Holmes Institute HI6028 Taxation Assignment: Analysis of Tax Law

This assignment solution for HI6028 Taxation Theory, Practice & Law analyzes two key areas of Australian taxation: Goods and Services Tax (GST) and Capital Gains Tax (CGT). The solution begins with an examination of GST, specifically its application to property transactions, including the purchase of vacant land and the legal services provided to a development company, and whether the company is eligible for input tax credit. The second part of the assignment focuses on Capital Gains Tax (CGT), assessing the tax implications of various asset sales, including a block of land, shares, and a stamp collection. The analysis considers relevant legislation, cost base calculations, and exemptions, providing a comprehensive understanding of CGT principles. The assignment demonstrates an understanding of the Australian income tax system, identifies and analyzes taxation issues, interprets relevant legislation, and applies taxation principles to real-life problems. The document includes a detailed breakdown of each scenario, relevant calculations, and citations from the Australian Taxation Office (ATO).

Running head: TAXATION THEORY, PRACTICE AND
LAW
Taxation Theory, Practice and Law
Name of the Student
Name of the University
Author Note

1TAXATION THEORY, PRACTICE AND LAW
Table of Contents
Answer to Question 1........................................................2
The Goods and Service Tax (GST)..................................2
 GST and Property...................................................2
 Material facts Identification and Application of Tax
Law................................................................................2
 Legal Issues identification and analysis..................4
Answer to Question 2........................................................5
Capital Gains Tax (CGT)..................................................5
 CGT Asset...............................................................6
(a) Sale of a block of land- $1,000,000........................6
(b) Sale of 1000 shares- $ 50.85 per share.................9
(c) Sale of Stamp collection- $ 50,000.......................10
(d) Sale of Grand Piano- $30,000..............................11
References......................................................................13

2TAXATION THEORY, PRACTICE AND LAW
Answer to Question 1
The Goods and Service Tax (GST)
 GST and Property
Goods and Service Tax is applicable to that type of
property where the dealer has registered for the purpose
of GST. The registration on GST is required even for the
non-business and certain conditions have made by the
government regarding this like the business if:
 The amount of turnover is more than the verge of
GST registration from the transaction made for
property and including other transactions (Chung
2018)
 It is considered as business activities like
purchase of land with the intention of immediate
resale it for earning profit with this.
The treatment for GST on the property varies on
the purpose and its type. As per the Australian Taxation
Office (Ato.gov.au 2019) Property includes: land,
buildings, interest in land or can be the rights over land or
license to occupy the land.
 Material facts Identification and Application of
Tax Law
It is mentioned in the given case that the City Sky
Company is considered to be registered for GST,
purpose. So it is a registered company and hence eligible

3TAXATION THEORY, PRACTICE AND LAW
for claim input tax credit. It is a credit that a taxpayer
claims on the GST price that included in the inputs
purchased for the purpose to use in the business
(Christensen 2017). If a company has not registered for
GST, then it is not eligible to claim an input tax credit.
Further, the company has recently purchased vacant land
in the south of Brisbane on which they have a plan to
construct fifteen new apartments to sell for their earning.
 City Sky Co has purchased a vacant land that
considered being as immovable property, and it
does not come under goods as well as services.
Therefore, GST will not be applicable to the
purchase of vacant land (Daley and Coates 2015).
Along with that vacant land on which a building or
apartment is going to be constructed for sell does
not consider to be a residential premise.
Hence, in this case, the company is not eligible for
the GST on purchase of vacant land.
 Addition to this the co is planning to construct
apartments and then to sell it. As per the ATO, it
comes within the provision that if a taxable person
has purchased that vacant land for the
construction of immovable property for own or
business use then it will not be eligible to an input
tax credit (Du Preez and Klein 2014). Therefore,

4TAXATION THEORY, PRACTICE AND LAW
City Sky Co is not applicable for the entitlement of
Input tax credit.
Hence, the identified facts related to the material
for the company for its purchase of a vacant piece of land
considered as immovable property for its furtherance of
business does not come within the entitlement of Goods
and Services Tax, nor it is eligible for the appliance of
Input tax Credit or GST credit.
 Legal Issues identification and analysis
The legal issue that has been found in this case is that
the City Sky Company has availed a service from the
local lawyer named as Maurice Blackburn that provides
legal services. The company required legal services for
the development that costs to $33,000.
ATO has declared some different conditions where
the purchaser is liable to pay GST called Reverse
Charge. Government has declared Supplies of good as
well as services for both the aspect within the reverse
charge mechanism (Krever and Teoh 2017). In the
supplies of Services under Reverse charged mechanism
also includes any legal services provided by an advocate
on the entity located within a taxable territory.
As per Australian taxation offices, it has made
clear that, any developmental services taken from a
lawyer comes within the ‘Reverse Charge Mechanism.'

5TAXATION THEORY, PRACTICE AND LAW
ATO has declared the amount is to be paid on reverse
charge GST is 10% (Ato.gov.au 2019). The company is a
development company; thus, the lawyer that the company
has hired is for the purpose of their business. The service
that the lawyer is providing to the company is for its
business purpose, and hence the City Sky Co is eligible
to be entitled to Input tax credit or can say GST credit for
the GST paid to avail that service. In the condition of the
reverse charge, the receiver is liable to pay the GST only
if the person has availed that service for the purpose of
its business only otherwise it will not come under reverse
charge and hence not eligible for the input tax credit of
paid GST on the services that has provided by the
lawyer.
Further, Maurice Blackburn revenue stated as
$300,000 in the case given. This information is not
relevant for availing the input tax credit to the company
for the development services taken and hence, not
required this information as necessary.
After the analysis on the legal part, it can be
concluded that the City Sky Company is liable to attain
the input tax credit as the company has paid on the legal
services that are provided by a lawyer as development
service to the company.

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Answer to Question 2
Capital Gains Tax (CGT)
In the transaction made within the Australian
commercials, there occurs a condition of state or federal
tax. The capital gain made by a person on disposal of an
asset is liable to be applied with Capital Gain Tax with
suitable exceptions as well as exemptions (McCluskey
and Frazsen 2017). CGT is not a separate tax that is
imposed by the government. It is a part of Income tax
only. A person with a capital loss is not eligible to claim
against his/her income, but against capital gain in current
or futures years, it can be decreased or carried forward
and deductible.
 CGT Asset
According to “Section 108-5” of the Income tax
Assessment Act 1997, a CGT asset includes items such
as:
 A property
 A right (legal or equitable) other than the property
 An interest or part of the interest of asset stated
above
 Goodwill or interest made on a goodwill
 An interest made on a partnership asset
If the person is recognized as an Australian
resident, then the assets covered as a capital gain will be

7TAXATION THEORY, PRACTICE AND LAW
taxable within the CGT whether the asset is in Australia
or sold out in any location (Ato.gov.au 2019). The current
tax rate that is to be imposed on CGT as per the income
slabs referred by ATO as per the person’s income is 0%,
15% and the highest tax rate is 28%.
(a) Sale of a block of land- $1,000,000
As per the ATO vacant land acquired by a person
either that is for personal purpose or for investment, then
it will be treated as a capital asset (Evans, Minas and Lim
2015). Hence liable for the Capital Gain Tax.
 Cost Base
Here, Emma has sold the land at the cost of
$1,000,000 that was purchased by her as an investment
in the year 1991. The cost base is required that is to be
deducted by the disposal value of an asset to find out the
amount of capital raised due to the sale of that vacant
land. In this case, the cost base of a block of land is
stated as $1,000,000 with a certain area of deductibles
items are also available like stamp duty at the acquisition
of land that is $ 5,000 and legal fees of $10,000.
Although the expenses have done as interest paid
on the loan of $ 32,000 will not be deductible as it not for
rental purpose. Addition to this the expenses made for
the maintenance purpose and insurance cost of $27,000
and $22,000 will not be included in the list of cost base

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due to the non-fulfillment of the conditions that are
mentioned by the ATO as stated below:
 The purchase or acquiring of vacant land must be
before August of the year 1991
 If the land was not used for income or business
purpose and remained vacant throughout the
period, then the owner has no right to claim for
deduction.
In this case, Emma has not used that land for
any income or business. Under the provision of
“Section 108-5”, the amount that was raised by the
sale of a block of land will be treated as a CGT event
(Mahar 2016). The list of deductible items from the
amount of sales are assessed as follows:
i. The cost of acquisition of land at the time of
purchase that is $250,000
ii. Stamp duty amounted to- $5,000
iii. Legal fees amounted to- $10,000
Hence, Total Cost Base of the land (vacant) is as:
Cost base=250000+5000+10000
¿ $ 265,000
Under 115 A, the value of Capital Gain is as shown
below:

9TAXATION THEORY, PRACTICE AND LAW
Particulars Amount ($)
Amount for Sales 1000,000
Less: Total cost base 265,000
Capital Gain $735,000
The entire amount of the above computed Capital
Gain of $735,000 will be treated as a CGT event, and
hence, it will be taxable for the current year.
(b) Sale of 1000 shares- $ 50.85 per share
As per the provision within the Income Tax
Assessment Act, 1997 on the disposal of a share will be
considered as CGT event under “Section 104-10”. The
asset that has purchased before 20th September 1985
said to be as Pre-CGT and along with that this will not be
considered under CGT event and any profit or loss made
on this will be non-taxable within the provision of CGT
(Yong et al 2019). However, the consideration of Capital
gain will be the year of the disposal of an asset. If there is
not any contract made for the dispose of shares or an
asset, then the capital gain will be considered at the time
of transferring the right of ownership of that asset
(shares).
In the given case, Emma has made a sale of her
1000 share at the rate of $50.85 per share that is $ 50850
to Rio Tinto. Further, she has also paid 2% brokerage

10TAXATION THEORY, PRACTICE AND LAW
fees on the sale that will not be included in the cost base
as it is not on the time of acquiring. Therefore, here, the
Cost Base includes only the acquiring price of share that
is $3.5 per share.
Cost Base=1000 shares∗3.5 per share
¿ $ 3500
Particulars Amount ($)
Amount for sale 50,850
Less: cost base 3500
Capital Gain 47,350
But, as per “Section 104-10, Emma has acquired
those shares before 20th September 1985, Capital gain of
worth $47,350 from the sale of shares or dispose shares
to Rio Tinto will be exempted from Capital Gain Tax as
she purchased in the year 1982.
(c) Sale of Stamp collection- $ 50,000
In the regulation of Capital Gain Tax, if the items
are not excluded by specifying it then at the time of sale
of the capital asset, it would be taxable if acquired after
20th August 1985. As per the ATO, Collectables items
include those used for personal purpose or an
entertainment purpose (O’Connell 2017). This includes
paintings, antiques, coins as well as postage stamps.

11TAXATION THEORY, PRACTICE AND LAW
Certain conditions are there for the exemption of
sale of stamps within CGT:
i. Purchase or acquiring of a collection made in
exact or less than $500,
ii. Acquired collectables interest prior to !6th
December 1995,
iii. Acquired at the time of its market value below
$500.
Under “s104-20”, the stamp duty will be
considered as Capital gain asset as it has acquired for
$60,000 and sold for $50,000 that is much more than
$500 in both cases.
As Emma has purchased it from a private collector
in the year 2015; therefore, any capital gain/loss made on
sale will be non-exempted.
Particulars Amount ($)
Amount for sale 50,000
Less: cost base 60,000
Capital Loss 10,000
(d) Sale of Grand Piano- $30,000
In the definition made under “s104-5”, the Grand
Piano is included in a list of an asset for personal use.
This comes under Personal use asset and thus

12TAXATION THEORY, PRACTICE AND LAW
disregarded for CGT purpose in the fulfillment of following
conditions:
i. If the value of an asset is less than $10,000,
ii. If it bought prior to 20th September 1985 (pre-
CGT)
In this case, Emma has sold this piano for $30,000
and acquired in the year for $80,000. Both the above
conditions have not been fulfilled and hence consider as
CGT asset (Evans, Minas and Lim 2015).
Particulars Amount ($)
Amount for sale 30,000
Less: cost base 80,000
Capital Loss 50,000
From above all computed Capital gains/losses,
Emma's Net taxable gain/loss is computed below:
Net Capital Gain
Capital Gain/Loss Amount ($)
Sale of vacant land 735,000
Shares 0
Total 735,000
Less: Brought Forward
Loss
60,000
Net Taxable Gain 675,000

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References
Ato.gov.au 2019. online Ato.gov.au. Available at:
https://www.ato.gov.au/misc/downloads/pdf/qc23614.pdf
Accessed 14 Sep. 2019.
Ato.gov.au 2019. online Ato.gov.au. Available at:
https://www.ato.gov.au/misc/downloads/pdf/qc22147.pdf
Accessed 14 Sep. 2019.
Ato.gov.au 2019. online Ato.gov.au. Available at:
https://www.ato.gov.au/misc/downloads/pdf/qc22410.pdf
Accessed 14 Sep. 2019.
Ato.gov.au 2019. Your home. online Ato.gov.au.
Available at:
https://www.ato.gov.au/General/Property/Your-home/
Accessed 14 Sep. 2019.
Christensen, S.A., 2017. Tax update for property
buyers. Australian Property Law Bulletin, 32(4), pp.63-65.
Chung, E. 2018. Withholding tax on property
transactions. REIQ Journal, (Sep 2018), 32.
Daley, J. and Coates, B., 2015. Property taxes. Grattan
Institute.
Du Preez, H. and Klein, A.E., 2014. The value-added tax
implications of the temporary change in use adjustments
by residential property developers: an international

15TAXATION THEORY, PRACTICE AND LAW
comparative study. Southern African Business
Review, 18(3), pp.46-65.
Evans, C., Minas, J. and Lim, Y., 2015. Taxing personal
capital gains in Australia: An alternative way
forward. Austl. Tax F., 30, p.735.
Krever, R. and Teoh, J., 2017. GST and Insurance:
Australia. In VAT and Financial Services (pp. 319-335).
Springer, Singapore.
Mahar, F., 2016. The distortive effects of the capital gains
tax regime. Tax Specialist, 20(1), p.16.
McCluskey, W.J. and Franzsen, R.C., 2017. Land value
taxation: An applied analysis. Routledge.
O’Connell, A., 2017. Australia. In Capital Gains Taxation.
Edward Elgar Publishing.
Yong, L.Y., Yahya, M.H., Noordin, B.A.A. and Selamat,
A.I., 2019. The Effect of Goods and Services Tax (GST)
Imposition on Stock Market Overreaction and Trading
Volume in Malaysia and Australia. Jurnal Pengurusan
(UKM Journal of Management), 55.

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