Taxation Law Assignment: HI6028, Holmes Institute, T2 2019

This taxation law assignment solution addresses key issues related to Goods and Services Tax (GST) and Capital Gains Tax (CGT) within the Australian context. The assignment analyzes the tax implications of purchasing vacant land, considering GST exemptions and the reverse charge mechanism. It examines the case of City Sky Co., which acquired vacant land for residential development and sought legal advice, assessing the GST liabilities and input tax credit entitlements. Furthermore, the assignment delves into CGT principles, specifically focusing on the sale of land, shares, a stamp collection, and a piano, detailing the calculation of capital gains or losses based on cost base elements and pre-CGT assets. The solution provides a comprehensive understanding of taxation laws, including the application of relevant legislation and case law to real-life scenarios.

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

1TAXATION LAW
Table of Contents
Answer to question 1:.................................................................................................................2
Answer to question 2:.................................................................................................................5
References:...............................................................................................................................10

2TAXATION LAW
Answer to question 1:
Issues:
The transaction that is considered for study is the tax related matters for the GST and
the entitlements that arises from the purchase of vacant land is dealt in this case.
Rule:
As all the transactions relating to the real estate is considered different, the only rule
that is followed is the laws relating to GST. As the beginning point, the registered business
are required to be aware that GST is very commonly payable on the purchase of the real
estate property unless any kind of specific exemption is applicable (Richardson and Smith
2013). The residential and the non-residential property are taken into consideration in the
different manner. The most common type of exemption that is available on the residential
properties is that when they are resold since the GST is commonly paid on the new residential
property and the resale is commonly exempted. For instance the transactions that are
involving the farm and the farm house or the store having a suite inside might have to pay
GST but not on the purchase price.
Special consideration must be paid to the transactions that involve the builders (Kraal
and Kasipillai 2016). The new residential property cannot be considered as exempted from
GST therefore it must be noted that if in the contract GST is not included in the purchase
price then there cannot be entitlement of claiming input tax credit. GST us commonly paid on
the commercial property and the company that is obtaining the real property may be
considered liable for GST. The entity can recover the GST with the help of input tax credit.
As the starting point, vacant land is commonly considered as exempted from GST
when the land is sold by the individual (Edmundson 2013). There are several exclusions

3TAXATION LAW
associated to the exemption that needs examination. For instance if the land is held by the
taxpayer while conducting or performing the business activities then the exemption is not
allowed to the taxpayer. The taxpayer should denote that the vacant is typically considered as
the asset. The vacant is generally considered as the subject of CGT rather than the subject of
GST.
There are also specific rules that is associated to the reverse charge. The reverse
charge should be viewed as the type of tax that moves the accountability of reporting the tax
transaction from the seller to the purchaser of good or service (Benedict 2014). When the
transaction is considered as the subject of reverse charge, the one that receive the good and
service reports both the purchase (input vat) and the supplier’s sale (output vat) into their tax
return. This represents the circumstances when the GST is paid by the purchaser. This is
known as the reverse charge. Transactions that involves the offshore purchase commonly
attracts the reverse charge. The buyer might choose to pay the GST on purchase in spite of
the fact that they are the purchaser. The amount of reverse charge rate is usually the 10% of
the purchase price.
Accordingly there are some important rules that are related to the reverse charge. This
amounts to the things excluding the actual property and the tangible goods which attracts
GST liability when it is acquired by the business that are operating in Australia (CCH
Australia Limited 2013). The reverse charge also includes the activities that are carried
outside Australia and the acquisition of thing that is made by the Australian business is with
the help of the sellers that are out of Australia. As a result of this, the taxpayer will be
considered liable for paying the GST under the rules of reverse charge.
There are also conditions that a taxpayer are required to meet at the time of applying
the reverse charge rules. The conditions are the purchase of things which is exclusively or

4TAXATION LAW
moderately made in the business activities of the taxpayer that they are conducting in
Australia (McCouat 2013). The purchase made is partially for the domestic purpose or for
making any input tax supplies. The sale that is made to entity is for the payment and the
entity is considered as the registered entity within the rules of GST. Furthermore, there
should also be certain circumstances that an Australian entity is also required to satisfy. The
circumstances denotes that things that is purchased is carried out of Australia and the sale
made to the entity is not made with the help of business that the seller is conducting in
Australia. It also includes that the sale is connected with Australia and the entity is the
Australian based business receiver.
Application:
The case materials of City Sky Co is concerned in this study. Noting into the facts
established by the case it is noticed that the business has obtained the GST registration and its
business activities are based in Australia (Alexiou and Morrison 2014). The circumstances
that is bought forward is regarding the City Sky Co case is that the company acquired the
vacant land. The main objective of acquiring the vacant land is to construct a total of 15
residential premises for sale in the market. As understood it should be noted that the purchase
of vacant land is not a GST related transaction. In regard to the laws that is discussed above
GST is not applicable on the vacant land. Reasonably, land is an non-movable capital asset so
there cannot be any GST on the land. In addition to this vacant land acquisition is falling
within the ambit of black credit provision. In other words, when a goods and service that is
acquired by the taxable person for constructing any non-movable property then they are not
falling within the eligibility of input tax credit entitlements.
As the case develops further, an occurrence relating to the legal advice is sought by
City Sky Co for the land developmental purpose from the Maurice Blackburn. City Sky Co

5TAXATION LAW
should be mindful that advice that the company has taken is considered liable for GST since
the seller will not be required to pay GST (Millar and McCarthy 2012). The legal advice
expenses amounts to reverse charge and the GST needs to be paid by City Sky Co. The
company here can be considered as the eligible company for claiming the input tax credit.
The services has be acquired in exchange of payment and the legal advice sought holds the
relation with the business that is carried on by City Sky Co inside Australia. The legal advice
was for the furtherance of the business activity of City Sky Co and as a result input tax credit
can be claimed in this regard.
Conclusion:
The study makes a contribution to the understanding that the land that is acquired by
the City Sky Co is a non-movable capital asset and as a result there cannot be any
entitlements associated with the input tax credit. But the legal service that the company has
taken from the Maurice Blackburn is a reverse charge mechanism. Consequently, the GST
paid on the services will be allowed as input tax credit to the company.
Answer to question 2:
Sale of block of land:
By referring to the “section 116-20” the capital proceeds present the proceeds that is
obtained by the taxpayer as the money or the market value of the property that is received in
respect of the CGT event. Capital proceeds are generally termed as the market value of the
asset that the taxpayer is about to receive or has received (Faccio and Xu 2015). The
calculation of the capital gains or loss involves the recognition of the cost base. Noting the
explanation given in the “sec 110-25 ITAA 97” there are regularly five types of elements that
is given in the CGT asset.

6TAXATION LAW
a) The money that is paid or the market value that is prevailing for acquiring the
property under “sec 110-25 (2)” is known as the first element of the CGT asset cost
base.
b) Any kind of expenses that is occurred during the process of acquisition or the sale of
the CGT asset is known as the incidental expenses relating to the asset under
“sec.110-25 (3)”. These expenses are added as the second element of the CGT asset
cost base (Auerbach and Hassett 2015).
c) The third elements is mainly for the assets that is purchased by the taxpayer following
the 20/8/1991. This is better known as the ownership cost under “sec 110.25 (4)” and
this element includes expenses relating to loan interest, rates etc.
d) The capital outgoing when a taxpayer pays to improve the value of asset or expenses
incurred as the improvement to the asset that relates to the installation or the moving
of asset is known as the enhancement cost. This is fourth element of the CGT asset
cost base under “sec.110.25 (5)”.
e) The fifth and the last element of the CGT asset cost base under “sec.110.25 (6)” is the
title cost of asset. This expenses is incurred when maintaining the rights to the assets.
Emma being the owner of land decides on one occasion to sell it for $1,000,000.
Before the sale there were some cost that has occurred in respect of the land. At first the
purchase price when Emma has paid based on the market value of the property is included in
first element with respect to “sec 110-25 (2)” of the CGT asset cost base (Badel and Huggett
2014).
Emma paid incidental cost that she has incurred during the process of purchasing the
asset. The stamp duty and legal fees is an incidental cost of the CGT asset cost base under
“sec 110.25 (3)”. This expenses is simply added to the cost base of land. There was also the
instance when Emma incurred ownership cost of land. This included her expense towards

7TAXATION LAW
rates, insurance and interest on loans that she took to purchase the land. All these cost is a
third element cost of ownership of the CGT asset cost base. Noting “sec.110-25 (4)” it is
added to the land’s overall cost.
A legal expense was also paid by Emma towards maintaining the title rights to her
land where on one occasion a dispute has occurred with the neighbours. The legal expense is
a title cost under “sec.110-25 (6)” and it is added to the land’s overall cost. There was also
capital enhancement cost incurred to preserve and maintain the land’s value as on one
occasion she paid a sum of $27,500 for cutting the pine trees. This is fourth element of the
CGT asset cost base under “sec.110.25 (5)” and it is added in the overall land’s cost.

8TAXATION LAW
Sale of shares:
There was an instance during the 2015 when purchased the shares in Rio Tinto. The
purchase was done by her in 1982. It must be noted by Emma that the shares bought in Rio
Tinto is a pre-CGT asset because she acquired prior to the commencement of CGT tax rules
or before 20/9/1985. As a result of this, her capital gains from the Rio Tinto shares is
exempted and no taxable is payable within the rules of CGT.
Sale of stamp:
Collectables are refereed as those CGT asset which a taxpayer owns for their private
usage and enjoyment purpose. Within sec.108.10 the lists includes artwork, such as
sculptures and paintings, antiques or jewellery are known as collectables. ‘Sec.108.10 (1)”
mandates the taxpayer to offset the capital loss from collectables only against the capital
gains from another collectables (Biørn 2017).
In an auction conducted by Emma, she sold the stamps that were purchased at a
market value of $60,000. The stamps resulted in loss as it was sold at $50,000. The capital
loss is to be carried forward to afterward year as in the 2015 there were no additional capital
gains collectables.

9TAXATION LAW
Sale of piano:
A grand piano purchased for $80,000 in 2000 is sold for $30,000. The piano is falling
inside the ambit of personal use asset under “sec 108.20” (Badel and Huggett 2014).
However, the capital loss that Emma has reported from the sale of grand piano is to be
ignored under “sec.108.20 (1)” because the special rules of personal use asset does not allow
to take into account any loss from personal use asset for offset purpose.

10TAXATION LAW
References:
Alexiou, C. and Morrison, D., 2014. The cross-border electronic supply EU-VAT rules:
Lessons for Australian GST. Revenue Law Journal, 14(1), p.6657.
Auerbach, A.J. and Hassett, K., 2015. Capital taxation in the twenty-first century. American
Economic Review, 105(5), pp.38-42.
Badel, A. and Huggett, M., 2014. Taxing top earners: a human capital perspective. Federal
Reserve Bank of St. Louis, Research Division.
Benedict, K., 2014. The Australian GST regime and financial services: How did we get here
and where are we going. eJTR, 9, p.174.
Biørn, E., 2017. Taxation, technology, and the user cost of capital (Vol. 182). Elsevier.
CCH Australia Limited, 2013. Australian GST Legislation: With Overview: Current to 1
January 2011. CCH Australia Limited.
Edmundson, P., 2013. GST, financial supplies and reduced input tax credits. Tax
Specialist, 6(3), p.113.
Faccio, M. and Xu, J., 2015. Taxes and capital structure. Journal of Financial and
Quantitative Analysis, 50(3), pp.277-300.
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.
McCouat, P., 2013. Australian Master GST Guide 2012. CCH Australia Limited.
Millar, R. and McCarthy, D., 2012. The Future of Indirect Taxation: Recent Trends in VAT
and GST Systems Around the World–Australia. THE FUTURE OF INDIRECT TAXATION:

11TAXATION LAW
RECENT TRENDS IN VAT AND GST SYSTEMS AROUND THE WORLD, T. Ecker, M.
Lang, and I. Lejeune, eds., Kluwer Law International: The Netherlands, pp.21-96.
Richardson, G. and Smith, D., 2013. The Readability of Australia's Goods and Services Tax
Legislation: An Empirical Investigation. Federal Law Review, 30(3), pp.475-506.