Taxation Theory, Practice and Law: A Comprehensive Analysis

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Taxation Theory, Practice and Law
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Table of Contents
Q. 1.............................................................................................................................................................3
Q. 2.............................................................................................................................................................5
References.............................................................................................................................................12
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Q. 1
City Sky Co. is a registered organization, which have got the right to avail the input tax
credit under the several conditions. According to the information which has been
provided in the question, the company has purchased an unoccupied piece of land and
is also planning to construct 15 apartments on it for the purpose of sale. According to
the taxation rule Land is an immovable property and which is not considered as the
service or the goods so, under this situation there will be no application of the GST. If
the company wants to construct the apartments on the land then they have to do this
under the provision of black credit which states that the any type of the goods and
services received by the organization are liable for the taxation under the law which can
be transferred to the personal account for the purpose of business and no input tax
credit will be applicable. So, there will not applicability of the input tax credit on the City
sky Co. for the purchase of vacant land (Ling, et. al., 2016).
Information is that company has taken the services of the lawyer, Maurice Blackburn for
an amount of $ 33000. According to the law of the goods and service tax any service
charged related to the law comes under the mechanism of reverse charge in which
receiver of the service have to pay the GST. In case if such kind of services are used for
the business purpose then it can be claimed for getting the input tax credit.
City sky co have developed an organization by taking the services of the advocate for
the progress in the business purpose, so the company is liable to receive the input tax
credit for the GST which they have paid for the services received from the lawyer.
The meaning of the input credit is that when the seller of a product is paying the tax in
the final product he can minimize the amount of tax by claiming the amount which he
had already spent on the material inputs. So, in this case input tax credit will not be
liable under the situation of purchasing the land (Ling, et. al., 2016).
Following points are related to the relevant law related to ITC (Input Tax Credit):
 For Business Purpose: Business owner can be take the benefit of input tax
credit only those activities which are related to the business purpose. It means
the business owner can assets for personal use then he cannot avail Input Tax
Credit. In case if the sale of goods or services partially for personal and partially
for business then he only avail ITC on the selling part of business related. In
case if the ITC use for personal then it is need to be reversed by the firm.
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 Unpaid amount of bills: ITC used earlier will be reversed if the amount of bill
not paid under 180 days from the date of issue of invoice. In extreme situation
penalty also is charge.
 Need proper Documentation: The Company uses ITC in case if the firms keep
proper documents related to ITC like GST number, return file and etc.
 Issue of Credit Note: If the credit note issued by the supplier end to the
business then in such case reduction in ITC decreased in later time.
The conditions where ITC not applied are as:
 On Motor Vehicles & Conveyance: As Vehicles are being used for
transportation purpose then ITC cannot be claim on it. The seating capacity of
vehicle is total 13 persons including driver also.
 On Food, beverages and club memberships: Business cannot be claim ITC
on outdoor catering, food and beverage products, providing treatment on beauty
and cosmetic and plastic surgery (Ramya, and Sivasakthi, 2017).
 Services of General Insurance: Service related to the insurance, repairing and
maintaining aircraft and motor vehicle.
 Sale of membership in a club, health and fitness center: No ITC avails on
selling of club membership, health and fitness.
 Construction of immovable Property: No ITC is applied on the construction on
immovable property like building construction.
 Restaurants: The firm which runs business of restaurant cannot avail ITC as it
also paid GST on such services. To claim ITC it is must that such services
exceed $7500 and need to pay 18% GST on it then in such ITC avail.
When a person who received goods or services for the purpose of use for own then he
is liable to pay GST. This is known as reverse charge. In this case, supplier or provider
of service is not comes under to pay GST. This is because of recipient of the goods or
service charge GST and it will be deposits in the government account directly. It is also
applicable when the supplier with whom the trade occurs between them and not takes
GST registration number. Similarly it is applicable for the City Sky Company (Millar,
2013).
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Q. 2
Any type of profit earned or gain from the sale of capital assets is known as capital long
and this can be of two types (short and long term capital gain). This law on capital gain
came into the existence in 1985 and applicable to whole of the part of Australia. Any
gain on the transaction of selling of assets are termed as capital gain as per the
government law (Cassidy, and Cheng, 2017).
Jewellery, building, house property, land, vehicle, patents, Collectables of personal
purpose, shares, and trademarks are categorized and comes under capital assets:
The “Capital Assets” can be categorized as:
Assets are categorized in the following two parts:
 Short-Term Capital Assets: Assets which are held by individual or company up
to the maximum 12 months is treated as short term capital assets because the
tenure of such assets is max to 12 months.
 Long-Term Capital Assets: Assets which are kept for more than 12 months at
any point of time. In simple words, those assets which are nit short are termed as
long term assets
Law which is framed by the government is applicable to all fixed assets by providing
various exemptions along with. The exemptions applicable on the assets which are
owned by individual and interest charged on assets (Pomerleau, and Cole, 2017). The
exemptions are given as below:
 Assets bought on or before 20th Sept. 1985 by an individual. In this case it is
known as pre-CGT assets and such property exempted.
 Residential property up to the 2 hectares exempted under CGT
 Assets which are used for private purpose of worth $10,000.
 Capital loss on the purchased of assets for personal purpose.
 Collectables worth $500 such as Jewellery, Stamps.
 Payment made on monthly or half-yearly basis that made under government
schemes and policies.
 Income earned from gambling
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 LIC policies sold or surrender by the original owner of the policy (Ramya, and
Sivasakthi, 2017).
In order to provide how much amount of is required to pay against tax by Emma each
transactions consider by her taken into the capital gain consideration after that provide
whether she is comes under the liability towards the capital gain or exempted from tax
liability:
1. Sale of Land
Sale of Land
Calculation of Capital Gains $
Purchasing Price of Land 250000
Stamp Duty 5000
Legal Fees 10000
Interest Paid 32000
Council rates, water Rates 22000
Total Payment 319000
Transactions in 2005
Legal Fees 5000
Miscellaneous Expenses 27500
Advance Fees 25000
57500
Total Payment 376500
Selling price of Land 1000000
Profit/Loss 623500
Based on the above calculated answer, it was seen that a capital gain of $623,500 on
the selling of land was made by the Emma who is purchased in 1991. The area of the
land is more than cover 6 hectares, therefore accordingly to the capital gain law capital
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gain which was she received on selling of land is totally exempted. It means there is no
liability of tax has been created on her (Pomerleau, and Cole, 2017).
2. Sale of Shares
Sale of Shares
$
Purchased 1000 Shares @ $ 3.5 3500
Sale of Shares @ $ 50.85 50850
(Less) Brokerage Fee @ 2% 1017
Total Amount 49833
Profit/Gain 46333
In 1982, she was purchased 1000 number of shares. The value of each share was $3.5.
Rio Tinto Company purchased shares from her for $50.85 on each share. On the selling
amount, she paid brokerage of 2% on the amount at which the shares sold. She
obtained gain of a sum of $46,333 after deducting the deduction which applicable on
this. The law of the concerned country provides exemptions on the sale of shares that
were taking from the fund which is related to the development. Hence no tax had been
paid on this transactions and she is free from paying tax on gain.
3. Sale of Stamps Collection
Sale of Stamps Collection
$
Purchasing Price of Stamps 60,000
Selling Price at Auction 50,000
Auction Fees 5,000
Amount received 45,000
Loss 15,000
Emma purchased stamps from a private collector of $60,000 in the year 2015. She had
received an amount of $50,000 on the sale of such stamps. She also paid an expense
of $5000 as fees towards the auction fees. Hence the actual amount which she was in
hand was $45000 after deducting the fees for auction. There it can be seen that she
incur on this transaction a loss of $15,000. As per the law of tax, it is stated that on loss
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of capital there is not capital gain tax system applicable. Hence as she incur loss so she
not liable to pay tax (Maleki, et. al., 2017).
4. Sale of Grand Piano
Sale of Grand Piano
$
Purchasing price of Piano 80,000
Selling price of Piano 30,000
Loss 50,000
In the year 2002, she had purchased a playing item known by Piano. The cost this item
was $80,000 and she sale such item only just of $30,000. On comparing between these
two figures it was obtained that she incurs loss of $50,000 on the selling of Piano. This
transaction is not considered under the capital gain tax due to she was not earned
income by this transaction. Therefore there is not capital gain or loss as this item is
used for private purpose.
It was recommended to her in the context of capital gain that she is liable to pay income
tax return. After analyzing all the item which were sold by her, it was measure that she
was exempted from the liability of capital gain as she was not earned income which is
comes under capital tax. It is must that right calculation is necessary because it can
create a situation in future where a person needs to pay high penalties. Monitoring of
each transaction is crucial for Emma and also she will be well aware about the capital
gain either in long term or short (Scafarto, et. al., 2016).
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References
 Cassidy, J. and Cheng, A., 2017, January. Legislative Responses to GST Tax
Avoidance in Australia and New Zealand: Lessons for China?. In 2017
International Conference of Chinese Tax and Policy: The Function of Tax in the
New Wave of Economic Development in China.
 Ling, S.C., Osman, A., Arman Hadi, A.B., Muhammad Safizal, A. and Rana,
S.M., 2016. Public acceptance and compliance on Goods and Services Tax
(GST) implementation: A case study of Malaysia. Asian Journal of Social
Sciences & Humanities, 5(1), pp.1-12.
 Maleki, B., Sameti, M., Sameti, M. and Ranjbar, H., 2017. THE EFFECT OF
CAPITAL GAIN TAX ON CAPITAL FORMATION, FINANCIAL DEVELOPMENT
AND ECONOMIC GROWTH, CASE STUDY OF IRAN.
 Millar, R., 2013. Smoke and mirrors: Applying the full taxation model to
government under the Australian and New Zealand GST Laws. VAT
EXEMPTIONS: CONSEQUENCES AND ALTERNATIVES, Rita de la Feria, ed.,
Kluwer Law: The Hague.
 Pomerleau, K. and Cole, A., 2017. International tax competitiveness index
2015. Washington, DC: Tax Foundation.
 Ramya, N. and Sivasakthi, D., 2017. Gst and its impact on various
sector. Journal of Management and Science,(November), pp.65-69.
 Ramya, N. and Sivasakthi, D., 2017. Gst and its impact on various
sector. Journal of Management and Science,(November), pp.65-69.
 Scafarto, V., Ricci, F. and Scafarto, F., 2016. Intellectual capital and firm
performance in the global agribusiness industry: the moderating role of human
capital. Journal of Intellectual Capital, 17(3), pp.530-552.
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