sale of stamps has led to CGT event A1. As the stamps has been classified as the
collectables and its sale has led to capital loss. Emma is required to disregard the capital loss
under “sec 108-10 (1), ITAA 1997” because she did not make any capital gains from the
collectables in the present tax year. Hence, she should carry forward the capital loss to the
subsequent years for offset.
Computation of Capital Gains/Loss
Particulars Amount ($) Amount ($)
CGT Event A 1 [s.104-10 (1), ITAA 1997]
Sale of Stamps
Sales Proceeds 50,000
Less: Auction Fees 5,000
Gross Proceeds 45,000
Element 1 [s.110-25(2) ITAA 1997]
Cost of Acquisition 60,000
Net Capital Loss -15,000
Sale of grand piano for $30,000:
The personal use asset is defined in “sec 108-20, ITAA 1997”. These assets include
the boats, furniture, house hold items that are kept or used for private usage and enjoyment by
taxpayers (Edmonds 2018). The taxpayer must note that the capital loss which is suffered
from the disposal of the personal use asset is disregarded under “sec 108-20 (1), ITAA
1997”.

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A grand piano which was held by Emma was sold for $30,000. The piano was bought
for $80,000 in 2000. The piano must be treated as the personal use asset under “sec 108-20,
ITAA 1997”. Hence, the capital loss that is suffered by Emma should be simply ignored
under “sec 108-20 (1), ITAA 1997”.
Computation of Capital Gains/Loss
Particulars Amount ($) Amount ($)
CGT Event A 1 [s.104-10 (1), ITAA 1997]
Sale of Piano
Sales Proceeds 30,000
Element 1 [s.110-25(2) ITAA 1997]
Cost of Acquisition 80,000
Net Capital Loss -50,000

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References:
Bentley, D., 2019. Does A Capital Gains Tax Work? The Australian Experience Eleven
Years On. Journal of Malaysian and Comparative Law, 23, pp.13-36.
Edmonds, R., 2018. Resource Capital Fund IV LP: the issues on appeal?. Taxation in
Australia, 53(1), p.22.
He, E., Jacob, M., Vashishtha, R. and Venkatachalam, M., 2019. The effect of capital gains
tax policy changes on long-term investments. Available at SSRN 3383649.
Hickman, K., 2018. From capital gains to tax administration, and everything in between: in
honour of Professor Chris Evans. eJTR, 16, p.269.
Kraal, D. and Kasipillai, J., 2016. Finally, a goods and services tax for Malaysia: A
comparison to Australia's GST experience. Austl. Tax F., 31, p.257.
Krever, R. and Sadiq, K., 2019. Non-residents and capital gains tax in Australia. Canadian
Tax Journal/Revue fiscale canadienne, 67(1).
Ramli, R., Palil, M.R., Hassan, N.S.A. and Mustapha, A.F., 2015. Compliance costs of Goods
and Services Tax (GST) among small and medium enterprises. Jurnal Pengurusan (UKM
Journal of Management), 45.
Ranjan, R., 2018. Goods and Services Tax (GST): An Overview. Journal Homepage:
http://www. ijmra. us, 8(8).
Schenk, A., Thuronyi, V. and Cui, W., 2016. Value added tax: a comparative approach.
Steyn, T., Smulders, S., Stark, K. and Penning, I., 2018. Capital gains tax research: an initial
synthesis of the literature. eJTR, 16, p.278.

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Tran-Nam, B., 2019. The Goods and Services Tax (GST): The public value of a contested
reform. Successful Public Policy, p.235.
Verikios, G., Patron, J. and Gharibnavaz, R., 2017. Decomposing the Marginal Excess
Burden of Australia’s Goods and Services Tax.