HI6028 Taxation Theory, Practice & Law Assignment: GST and CGT

This assignment analyzes two key aspects of Australian taxation law: Goods and Services Tax (GST) and Capital Gains Tax (CGT). The GST section examines the City Sky Co. case study, assessing the applicability of GST credits for construction inputs and legal services, considering relevant tax laws and material facts. It determines whether GST credit is applicable in the case of wage payments to a lawyer. The CGT portion focuses on Emma's financial transactions, including the sale of land, shares, a stamp collection, and a piano. It calculates capital gains and losses, applying relevant tax laws to determine the tax implications of each transaction, including ownership costs, discounts, and taxable income, providing a detailed breakdown of each scenario.

Taxation Theory, Practice & Law

Table of Contents
Question 1: The goods and services tax (GST).................................................................3
Introduction...........................................................................................................................3
Description of GST credit:..................................................................................................3
Identification of legal issues and relevant taxation laws:..............................................4
Succinct application of tax law to material facts:............................................................4
Conclusions:.........................................................................................................................5
Question 2: Capital gains tax (CGT)....................................................................................6
Introduction...........................................................................................................................6
Description of Capital gains tax (CGT):................................................................................6
Identification of legal issues and succinct application of relevant tax law to material
facts:......................................................................................................................................7
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:.................................8
Sale of a stamp collection Emma had purchased, from a private collector, in
January 2015 for $60,000:.................................................................................................9
Sale of a grand piano for $30,000:...................................................................................9
Conclusion:.........................................................................................................................10
Reference:..............................................................................................................................11

Question 1: The goods and services tax (GST)
Introduction
The first part deals with the consequences of goods and service tax (GST) in the
context of the case study of The City Sky co. It focus on the legal issues relevant to
taxation law and GST credit, identification of material facts with respect to GST
aspect along with the application of tax laws to material facts succinctly. It also
covers if GST credit applicable in case of wage payment made to lawyer.
Description of GST credit:
An input tax credit or GST credit can be claimed by a business organization when
the GST is included in the price of goods & services or the inputs that are being
bought for utilizing those inputs for business purposes only.
The GST credit refers to the fact that if a business organization makes some
purchase of goods and services that are to be utilised for business purpose only and
if the business has acquired those goods and services at a GST inclusive price
where the total monetary value of the GST inclusive price is higher than A$82.50,
then the business is entitled to claim credit or exemption for the GST included in the
price of those inputs being purchased ("Claiming GST credits", 2019).
Identification of material facts regarding The City Sky Co goods and services
taxation aspects:
In the present scenario the business organization City Sky Co which is GST
registered is looking for building 15 apartments on a vacant piece of land south of
Brisbane. The apartments are being built for selling them out in future.
As City Sky Co is GST registered then the business is entitled to claim GST credit on
the supply price of inputs or goods & services that are to be purchased for business
purpose provided that the supply price of inputs or goods & services are including
the GST and the inputs are being supplied by a supplier who is also registered for
GST.
In addition to that it is being assumed that City Sky Co is keeping the invoices of
purchases of inputs that are being purchased from a GST registered supplier who is

supplying the inputs at a GST inclusive price("Wondering what an input tax credit
is?",2019).
Identification of legal issues and relevant taxation laws:
A business organization can claim for GST credit on purchase of goods and services
or inputs that are going to be solely used for business purpose provided both the
purchaser of input as well as supplier of inputs are GST registered and the invoice
containing GST inclusive price of inputs is higher than A$82.50.
However the business will not be able to claim GST credit on GST inclusive
purchase price of goods and services provided the inputs are to be used in some
private purpose and either purchaser or both the purchaser or the supplier are not
registered for GST.
The purchaser for goods and services will not be entitled to GST provided the input
price of GST free (like the ingredients of basic food) and if the input purchased is
input taxed.
Input tax credit or ITC cannot be claimed in case of the purchase of the following
items;
On purchase of vehicles used for transportation
On purchase of Food, beverages& club membership services
On purchase of insurance, repair and maintenance services
On hiring of work contract services
On purchase of inputs to be used for construction of immovable properties where the
constructions are to be done in own account of the ‘purchaser of inputs
On Wages paid to the staff ("When you cannot claim a GST credit", 2019)
Succinct application of tax law to material facts:
But here the organization City Sky Co is purchasing the inputs at a GST inclusive
price where the inputs are to be used for manufacturing building apartments which
can be categorised as immovable property to be prepared in the own account of the

business which will be later sold by the business("When you cannot claim a GST
credit", 2019).
Thus it can be seen that City Sky Co is going to build this apartments in their own
account only with an intention for selling them out latter and thus the building
apartments that are going to be prepared by the business is not going to be used for
manufacturing purpose unlike plant and machineries. In such a situation City SKY
Co is not supposed to entitle for the GST credit ("Cases Where Input Tax Credit
under GST Cannot Be Availed", 2019).
But if the City Sky Co was going to purchase those inputs for developing plant and
machineries then the company could have claimed for a GST credit at the rate of
10%(as the GST tax rate in Australia is 10%) over the purchase price (inclusive of
GST) of inputs that would have been used for building the plant and machineries that
are going to be used for developing the plant and machineries ("GST", 2019).
The other factor that must be taken under consideration is that the City Sky Co has
hired a local lawyer Maurice Blackburn for providing the legal services as well as
legal issues that will arise while holding the development process. The hiring cost of
the lawyer Maurice Blackburn is $33,000 which City Sky Co is paying out to the
lawyer as wage. As the amount $33,000 is paid out as wage, therefore City Sky Co
will not be able to claim for any GST credit with respect to this service being
purchased. The legislation of input tax credit requires that GST credit cannot be
claimed on wage being paid to a staff (Maurice Blackburn) who is being hired under
a contract ("GST", 2019).
Conclusions:
From the above discussion of the case study incidence following the relevant tax law
it can be seen that the chosen organization of City Sky Co is not entitled to claim for
a GST credit on purchase of inputs to be used for construction of apartments where
the construction of these immovable properties are primarily going to be done in the
account of the company and the immovable property is not going to be used for
manufacturing purchase.

Secondly the City Sky Co is not also entitled to claim GST credit on purchase of the
service of the lawyer Maurice Blackburn where the company is paying out an amount
of 33000 as wage to the lawyer for his service of legal advice as GST credit is not
applicable over wage payment.
Question 2: Capital gains tax (CGT)
Introduction
This section deals with the tax application pertaining to capital gains tax (GST) for
Emma who conducts different transaction of sales namely block land, shares, stamp
collectible and piano. It evaluates the legal issues and financial implication on the
sale transaction She incurs a profit in the first three and a loss in the sale of Piano
and how it impacts her taxable income is explained with calculation and justification.
Description of Capital gains tax (CGT):
The capital gain taxation in Australia refers to the taxation to be imposed on gain or
profit earned on the sale of asset. The assets that are taxed are properties, real
estate and shares.
The capital gain taxation is being imposed on in the year in which the contract of
asset disposal has been undertaken and not in the year in which the asset is being
disposed and final settlement is being received.
If a property is held for more than one year after the purchase of the asset till the
initiation of the disposal contract, then an individual is eligible for a 50% discount
over the gain attained from sale of asset and a company is only eligible for a 33.3%
discount ("Capital gains tax", 2019).
In case of an individual the taxable capital gain amount is being added to the total
income and the taxation is being done as per the income tax rate being defined with
respect to the income slabs being specified in a particular year. Whereas, in case of
a company a flat rate of 30% taxation to be imposed on the amount of capital gain.
Both individual as well as company will not have to pay any kind of capital gain
taxation over capital loss. However the capital loss cannot be used for tax

deductions with respect to the other income that are chargeable to tax (eChoice Ltd,
2019)
Identification of legal issues and succinct application of relevant tax law
to material facts:
Sale of a block of land for $1,000,000:
Block of land is a property and any income from it is taxable
Transaction holders type individual
Period of transaction held
more than one
year
Sale of a block of land (2015) 10,00,000
A$ A$
Acquisition time 1991
Purchase price 2,50,000
Net gain 7,50,000
Ownership costs
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
disputes 5000
removal of dangerous trees 27500
54500
Cost of sales
Advertising, legal fees and
agent’s fees 25000 25000

Total ownership cost on the
land 3,76,500
Net Capital gain or loss 3,73,500
As Emma is an individual so she is eligible for a 50% discount on net capital gain
and therefore only 50% of $ 373500 or $ 186750 will be added to the total taxable
income of Emma. Additionally as the property was being purchased after September
20, 1985 and before September 21, 1999, therefore the indexation method (marginal
tax rate*indexation factor*capital gain amount) will be applied for calculating the
actual tax liability.
For the purpose of calculating the capital gain taxation first of all the gain from the
disposal of asset is being calculated, then the ownership costs [cost of purchase,
cost of land maintenance and finally cost of sales] are being deducted from the
calculated capital gain for deriving the net capital gain on which 50% discount is
being applied and then the discounted amount will be added to the total taxable
income of Emma.
Sale of Emma’s 1000 shares in Rio Tinto for $50.85 per share:
Transaction holders type individual
Period of transaction held
more than one
year
Sale of shares[1000 shares @
of $ 50.85 ] (2015) 50,850
A$ A$
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
Discount applicable 50% as
transaction type is individual;
so the taxable portion of capital
23166.5

profit is
Thus it can be seen that out of the taxable capital gain generated from sale of shares
is $23166.5 and this amount will be added to the total taxable income of Emma and
the indexation method will not be applied in the taxation process as the property is
being acquired before September 20, 1985 and the discount rate of 50% will be
applied as the shares are being held for more than 1 year (Nab.com.au, 2019)..
Sale of a stamp collection Emma had purchased, from a private collector, in
January 2015 for $60,000:
Transaction holders type individual
Period of transaction held
less than one
year
A$ 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 Emma 54,500
Emma has sold her collectables or stamps and the monetary value of stamps being
collected is $5000 which is much higher than the value of $500. Thus the capital
gains received from sale of stamps for collectable will not be exempted. Thus it is
being recommended that Emma should pay the tax on the gain (Ato.gov.au, 2019) .
Sale of a grand piano for $30,000:
Transaction holders type individual
Period of transaction held
more than
one year

A$ A$
Sale of Piano (2015) 30,000
acquisition cost of piano(2000) 80000
Capital loss -50,000
Thus from the above calculation it can be seen that Emma has earned a capital loss
of $(50,000) on sale of Piano and therefore capital gain taxation will not be applied
over the capital loss being earned on the disposal of the Piano(Nab.com.au, 2019).
Conclusion:
Thus from the above discussion it can be seen that out of the different transactions
being carried out by Emma the capital gains generated from sales of property , sale
of shares and sale of collectables(stamps) are generating taxable incomes that
should be subjected to capital gain taxation and should be added to the total taxable
income of Emma as per the individual taxation slabs and rates being specified in
2015.The disposal of Piano is generating a capital loss and will not be subjected to
any kind of taxation loss(Ato.gov.au, 2019).

Reference:
Ato.gov.au. (2019). Capital gains tax. Retrieved 21 September 2019, from
https://www.ato.gov.au/General/Capital-gains-tax/
Ato.gov.au. (2019). CGT assets and exemptions. Retrieved 21 September 2019,
from https://www.ato.gov.au/general/capital-gains-tax/cgt-assets-and-
exemptions/
Capital gains tax. (2019). Retrieved 21 September 2019, from
https://www.ato.gov.au/General/Capital-gains-tax/
Cases Where Input Tax Credit under GST Cannot Be Availed. (2019). Retrieved 21
September 2019, from https://cleartax.in/s/gst-cases-where-input-tax-credit-is-
unavailable
Claiming GST credits. (2019). Retrieved 21 September 2019, from
https://www.ato.gov.au/Business/GST/Claiming-GST-credits/
eChoice Ltd. (2019). What is Capital Gains Tax? How is it Calculated?. Retrieved 21
September 2019, from https://www.echoice.com.au/guides/capital-gains-tax-
calculated/
GST. (2019). Retrieved 21 September 2019, from
https://www.ato.gov.au/Business/GST/
Nab.com.au. (2019). Calculating and paying capital gains tax. Retrieved 21
September 2019, from https://www.nab.com.au/personal/life-moments/manage-
money/money-basics/capital-gains-tax
When you cannot claim a GST credit. (2019). Retrieved 21 September 2019, from
https://www.ato.gov.au/business/gst/claiming-gst-credits/when-you-cannot-
claim-a-gst-credit/
Wondering what an input tax credit is?. (2019). Retrieved 21 September 2019, from
https://www.ato.gov.au/Newsroom/smallbusiness/GST-and-excise/Wondering-
what-an-input-tax-credit-is-/