Taxation Law: Applying Taxation Principles to Real-Life Problems

This Taxation Law assignment solution addresses two key questions related to Australian taxation. The first question analyzes whether supplies received constitute taxable supplies under the GST Act, focusing on the application of input tax credits and reverse charge mechanisms for a property development company. It examines the tax implications of land purchases and legal services. The second question delves into Capital Gains Tax (CGT) implications, covering the sale of land, shares, and personal assets like stamps and a grand piano. It details the calculation of cost base, capital gains, and losses, and how different asset types are treated under CGT regulations. The solution references relevant legislation and case law to support its arguments.

Running head: TAXATION LAW
Taxation Law
Name of the Student
Name of the University
Authors Note
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Table of Contents
Answer to question 1:.................................................................................................................2
Answer to question 2:.................................................................................................................5
References:...............................................................................................................................10

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Answer to question 1:
Issues:
Whether the supplies that is received amounts to taxable supplies within the definition
of “sec 9-10 (1) of the GST Act”?
Laws:
The taxable supply generally includes the supply of the goods and services which
needs to be made by the suppliers. Supply is very widely explained in “sec 9-10 (1) of the
GST Act” to take into the account any type of supply. Commonly, this includes the goods and
services, advice or information, real property, financial supplies and rights to enter in or
release from the requirement (Giesecke and Tran 2018). There should always be the
consideration for a supply to be treated as the taxable supply. This would generally amount to
a forthright matter of price which should include the GST. At times there may be certain
circumstances that may not be straightforward and hence the consideration that is received is
widely within the “sec 9-15 of the GST Act” (McBarnet 2019). Considerations usually
include the voluntary and involuntary payments, acts or moderations in relation with the
supplies or any inducements that is made for any supply of anything.
The taxable supply must have the connection between the consideration and supply.
As given in “para 9-5 (a)” it requires that the taxable supply which is made should be the
supply for the consideration (Cvrlje 2015). As noted in “sec 195-1” the definition of the word
“consideration” amounts to payment that is made in relation with the supply. The federal
court in “Commissioner of Taxation v AP Group Limited (2013)” explained that the
consideration should be made in relation with supply but the supply that is made should be
for consideration as well.

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The supply should be in the ordinary business course of the enterprise. Commonly
this implies that the supply should be made in agreement with the business of the suppliers. A
supply that is made by the taxpayer is ought to have the connection with Australia. The goods
or services that are delivered or made accessible to receivers of supply should have
Australian connection (Tran-Nam 2019). The supply should involve those goods that are
brought into or dispatch from Australia. As given in “sec 9-5 of the GST Act” the taxable
supply should be a supply and the supply is made in exchange of consideration. The supplier
is also required to be registered or is under obligation of registering for GST.
Apart from the input tax supply there are instances where the tax is paid under the
reverse charge. Reverse charge is defined as the mechanism where GST is paid by those that
receives the goods and services rather than the supplier (Enste 2018). As a common note,
when making an offshore purchase reverse charge is needed to be paid by the purchaser and
even after the fact that the sale is not subjected to GST. A taxpayer might choose to pay the
GST on their purchase, even though they are the purchaser.
There are certain rules that may be considered as the subject of GST when it is
purchased by the Australian business. Reverse charge rules are applied for things that are
carried out of Australia or it is made with the help of business that is conducted by the seller
out of Australia (Ling et al. 2016). Under such kind of situation, the taxpayers are liable for
paying GST, even after the fact that they are the purchaser and the seller under such
circumstances is not under obligation of paying GST on sales.
The application of reverse charge rules is made when the purchaser is satisfactorily
meeting both the conditions as well as circumstances. The conditions of purchase is that, a
taxpayer should purchase the item that is totally or relatively for the commercial purpose that
is being carried on in Australia (Schenk, Thuronyi and Cui 2015). The sale made to an entity

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is for payment and the entity is registered for GST. While the circumstances of the purchase
include that the sale should be connected with Australia because the item that is acquired by
the purchaser amounts to right or option o another thing.
Application:
The case study of City Sky Co contributes to the fact that it is carrying the business of
property investment and development. As a matter of fact, the company has purchased a
vacant land in Brisbane which it is looking forward for sale by building 15 apartments on it.
City Sky Co should be treated as the GST registered entity. City Sky Co will be treated as the
eligible company for claiming input tax credit whenever the situation arises.
Accordingly, the company has purchased a vacant land during the year for building 15
apartments on it and ultimately selling it in the market. In the current situation, the vacant
amounts to a fixed property. Land cannot be considered as goods and services. As a result,
there cannot be any implications relating to GST or input tax credit (Bajada 2017). The case
study contributes that planning of apartment on the vacant land will fall under the with black
credit provision. This implies that the taxable goods and services which is purchased by the
taxpayer for constructing the immovable property irrespective of their own account or to
further progress the business it is not considered as eligible for input tax credit entitlements.
Apart from the purchase of land, City Sky Co also took the legal services relating to
the development of land with Maurice Blackburn that has the annual turnover of $300,000
per annum. The legal services cost the company $33,000. The supply of services by Maurice
Blackburn amounts to a taxable supply by the supplier to City Sky Co under sec 9-5 of the
GST Act. Denoting judgement in “Commissioner of Taxation v AP Group Limited (2013)”
the supply of services that is made to City Sky Co is for consideration and it is connected
with Australia (Heathcote et al. 2017). The legal services fall under the reverse charge

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mechanism and as the services are for furtherance of the enterprise, City Sky Co will be
entitled to input tax credit. The supplies meet the conditions as well as the circumstances of
reverse charge mechanism since the sale is connected with Australia and the services sought
is entirely for the business purpose only.
Conclusion:
City Sky Co is permitted for claiming an input tax credit for the legal service that is
sought from the advocate. The services fall within the reverse charge rules it is solely taken
for business purpose only.
Answer to question 2:
Sale of block of land:
As given in “sec 116-20 (1)” capital proceeds usually account for the money that is
received or receivable. It also amounts to the market value of the property that taxpayer has
received or they are entitled to get. A taxpayer is not permitted to claim deduction for the cost
that is originating from the proceeds. These costs are regarded as the part of cost base or the
reduced cost base. Cost base is explained in “sec 110-25, ITAA 97”. Commonly under “sec
110-25 (1)” the cost base is usually made up of five elements of a CGT asset (McCluskey
2018). “Sec 110-25 (2)” generally deals with the first element. It mainly involves the
purchase price paid to get the asset.
While “sec 110-25 (3)” is associated with the second element that includes the
incidental cost of acquisition and sale. This mainly includes stamp duty, legal fees,
advertisement cost etc. The third element is based on the numerous non-capital cost of
ownership under “sec 110-25 (4)”. This includes non-deductible interest cost. It is only
considered relevant when the asset is not used for generating income to claim deduction for
these cost against.

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The fourth element under “sec 110-25 (5)”, amounts to the capital expenses that are
occurred in improving the asset which ultimately gets reflected in the asset while disposal or
capital expenses that relates to installing or moving the asset (Dudine and Jalles 2018). While
the fifth and final element under “sec 110-25 (6)” includes the capital outgoings that are
occurred in preserving the or defending the title rights on the asset.
Emma is selling the land in the present situation for $1,000,000 which was actually
purchased by her for $250,000. Prior to selling it is necessary to determine the cost base of
land under “sec 110-25”. Referring “sec 110-25 (2)”, under the first element the purchase
price paid for holding the asset by Emma will be included (Basu 2016). While she also paid
stamp duty and legal fees before ultimately holding the land. Under “sec 110-25”, these cost
are treated as incidental cost under “sec 110-25 (3)” and it is added into the second element
cost base of land. She further reported interest on loan, water rates, council rates and
insurance expenses. these are treated as non-capital cost occurred in ownership and it is
added in third element cost base of land under “sec 110-25 (4)”.
Emma once occurred dispute with neighbours and to settle the dispute she occurred
$5,000 for legal fees. Under “sec 110-25 (6)”, the legal expenses are capital expense
occurred as defending the rights to the land. It will be included in fifth element cost base of
the land. She also occurred a sum of $27,500 as an expense to remove the pine trees from
land before selling it. Under “sec 110-25 (5)” it is capital expense occurred to improve the
asset and hence the expenses will be added in the fourth element cost base.

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Sale of Emma’s shares in Rio Tinto:
The simplest feature of the CGT is that tax is applied on those assets that are
purchased on or after the 20 sept 1985. No taxes are levied or paid for assets that is purchased
before this date. The assets that are purchased by the taxpayer following this date is termed as
the post-CGT asset while the assets that is purchased before the aforesaid date is known as
pre-CGT asset. Capital gains that is earned from pre-CGT is exempted (Vegh and Vuletin
2015). The case facts propose that Emma is holding shares in Rio Tinto which was purchased
in 1982. Sale of Rio Tinto shares took place in 2015. As a result, she made capital gains from

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the sale. The Rio Tinto shares are pre-CGT asset because it was purchased before the CGT
regime. The capital gains realised upon selling the shares is exempted from tax.
Sale of stamps:
The description given in “sec 108-10 (2)” denotes collectables as items which is
specified as artwork, jewellery, antique etc. for taxpayers own use. As explained in “sec
108.10 (4)” capital loss from collectables is permitted from offset from gains from another
collectable only (Tran and Zakariyya 2019). Emma has a collection of stamp that she has
purchased from a private collector by paying $60,000. She sold it for $50,000 in 2015. The
stamps must be referred under “sec 108-10 (2)” as collectables. On selling the collectables a
CGT event A1 under “sec 104-10 (1)” happened since a contract for sale was entered into by
Emma. Noting “sec 108.10 (4)” the capital loss from stamps is only permitted for offset
against another collectable. As no other capital gains from collectable is reported by Emma
during the year she is advised to carry it forward to next year.

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Sale of grand piano:
The explanation of personal use asset in “sec 108.20 (2)” denotes a type of CGT asset
but does not include collectable which is kept for personal usage and enjoyment by taxpayer
(Martin 2019). Examples are vehicles, furniture, domestic items etc. The taxpayers under
special rules must ignore capital loss from personal use asset under “sec 108-20 (1)”.
A grand piano was sold by Emma in 2015 for $30,000 which she acquired for
$80,000. Piano is a personal use asset with in the legislation of “sec 108.20 (2)”. As on
making the sale of piano Emma suffered capital loss, by referring to “sec 108-20 (1)”, Emma
is advised here to ignore the capital loss from the piano.

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Bajada, C., 2017. Australia's Cash Economy: A Troubling Issue for Policymakers: A
Troubling Issue for Policymakers. Routledge.
Basu, S., 2016. Global perspectives on e-commerce taxation law. Routledge.
Cvrlje, D., 2015. Tax literacy as an instrument of combating and overcoming tax system
complexity, low tax morale and tax non-compliance. The Macrotheme Review, 4(3), pp.156-
167.
Dudine, P. and Jalles, J.T., 2018. How buoyant is the tax system? New evidence from a large
heterogeneous panel. Journal of International Development, 30(6), pp.961-991.
Enste, D.H., 2018. The shadow economy in OECD and EU accession countries–empirical
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Giesecke, J.A. and Tran, N.H., 2018. The National and Regional Consequences of Australia's
Goods and Services Tax. Economic Record, 94(306), pp.255-275.
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study of Malaysia. Asian Journal of Social Sciences & Humanities, 5(1), pp.1-12.
Martin, F., 2019. Unincorporated associations: Legal and tax consequences. Taxation in
Australia, 53(8), p.420.

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McBarnet, D., 2019. When compliance is not the solution but the problem: From changes in
law to changes in attitude. Centre for Tax System Integrity (CTSI), Research School of
Social Sciences, The Australian National University.
McCluskey, W., 2018. Property tax: An international comparative review. Routledge.
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