Skip to content

HI6028

Assessment Task – Tutorial Questions Assignment
Answer 1

Facts:
Munir has obtained loan as amount of $5000 (interest free) from the Good Mates Pty ltd
.Demanding the loan will in danger his health and unable to provide basic needs for his
family. Board waived the loan of Munir on compassionate reasons.

Rules and or cases:

Fringe benefit tax has levied on the employer. It is evaluated under Fringe Benefit Tax
Assessment Act 1986 and the imposition of tax is under Fringe Benefits Tax Act 1986.
In situations where the employer write-off a real obligation and the write-off is obligation for
details unconnected to the service association, a debt relinquishment fringe benefit does not
arise.
Application:
In the given case the Munir has suffering from financial hardship .Therefore; the employer
has waived the loan or writes off a genuine bad debt. As per the rule, when the employer
write-off a unaffected bad debt, debt relinquishment fringe benefit does not ascend.

Conclusion:

The conclusion has been made that fringe benefit does not arise. Therefore, the company is
not required to pay any fringe benefit tax (Australian Taxation office, 2021).

Answer 2

Cost base are the money value of the assets paid, acquisition indexation cost, improvement
Indexation cost, and cost of transfer.
Indexation of the cost base: Elements of a cost base (other than the assets acquired after 20
August 1991 but not use personal assets or collectables) may be indexed for inflation:
 Assets was held for further period of 12 months.
 Asset was acquired prior to 11:45 am on 21 September 1999
 Choice to index has been made (Australian Taxation office, 2021).
The following formula is to be used in calculating the long-term capital gains tax payable:
Long-term capital gain = Total rate of consideration received or accruing – (acquisition
indexation cost+ improvement Indexation cost + cost of transfer),
=12000-(5000+1379.89+50)
=12000-6429.89
= 5570.11 Ans

Where:

Acquisition indexation cost= cost of achievement x cost inflation index of the year of
transfer/cost inflation index of the year of acquisition
5000*51.7/51.7=5000

Improvement Indexation cost = cost of improvement x cost inflation index of the year of
transfer/cost inflation index of the year of improvement =1500*51.7/56.2=1379.89
Capital gain tax = 5570.11*30%=1671.033

Answer 3

GST is introduced on July 1, 2020. It is owed at a uniform rate of 10% on purchases of the
most of belongings and amenities by listed organization and the goods admission. GST is
levied on taxable purchases and the taxable importation. It is not indicted on GST free
purchases, non-taxable importation and input taxed supplies.
In the given case the Alex ltd is an organization supplies the product of $22000 that is
inclusive of GST to Beta Ltd. On 1 August 2019 that is the local customer. The tax on the
amount of $22000 is paid to the account of GST by the Alex ltd. Beta paid the bill amount in
installment. Even though Beta is GST- non registered entity also paid the GST charge on the
amount of the product to the seller.

Answer 4

Assessable income − allowable deductions = taxable income

Calculation of Taxable income

Particulars Amount
in $

Employment income of Andre 63,013

Add
:PAYG withholding

16,467

Add: Dividend 1000

Total Assessable income 80480

Less :allowable deductions 500

Total Taxable income 79980

The estimated tax on your taxable income is $17,540.50

Particular Amount $

Total taxable liability $17540

Estimated tax rate 30%

Total income tax 5262

Medicare levy @2 %( $79980*2%) 1600

Medical surcharge 0% Nil

Tax offset (800)

Total tax payable or Net tax liability 6062

Answer5

Factors significantly affect tax avoidance are:
 The substance and form of the scheme
 Any change in the financial position of the pertinent tax payer that has resulted from
the arrangement.
 The manner by which the game plan was shown up into or endorsed out
 The bring about connection to the activity of the Demonstration
 The nature of any associate on whether of family , business or other nature between
the relevant citizen and any individual referenced in the plan.
 The different outcomes for the significant citizen or any individual alluded in the plan
having been conveyed or gone into.
 Change in the monetary situation of any individual who has or had association
whether of the family , business or other nature with the pertinent tax payer may be
expected to be the outcome from scheme (Janský and Palanský, 2019)

Answer6

• net income = assessable income less allowable deductions Calculation of Taxable income

Particulars Amount
in $ Net profit of law firm( Profit divided equally
among three partners, therefore 1200000/3)  400000

Add Interest received 10,000

Total Assessable income 410000

Less :allowable professional subscription 300

Total Taxable income 409700

The estimated tax on Maria taxable income is $157,462.00

Amount earned by Maria from gambling is not included in partnership income.

References:

 Ato.gov.au. 2021. Elements of the cost base and reduced cost base. [online] Available
at: <https://www.ato.gov.au/general/capital-gains-tax/working-out-your-capital-gain-
or-loss/cost-base/elements-of-the-cost-base-and-reduced-cost-base/> [Accessed 13
February 2021].
 Australian Taxation office, 2021. [online] Available at:
<https://www.ato.gov.au/law/view/document?DocID=SAV/FBTGEMP/00009&PiT=9999123123
5958/#:~:text=A%20debt%20waiver%20fringe%20benefit%20arises%20where%20you%20(
the%20employer,related%20to%20the%20employment%20relationship.&text=the%20emplo
yer%20is%20able%20to,made%20to%20recover%20the%20debt> [Accessed 13 February
2021].
 Janský, P. and Palanský, M., 2019. Estimating the scale of profit shifting and tax
revenue losses related to foreign direct investment. International Tax and Public
Finance, 26(5), pp.1048-1103.
 Pattiasina, V., Tammubua, M.H., Numberi, A., Patiran, A. and Temalagi, S., 2019. Capital
Intensity and Tax Avoidance: an Indonesian Case. International journal of social sciences
and humanities, 3(1), pp.58-71.

Question 1

  1. Facts of the scenario

The scenario shows that John has purchased the theatre hall which was not in its best conditions. Because starting any operations in the hall, it is very necessary to repair some of the portion of the ceiling in order to start any operations in the hall. John has decided to replace total ceiling instead of repairing one portion as he has thought of replacing the ceiling with the raw materials that is better in comparison of the old one so that the operations can be better. The addition of the new ceiling, erecting the ceiling as well as cost of the raw materials will together cost in 210,000. It is estimated that is that one portion  repairing will consists of the expense of 150,000. But John is concentrated on changing the entire ceiling that will help in improving the acoustics as well as the appearance of the hall. The scenario revolves around the income tax assessment act 1997 and needs detailed description of the allowable deductions for the purposes of income tax.

Relevant laws and cases

The determination of the deductions in terms of the income tax can be explained with the help of case law FCT v Western Suburbs Cinemas Ltd(1952) 5 AITR 300. This case law is helpful in making this clear as whether the expenses have incurred or they can be seen in capital character. As per the section 25-10 of the ITAA 1997 if a person has restored the ceiling or repaired, he/she is entitled to get deduction as per this section. Section 25-10 states that is the thing is completed changed or improved then that cannot be explained as repairs as the matter has gone beyond that. The case law W Thomas & Co Pty Ltd v FCT(1965) 9 AITR 710 states the scenario as restoring the effectiveness of the operations rather than creation of the exact thing in that form or material is imperative (Arnold, et al., 2019).

Application of laws and cases

According to the case laws and sections that have been applied it explains that the evaluation of the repairing of the ceiling can be done with the help of determination of the whether the ceiling consists of pieces that are worn out or replacing the flawed parts and correction of the same has been done is entitled of the deductions as per income tax act. Moreover, is the repaired and the improvement done is seen going beyond the matter of just repairs and the changes have been done completely, so in that case the deduction cannot be provided on the whole amount as it does not mean repairs, it means the complete change and installation of the ceiling in the hall (Zoepf, et al., 2018).

As per the income tax reasons, the allowable deduction will be on the following amount:

Repair cost that is estimated = 150,000

Total cost of repairs (actual) = 240,000

Deductions allowable on the amount = Total cost of repairs (actual) – Repair cost that is estimated

= 240,000 – 150,000

= 90,000

The amount that is liable to be deducted is 90,000 as it shows the costs that are in excess in comparison of costs that were expected for the repair. This amount of deduction is permitted as it is an additional expense. The owner of the hall will get the allowable deduction amount (Sachs, et al., 2012).

Conclusion

It can be seen that for improving the acoustics of the hall, 240,000 amount has been occurred. It is considered as capital amount. The estimated costs of repairs were 150,000. The deduction of the income tax will be entitled on the amount 90,000 as these are the additional expense. The taxable income of the owner will be decreased because of the deductions that are allowable as per the Income Tax Assessment Act 1997.

  1.  If the car is utilized for the business purpose, the total costs is deducted on the operations and the ownership. But the utilization of the car is happening for personal and business purposes both, then the deduction is done only of the utilization of the business cost. It is generally the amount of figure that is deductible on the expense of the car with the help of  different methods that are actual expense method and mileage rate method. If both the methods qualify. The deduction figure can be chosen with the help of the method that provides with the larger deduction.

Actual expense method : For utilization of the actual expense method, determination of the operating costs related to the portion of the car in comparison of overall utilization of the car that is used for the use of business. It certainly consists of the Depreciation, lease, registration fees, insurance, repairs, oil, tire, gas and many attributable portions related to driving the car for business purposes.

Depreciation: This can be calculated with the help of the MACRS method that is utilized by the car owners for the depreciation of the car that is seen to be in service since the time.

Recordkeeping: The substantiate of the expenditure must be recorded with the help of the adequate record required by the law. The deduction of the car expenses that is self-employed is done as per the Schedule C (Form 1040) if the organization is a sole proprietorship company.

Standard Mileage Rate: It can be understood as a method that can help in deriving the expenses on the car used for business purposes. For this method:

The operations of the car cannot go up to 5 cars at the same time as it will lead to fleet operations.

The depreciation must not be claimed.

The deductions on car must not be claimed as per Section 179.

The special depreciation must not be claimed on the car allowance.

The actual expenses must not be claimed after the year 1997 related to the lease of the car.

There are other ways by which the deductions are availed as per the expenses of the car. That can be seen as follows:

  • With the help of charity contributions
  • If the car is hybrid of electric
  • Conversion of the automobile
  • Deduction of the business use expenses
  • Deduction of the fleets of small business
  • No reimbursement of the expenses of the business.

Question 2

With the help of the analyzation of the case study, it can be observed that the total assessable income, tax liability, taxable income, Medicare levy surcharge and Medicare levy is needed to be calculated.

Total assessable income can be described and explained as the sum of passive income and taxable wages.

Calculation of the Total assessable income:

Taxable income+ Passive income

= $ 109,000 + $ 7,000

= $ 116, 000

Taxable income can be described as the gross income portion on which the taxes will be applied. It includes unearned and earned income. It consists of certain deductions so it ultimately decreases. The calculation of the taxable income can be derived as subtracting the deductions from Total assessable income.

Calculation of the Taxable income:

= Total Taxable income – Deductions

= $ 116, 000 – $ 11,000

= $ 105, 000

Tax liability can be described the sum that is due on the income that is taxable. It is the sum that is needed to be paid to the authorities that are related to the particular department. It is the accountable income tax liability owed to the government.

Calculation of the Tax liability:

= (0.1* $ 105,000) + (0.2 * ( $ 105,000 – $ 37,000)

= (0.1* $ 105,000 + (0.2 * ( $ 105,000 – $ 37,000)

= $ 10,500 * $ 16,600

= 27, 100

Medicare levy can be understood as the levy or a tax that is paid on the taxable income. It reduces or decreases if the taxable income is less than the slab amount. So, situations do not even need levy to be paid. It is equals to almost 2% of the taxable income.

Calculation of the Medicare levy:

= 2% of Taxable income

= 2% of $ 105, 000

= 2/ 100 * $ 105, 000

= $ 2,100.

In Australia, Medicare Levy Surcharge can be observed as 1% of the taxable income.

Medicare levy surcharge can be explained as an additional tax that is deducted on the income that as it is not needed to be paid after a certain level of income.

Calculation of the Medicare levy surcharge:

= $ 105,000 * 1%

= $ 1,050.

According to the outcome, the due tax of Julia in the financial year 2021 – 2022 is as $ 27,000 as well as the Medicare Levy Surcharge is $1,050 and Medicare Levy is $ 2,100.

Note: The Medicare Levy Surcharge is only applied when taxpayer doesn’t consist of the coverage related to health insurance (Sammut, 2017).

 

References

Arnold, B.J., Ault, H.J. and Cooper, G. eds., 2019. Comparative income taxation: a structural analysis. Kluwer Law International BV. https://books.google.co.in/books?hl=en&lr=&id=WGfIDwAAQBAJ&oi=fnd&pg=PT20&dq=Income+Tax+Assessment+Act+1997+allowable+as+a+deduction+for+income+tax+purposes.&ots=cwYdrCPMDe&sig=f_UoJ2WjKb0WwuKQNKPR4tseQNU&redir_esc=y#v=onepage&q=Income%20Tax%20Assessment%20Act%201997%20allowable%20as%20a%20deduction%20for%20income%20tax%20purposes.&f=false

Sachs, H.M., Russell, C., Rogers, E. and Nadel, S., 2012. Depreciation: Impacts of Tax Policy. An ACEEE Working Paper, American Council for an Energy-‐Efficient Economy, Washington. https://www.aceee.org/sites/default/files/pdf/white-paper/depreciation-tax-paper.pdf

Sammut, J., 2017. Fiscal Fiction: The Real Medicare Levy. Centre for Independent Studies. https://www.cis.org.au/wp-content/uploads/2017/05/rr27.pdf

Zoepf, S.M., Chen, S., Adu, P. and Pozo, G., 2018. The economics of ride-hailing: Driver revenue, expenses and taxes. CEEPR WP, 5, pp.1-38. http://fuelandtiresaver.com/wp-content/uploads/2020/03/Zoepf_The-Economics-of-RideHialing_OriginalPdfFeb2018.pdf

 

Solution 1

Issue

In this case Perisher is the manufacture of the  ski equipment that operate around Victoria, from 1May 2019 company provided a car to one of its employees Nikita, as her work is related to travelling, it is not restricted to her to use for private purpose, she travelled for 12000 kilometers and incurred $770 for the expense of the car that was repaid by the company, it is not used for 15 days in this year due to repair and other air travel by the Nikita, Perisher purchased this car for $44000 including GST and $2000 for dealer GST. This question wants to calculate the FBT applied on this transaction in the hand of Perisher. 

Legal Issue: Section 136(1) of the Fringe Benefit Tax Assessment Act 1986(FBTAA1986) Deals the case as part, the provision of use of car of company is FBT and the provision of FBT are applicable on this (Dean & Sopher, 2018).

Rules

What is car benefit: If an employer provided car for the use of employees it is counted in car benefit provided by the employer, if the car is used by the family members of the employees or for the personal use of the employee than it is also FBT.(Sec.7 of FBTAA1986)

There are two method of calculation of FBT:

  1. statutory formula method: As per this method following formula is used to calculate the taxable value of the car:

A x B x C – E 

       D 

In this

  • A = the base value of the car 
  • B = the statutory fraction
  • C = Car available for private use 
  • D = No. Of days in tax year 
  • E = the amount of any employees payment ( employee contribution) 

Base value is calculated as per the ownership of car, in the given assignment the car is owned by the employer so the provision is:

Cost price of the car

Add: cost of accessories

Add: GST

Add: Dealers delivery charges

Excluding stamp duty and insurance

Base value of the car

Note: The base value of the car is reduced by 1/3 if the FBT year is after 4th anniversary of the car, but in given problem the holding period is the same as FBT year so it is not reduced (ATO, 2020).

Statutory fraction 

Kilometer traveled in FBT year Statutory fraction
Less than 15000 26%
15000 to 24999 20%
25000-40000 11%
Over 40000 7%

Note after 2011 a uniform rate 20% is followed

Formula for annualized kilometer

A x B/C

A=Kilometer traveled

B=Days in tax year

C=Car held in FBT year

  • Operating cost method:

Operating cost method covered under SECT 10 of FBTAA1986, as per this section the taxable value of the car is find out by using following formula

(C x(100%-BP))-R

C= Operating cost for the car

BP=Percentage for use in business

R=Amount paid by recipient

Car is owned by the employer: In such a case following are included in the cost of the car.

  • Car expense incurred by the employer for the cost, registration, repair, Fuel and other are included in the cost of the car and deemed depreciation are also the part of the cost of the car (ATO, 2020).

Depreciation is calculated as per the diminishing value of the assets

25% of the value of the car on or after May 2006

Deemed interest is also calculated in this case that is as per the applicable rate of interest (Ingles, 2016).

Exempt car benefit:

Private Use of Car: use of car by the employee in such a way that it is not generated revenue for the business of the employer is called car use for private purpose for example:

  • Travel between office to home is private use
  • Travel between one part of business to another part of business is business in use

So it is self-explanatory that car is used for private at work, it is depend on the nature of use, for instance employee going for a trip and park the car at airport and keep the keys of car in his custody then it is private in use.

In some situation where car is held for number of days for garage for repair, in this situation the car is not treated for private use from the date of held for repair to collect from repair.

Taxable value of car benefit: Section 7 to 13 of Fringe benefit tax assessment act 1986 deals with the taxable value of the FBT and calculation of FBT.

Application

 

Thorough application of tax law (e.g. ITAA 1936 and ITAA 1997) to material facts in Perisher’s case.

  1. In Perisher’s case Division 28C, 28F, and 28 G of ITAA1997 is applied with this section 51AJ, and 51AF ,51AH of ITAA1936 is also applicable.
  2. As per this there are two method of calculation car expense those are allowed in the hand of taxpayer:
  • Cent per kilometre method: As per this method: This method is use for the individuals and sole traders or partnership firm, in this a set of rate is applied and maximum 5000 per individual per year.
  • Log book method: In this method the work-related expense are allowed for deduction, under this method:
  1. Claim is based on business use percentage
  2. Expense allowed are the business use and other but not the cost of the car
  3. In this method a log book is required for minimum continuous 12 week
  4. Cost of fuel can be claimed
  5. Written evidence for all the expense is required

Accurate conclusion of the FBT calculation:

Taxable value under statutory formula method:

Base value =$44000+2000=$46000

Annualised kilometres =12000-5=11995*365/336=$13030

(Total no. Of days from 1st May2019 to 31st March2020 is 336days)

Statutory fraction=20% 

No. Of days available for private use is 336-10=326

Taxable value=46000*20%*326/365=9200

Note: we are taken standard 365 in place of 366 days in case of leap2020.

Taxable value under operating cost method:

Deemed depreciation=46000*25%*336/365=$10586

Deemed Interest=46000*5.85%*336/365=$2477.19

Expense $770

Operating cost=770+10586+2477=$13833

Taxable value=13833*(100-20) %=$11066

Conclusion 

So, it is better for the Perisher Pty Ltd to use the statutory method because from using this method, he could claim the deduction for the private purpose which is computed as $ 689.

Note: we assume that the car is used 20% for business as per log book.

Solution 2

Issue 

Material fact

  • Antique painting: In this case Antique painting given by Taryn father 5 year ago, her father brought this on 20th August 1984, Taryn sold it on 1st June 2020, in this the provision of Capital gain is applicable, as per Income Tax Capital Gain collectables are define in subsection108-10(2) of the Income Tax Assessment Act 1997, as per this section, any assets acquire before 20th September 1985 are pre-CGT assets and are exempt from capital gain liability.
  1. Taryn sold her car for $12000 on 20th May 2020, this one is purchased by her on 1st January 2015 for $20000, This car is counted in luxury car, in this case Taryn is liable to pay luxury car tax, a luxury car is the car that value including GST is higher than luxury car tax limit, and the previous paid tax is reduced in this case (Harding, 2013). 
  2.     Taryn sold Harry potters collection that is capital assets and subject to capital gain, she brought it for $350on  10th October 2018, and sold $1500 on 4th January 2020, in this case if the cost of item is $300 or less then immediate deduction can be claim if it is satisfied following requirements(www.ato.gov.in)
  • It is used for earning of assessable income.
  • It is not the part of set of income acquired for more then $300
  • It is not the identical item.

Rules 

There are two method of used to reduce the cost of depreciable assets that are:

  1. Immediate deduction
  2. Decline in value
  1. Sale of gold necklace on 20th march 2020, she brought it on 2018 for $1200, as per the applicable provision of the ITAA1997 ,it is covered under the provision of Collectables, and the provision of collectable specified that any collectables those are acquired for $500 or less then it is not attract the CGT event (ATO, 2020).
  2. Taryn sold a sculpture for $6,000 on 1 January 2020, she bought it on December 1994, as it is covered under the provision of collectables, SECT995.1 is applicable in this regard.

Identification and analysis of legal issues:

  1. It is covered in collectables it is defines in section 108-10(2) of the income tax assessment act 1997. CGT assets that are personal in nature are included in antiques, the provision defines that any amount that received from sale of capital assets are not attract the CGT if the value of the assets $500 or less at the time of acquired of the assets, so in this case no CGT event has occur, as per the given case the value of the collectibles is $2500 at the time of acquire so it is attract CGT, as it is not $500 or less (ATO, 2020).
  2. This transaction attracts luxury car tax, as the model of the car covered in luxury so it is required to pay this tax. LCT is required to pay in this case.
  3. In this case Trayn sold her Harry potters collection that was brought by her for $350 in 2018, as it is sold for 1500 it is also not attract the CGT event as the value of the assets is less than $500  so it is not attract this (Shams, e al., 2013).
  4. Sale of gold item are subject to capital gain or loss so it is subject to capital gain, it is counted in collectibles same as other antiques but it attract taxes when profit received from sale of such gold necklace, a long term collectibles attract 28% taxes, in this case any amount which is received as profit by sale of gold is liable for tax (ATO, 2020).
  5. Trayn sold a sculpture for $6000, it is also counted in collectible, sect.995.1 is applicable that describe that, it is required valuation if it is acquired before 1st July 2011 and sold before July 2016 then no need of valuation.

Application

Thorough application of ITAA 1997 to material facts: 

Collectibles and personal use assets cover under SECT118.10 of ITAA 1997

  • Capital gain or loss from collectibles is disregarded if the cost of the assets is $500 or less and it is depreciable assets.
  • Some special rules are applied on the collectibles if some interest in it few are listed below:
  • Artwork, jewellery and antiques
  • A rare folio or books
  • Postage stamp

It is also disregarded if the cost of the assets is $500 or less

Note: In case the interest is develop on before 16the December 1995 then capital gain is disregarded, if it is acquired for $500 or less, section 118-10 of Income Tax (Transactional Provision) Act 1997.

Note: If the assets is depreciable and the value of the assets is $10000 or less then it is disregarded.

Note: Capital loss on personal use assets are disregarded subsection 108-20(1).

Conclusion

  1. In this case the assets is purchases before 20th September 1985 so it is not attract the capital gain as the capital gain tax is not in existence on that day.

Sale proceed from Antique painting 20000

Less cost of sale   1500

Profit from sale 18500

Less @50% 9250

Capital gain         9250

  1. This is luxury assets so it is attracting the LCT and it is required to pay it. It is calculated as per the following formula

(LCT Value-LCT threshold) x10/11*33%

  1. As it is also part of collectibles and the purchases price is not more than $500 so it is not attracting the CGT.
  2. Sale of gold necklace is subject to tax; it is calculated as follows:

Sale proceed $2000

Less cost $1200

Profit $800

Tax @28% so the required pay tax is 800*28/100=224

  1. Sale of sculpture is subject to payment of tax as the sale proceed is $6000 so the applicable tax rate is 12% if it is 100 years of age but in this case the age of assets is not 100 years so in this case the sculpture is not under this preview so it attract general rate of tax.
References 
  • ATO, 2020. Welcome to Australian taxation office, 2020 [Online]. Available at:  https://www.ato.gov.au/Business/GST/In-detail/Your-industry/Motor-vehicle-and-transport/GST-and-motor-vehicles/?page=3 [Accessed on: 3/09/2020]. 
  • ATO, 2020. Welcome to Australian taxation office, 2020 [Online]. Available at:  https://www.ato.gov.au/Newsroom/smallbusiness/Lodging-and-paying/Cars-and-tax/ [Accessed on: 3/09/2020]. 
  • Dean, M. and Spoehr, J., 2018. The fourth industrial revolution and the future of manufacturing work in Australia: Challenges and opportunities. Labour & Industry: a journal of the social and economic relations of work, 28(3), pp.166-181.
  • Harding, M., 2013. Taxation of dividend, interest, and capital gain income.
  • Ingles, D., 2016. Does Australia need an annual wealth tax?(And why do we now apply one only to pensioners). And Why Do We Now Apply One Only to Pensioners)(March 1, 2016). Tax and Transfer Policy Institute Working Paper-3/2016.
  • Shams, S.M., Gunasekarage, A. and Colombage, S.R., 2013. Does the organisational form of the target influence market reaction to acquisition announcements? Australian evidence. Pacific-Basin Finance Journal, 24, pp.89-108.

Introduction

This assignment helps to understand the concept of GST and CGT with their consequences. The GST can be termed as the goods and service tax, which is indirect and that, can be imposed on the supply of services and goods. If the parties registered under the laws of GST then they are bound to pay tax as per the terms and conditions. The capital gain tax is the tax on the revenue that can be realised from the sale of assets. It also ascertains the different methods for tax for different assets. It also includes certain transactions such as the sale of shares, land and piano and analyse its legal effect. 

Question 1

Facts 

The city sky co. is the development Company and investment. The firm purchased the piece of land in Brisbane and plan to build the 15 apartment for sale. They also engage in lawyer services for development. 

Purchased land and plan to build the 15 apartments
Lawyer services that can be availed at $33000
Turnover of lawyer $300000 per year. 

Rules 

It can be asserted that City Sky is a developing and investment company which sells the apartments. By developing these apartments they have to recognise whether these are taxable or not. It can be investigated that these are taxable sales. The credit of GST can be availed in the following circumstances, these are:

  • As per the section, 40-75 the premises should be new residential premises. 
  • Before the year 1998, the premises can’t be used for residential purpose. 
  • There should be some consideration. 
  • The premises should be established in Australia
  • For the transaction, the seller should be registered. 

By analysing the above rules, it can be stated that the firm is bound for the taxable sales and inputs of credit which was rendered from the premises.  

Analysis

As per the Section 40-75, a New Tax system that is Goods and Services Tax Act 1999 was introduced. It consists of the price charged for the services and goods and credit should be claimed for the services which were bought for the business purpose. 

It is essential to register under the GST if the turnover is more than $75000 or $150000 or more in a non-profit organisation. It includes certain business such as the lending of money and provisions for fee credit, letting out the residential properties. It can also be observed that the “new” constructed premises should be let or sold out. If the firm purchases the new assets and sells the old assets to earn profits then in that situation, it is essential to register GST. But vice-versa, if this property is used for personal use and they did not earn any profit on this, then there is no GST. 

In case of residential properties, the sale will be raced input which means that the credits of GST cannot be claimed on the purchased items for sales as the existing properties are not bound for the GST (McClure and Govendir,  2016).  

The sale will be considered as the taxable sales, in case of new premises. The credits of GST will avail on the different purchase and sale will bound by the GST. 

There are certain premises which can be recognised as new if:

  • The premises has been developed or constructed after the innovation. 
  • The property should be new which means it should never be sold earlier. 
  • There should be the construction of a new building inland after demolishing the old one. 

There are certain conditions in which building can be new for the 5 years, they are:

  • The building can be used for residential purpose. 
  • It should be renovated properly.
  • The construction should be done after demolishing the old building. 

As per the provision of Australian tax, if any old and new premises are used for the commercial and residential purpose, then the sale will for both will be taxable. It states that they claim credits in the purchase items. It can also be observed that if the residential premises have been let out or sold then in that rent will be input tarred. This states that rent will not be considered under the GST(McClure, et. al., 2016).  

In addition to this, if a commercial estate has been sold out then there will be an occurrence of GST. In some transactions, it is necessary to register under GST such as buying and selling out property, leasing the commercial property etc.

Conclusion

From the above analyses, it can be stated that GST plays a crucial role in the business. There are certain transactions, which require the registration of GST such as buying and selling for the business purpose. If the business turnover exceeds the firm limit then, in that case, GST is necessary. 

Question 2: 

Facts 

This question analyses the concept of Capital gain tax with their consequences. Capital gain is triggered in a case when assets are realised or sold. The total capital gains minus capital losses can be termed as the “net capital gains”. Capital gain is a tax assessed on the difference between the purchase price and sale price of an asset. It also records the several transactions in which the company apply the CGT. The firm is bound to charge a 50% tax on capital gains. As per the rules of Australia, the value of capital gain operates as the returns of tax in which assets can be sold or disposed of. 

Capitals Gain Tax 
Material facts on the problems
Sale of Block $100000
In the year 1991-

Land

Legal Fees

Stamp duty

 $250000

$10000

$5000
Interest on loan $32000
Bill on Unites $2200
Advertisement $25000
Legal fees on dispute $5000
Removal of pine trees  $27500

 

Sale of 1000 shares@50.85: 2% brokerage on sales, purchased @ rate $3.5 in the year 1982
In the year 2015, sale of stamp collection $60000, Auction fees $5000.
In the Year 2000, sale of piano $300000, purchase price $800000. 

Rules /law

As per the provisions of taxation law, it can be asserted that the CGT is levied to the firm at the rate of 30% on the value of Capital gain but if a person is an individual it would be similar to the tax rate. There are certain situations in capital gain tax can be applied these are discussed below:

  • Property of estate, but is exempted in residence of the applicant who files the tax return.
  • If the items such as Units, trusts, sale of shares and other instruments are created under the ordinary course of business then they will be exempted from CGT (Eccleston, 2013).
  • Lease, other improvements, the goodwill which is charged on assets that is land without selling it.  
  • The involvement of new methods and techniques of encryption of digital assets can be charged on the capital gain tax. 
  • The collectables, personal assets that have a certain amount and value which implies the rate of capital gain tax. 

Further to this, it can be observed that the assets such as home, car which are used for personal use are exempted under this. According to the provisions of Australia law, the collectables are excluded from the capital gain tax. It includes the gemstones, boats and vehicles. In addition to this, assets such as jewellery, Antique pieces, photos, and wines are considered collectables. 

Capital Gain in terms of shares

 It can be noted that Emma has carried out certain transactions which include the shares. It is the units that include the managed funds and recognised as the capital gains. While purchasing assets, the company can levy a certain amount of tax on it and that can be changed (Eccleston, 2013). 

In case of shares, it can be analysed that the firm receives the payment which is non-accessible and units are redeemed from one fund to other funds. 

Sale of Stamp,   the sale of the stamp comes under the category of collectables and that are exempted under Australian taxation. It also provides the different category on which tax can collect, such as if the value of collectables is less than the $ 500. Secondly, if an individual purchased collectables before the year 1995. The disposal stamp is on or after the year 1995. It also consists the postage stamps and that will also be considered in this category (ATO, 2019). 

Analysis

It can be examined that the capital gain tax is the profit and that comes under the head of income. Capital does not apply to an innate estate and there is no concept of sale, there will be a transfer of ownership. As per the scenario, Emma developed certain transactions in the last preceding year that involves the amount of tax. 

Sale of land is the first and foremost transaction in which Emma wants to sell the land which was purchased by him(Mawuli, 2014). It shows the deductions and value of CGT can be followed properly. While doing this transaction, it also involves the other transaction such as legal fees, stamp duty etc. It does not recognise the cost of advertisement and the amount of interest is capitalised. 

Calculation of purchase price:

Cost of land $250000
Legal fees $10000
Stamp duty $5000
Legal fees $5000
Interest paid  $32000
Total cost $302000

The second transactions are related to the sale of shares in which Emma sold the shares and earn profit. The selling of shares is also recognised as the CGT. In this, the firm purchases the product in the year 1982 that includes certain units. It these acquired before 1985 then they are exempted from the rate of tax. But in this transaction, there is no such condition that arises before therefore tax is not chargeable on the shares(Tewari, 2018). 

The Emma also sell the shares in which auction fees are chargeable. In this, the value of collectables is not included in the category of Goods and sales tax. Sale of shares are exempted under the tax. 

Costing  $50000
Sale of consideration $60000
Auction fees $5000
Hence consideration will be $65000

Lastly, Emma sells the piano at the value of $30,000 which was bought at the $80,000 in the year 2000. This will not be treated as the capital gain tax as it is the personal assets and not used by the owner in a business. Therefore, it can be observed that the services and goods which are used as the business purpose will not be charged under the capital gain tax(ATO, 2019). 

Conclusion

From the above observation, it can be analysed that Emma involves different transaction in different years to calculate the amount of capital gain tax. In addition to this, there are some transactions on which capital gain tax are not levied. It can be stated that if the firm uses the assets for more than 12 months then the person can decrease the value up to 50% and that amount will not be held by the company. 

Conclusion

It can be concluded that the company city sky is liable to pay the amount of tax which is rendered from the lawyer. They also state that the amount of GST that is $330000 for the services of a lawyer can be treated as the credit and included in the liabilities. In the second situation, Emma is bound to pay the amount of tax on land.  They are not bound to pay the tax on shares as they have been acquired before the due date. Piano can be recognised as the personal assets and hence they are not taxable. 

References
  • ATO, 2019. Australian Taxation Office [Online] ATO. Available at: https://www.ato.gov.au/Non-profit/your-organisation/gst/[Accessed on: 18 September 2019].
  • Dixon, J. and Nassios, J., 2018. The effectiveness of investment stimulus policies in Australia. Centre of Policy Studies, Victoria University.
  • Eccleston, R., 2013. The tax reform agenda in Australia. Australian Journal of Public Administration, 72(2), pp.103-113.
  • Mawuli, A., 2014.  Goods and services tax: An appraisal. In Paper presented at the PNG Taxation Research and Review Symposium (Vol. 29, p. 30).
  • McClure, R., Lanis, R. and Govendir, B., 2016. Analysis of tax avoidance strategies of top foreign multinationals operating in Australia: An expose.
  • Tewari, V.K., 2018. Goods and Service Tax. GST Simplified Tax System: Challenges and Remedies, 1(1), pp.173-176.