Taxation Theory, Practice & Law
Name
Institution
Course
Date
1.0 Question one:
The transactions dealing with goods and services are subjected to the Australian tax act known as the good and services tax act. The supply of goods and the acquisition of those goods are liable for goods and services tax rate as determined by the GST ac of the Australian tax systems. There some conditions outlined in different goods and services tax act. The conditions are as follows; transaction involving the exchange of good or offering service, consideration, connection with Australia (Heng-Contaxis et al., 2013 and Mustapha et al., 2015)
The consideration is vital when it comes to GST and should be in cash or credit terms which is known and agreed by the parties involved. The payment made by the company to a local lawyer is a legal fee and this is included when making goods and services tax for the specific financial year as determined by the Government-S 9-15 of GST Act. The company is entitled to the input tan credit because it is part of the land acquisition.it is specific because it is known in figures$33,000.
Both the company and outsourced lawyer are from Australia and the piece of land is within the boundaries of Australia. This show there is a connection of the transaction of the land and legal services. The (S 9-25 of GST Act). The lawyer is an Australian origin because we are told that the lawyer is a local one and therefore the legal fee paid for the legal services offered by the lawyer (Heng-Contaxis et al., 2013 and Mustapha et al., 2015).
There should be a service of good involved in the transaction. The piece of land is a good and legal services offered by the lawyer by the name Maurice Blackburn. The payment is due to the service and the payment made for the piece of land and the serviced offered od to accomplish the transaction-(S 9-10 of GST) Therefore, there is legibility of the for GST because it is credible acquisition transaction of the pieces of land (Heng-Contaxis et al., 2013 and Mustapha et al., 2015).
There is set thresh-hold set by the GST act which should be attained for all the registered companies or individuals who have registered for the GST. for the company to declare and pay the GST arising out of the transaction od offering both service and goods should be at least $75,000 per year. The City Sky Co have a turnover of more than $75,000 which is the lowest set turnover set by the GST act for a company to be legible to register for GST and since the company is registered for GST, it means it meets all the requirement s as outlined in the GST act of the Australian Tax System-S 23-5 of GST Act. The value of the transaction is included as in the more than 300,000 turnover made by the company. because this is a cost and therefor the company should less the GST made when it subjected to the goods and services tax act (City, 2017).
The goods and services tax act require the company to calculate the total GST that is supposed to be paid by the company at the end of the year and make some necessary adjustment by deducting the input tax credit entitled with is equal to the GST, adding increase in adjustments and deduct the decreased adjustments for the company to know exactly. Therefore, the company will need to calculate 10% of the amount of the total turnover that is mentioned to be more than $300,000 and deduct the input tax credit arising sue to the legal fee made by the company in the process of land acquisition (Heng-Contaxis et al., 2013 and Mustapha et al., 2015
The GST is arriving at by the application of the 10% on the total amount payables or paid as legal fees to the lawyer who offered the paralegal series that was needed for the land acquisition to be complete.
Legal fee
33,000
goods and service tax rate
10%
goods and services tax payable
3300
input tax credit entitled.
3300
The table show that the company made a GST of $3,300 and the input tax credit entitled by the City Sky Co. is of the same amount that the company will claim or use to reduce their net goods and services tax to be paid to the Australian tax authorities.
2.0 Question two:
The introduction of capital gain tax by the Australian government see people subjected to pay tax from the transactions involving the disposing or reselling of the earlier purchased assets, shares or stocks. This was to diversify the tax collection of the government to ensure all the gains made by the resident by the sale of the specified assets is covered comprehensively. The capital gain tax act came into operational on the days of 20 September 1985 and all the assets that were acquired before that date were exempted from capital gain tax. The assets that are purchase and tales more than one year to sale are the long asset capita gain while those tool less than one tear and sold they are short-term capital gain assets (Kewley, 1987).
SALE OF LAND
SALES VALUE
1000000
COSTS OF SALES
removing spine trees costs
27,500
advertising, legal and agent’s fees
25000
Net sales
947,500
PURCHASE COSTS
PRICE OF LAND
250,000
STAMP DUTY
5000
LEGAL FEES
10000
INTEREST COSTS
32000
LEGAL FEES FOR RESOLVING DISPUTE
5000
302,000
GAIN/LOSS
645,500
Capital gain or loss tax(15%)
96825
The value of land appreciates and lead to capital gain of $645,500 and since the land was acquired after the effective date of the capital gain tax, it is supposed to be included in the capital gain tax payable for that given financial year. Emma will apply the stated capital gain tax rate of 15% and arrive at the value of capital gain tax resulted for the purchase and sale of the land. Since the value is a gain on sale of the land, Emma need to pay the capital gain tax gotten. The selling price of the land is $1000000 but there were some costs associated with the sale of that land and need to captured to arrive at the net selling price if what actually Emma realized in terms of sale. There were costs associated with preparing the and by removing the spine trees form the land and the value was $27,500 and the advertising, legal and agent’s fees totaling $25,000. after capturing all the costs associated with the sale of the land the capital gain will be $645,500 and after applying a 15% tax rate of CGT Emma gets a capital gain tax of $96825 which she need to pay at the end of the financial year (Fane and Richardson, 2005)
The sale of grand piano lead to a loss on capita sale since its cost value was higher than the value the asset was sold. when the costs of acquiring the asset is more than the selling price of the asset it leads to a capital loss tax. The company or individual is supposed to be refunded back the capital loss tax but instead of Emma being refunded she will use the value gotten to reduce her final capita gain tax of that financial year. The acquisition price of the piano was $80,000 but the value Emma got by disposing the asset is $30,000 and the capita loss in $50,000 and which is subjected to capital gain tax rate of 15% and give her the value of $7,500 which she need to use to adjust her capital gain tax for the year ending 2015.
GRAND PIANO
SALES VALUE
30000
Costs of sales
NET SALES
30,000
PURCHASE COST
80000
80,000
GAIN/LOSS
-50,000
Capital gain or loss tax(15%)
-7500
The Emma shares were purchase before the capital gain tax came into existence and should not be used when calculate the capital gain tax of the year. Emma made a gain from the sale of the shares and the gain is 46,068 and will give a capital gain tax of $6910.26 but Emma will not pay the tax because the shares were purchase before the operational of the capital gain tax act of Australia (Evans et al., 2015)
SALES OF SHARES
SALES VALUE
50580
COSTS OF SALES
BROKERAGE FEES
1011.6
Net sales
49,568
purchase costs(1000 shares @ 3.5)
3500
3,500
GAIN/LOSS
46,068
Capital gain or loss tax(15%)
6910.26
The stamp collection was purchased after the date 20 September 1985 and therefore is supposed to be included in the whole process of coming up with the total capital gain tax to be pain by Emma. Emma needs to know the capita loos or gain made by the sale of this asset and from the calculation it is indicated that the asset led to a capital loss of $15,000 and a capital loss tax of $2250.capital is used to reduce the capital gain tax payable to the government and Emma will have to reduced her capital gain tax for the year by the same amount of $2250(Evans et al., 2015)
Stamp collection
sales value
50000
costs of sales
auction fees
5000
NET SALES
45,000
PURCHASE COST
60000
60,000
GAIN/LOSS
-15,000
Capital gain or loss tax(15%)
-2250
When coming up with the net capital gain tax to be paid by Emma to the Australian tax authority for the finial year ending 2015 it good to exclude the capital gain tax made from the sale of shares. the total capital gain tax for the year will be ($96825-$7500-$2250=$87075) therefore Emma will have to pay the capital gain tax of $87075 for the financial year ending 2015.
3.0 References list
Zhou, L.Z., Tam, J. and Heng-Contaxis, J., 2013. The Introduction of Goods and Services Tax in Malaysia. *Centre for Public Policy Studies, Pg*, pp.1-29.
Ramli, R., Palil, M.R., Hassan, N.S.A. and Mustapha, A.F., 2015. Compliance costs of Goods and Services Tax (GST) among small and medium enterprises. *Jurnal Pengurusan (UKM Journal of Management)*, *45*.
City, C., 2017. ACT 2601. *Australia JH Troughton’s present address: Physics and Engineering Laboratx) ry Department of Scientific and Industrial Research Lower Hurt, New Zealand*.
Kewley, G.M., 1987. *Australian Taxation: principles and practice*. Longman Professional.
Fane, G. and Richardson, M., 2005. Negative gearing and the taxation of capital gains in Australia. *Economic Record*, *81*(254), pp.249-261.
Evans, C., Minas, J. and Lim, Y., 2015. Taxing personal capital gains in Australia: An alternative way forward. *Austl. Tax F.*, *30*, p.735.
APPENDIX:
SALE OF LAND
SALES VALUE
1000000
COSTS OF SALES
removing spine trees costs
27,500
advertising, legal and agent’s fees
25000
*Net sales*
*947,500*
PURCHASE COSTS
PRICE OF LAND
250,000
STAMP DUTY
5000
LEGAL FEES
10000
INTEREST COSTS
32000
LEGAL FEES FOR resolving DISPUTE
5000
*302,000*
*GAIN/LOSS*
*645,500*
Capital gain or loss tax(15%)
96825
SALES OF SHARES
SALES VALUE
50580
COSTS OF SALES
brokerage FEES
1011.6
*Net sales*
*49,568*
purchase costs(1000 shares @ 3.5)
3500
*3,500*
*GAIN/LOSS*
*46,068*
Capital gain or loss tax(15%)
6910.26
Stamp collection
sales value
50000
costs of sales
auction fees
5000
*NET SALES*
*45,000*
PURCHASE COST
60000
*60,000*
*GAIN/LOSS*
*-15,000*
Capital gain or loss tax(15%)
-2250
GRNAD PIANO
SALES VALUE
30000
SALES COSTS
*NET SALES*
*30,000*
PURCHASE COST
80000
*80,000*
*GAIN/LOSS*
*-50,000*
Capital gain or loss tax(15%)
-7500
CAPITAL GAIN TAX FOR THE YEAR
87075
