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The city sky co is a property investment and development company. Recently the company purchased a vacant piece of land south of Brisbane on which it is planning to build 15 apartments to sell. The city co has engaged the services of the local lawyer, Maurice Blackburn, to provide the legal service required for the development for 33000. Maurice Blackburn runs an establishment sole trader business and turns over revenue of 300000 per year.
Advice the city sky co the input tax credit entitlements that they may be entitled to. Assuming that the city sky co is registered for GST purposes.
Answer
The city sky co is presumed to be a registered corporation and therefore it will be required to pay the input tax credit whenever it will be wanted (Musgrave R.A 1989).
From the question, we are told that the company bought a piece of land which a fixed asset and therefore it has on its plans to build rental structures on the piece of land and thereafter sell it. Based on the business knowledge we know that land is fixed property, therefore, it is neither classified as an either a good or service. It is therefore not placed under the arm of GST. Clearly, no goods and service tax that will be charged during the purchase of the unused land. Therefore, if the company is planning to build the apartments in unused land, the charges will be placed under the needs of the black credit. The provisions of this type of credit state that for any good or service that may have been received by someone who is taxable for the building of the fixed property, whether on his ability or by the assistance of a business or a company, are not eligible to pay for the input tax credit. Therefore, there are no input tax credits levied that are applicable (O Hear M.M 1996).
The city sky company decides to take improvement services which amount to 33000. These development services were taken from the local lawyer. Therefore, in taxation, any utility taken from the lawyer is placed under the reverse charge mechanism, where under this mechanism, the goods and service tax are to be paid by the one who gets the utilities. If the acceptor uses such utilities in its enterprise purpose. Therefore, it can assert the input tax credit for the similar function of not. With the company being upcoming in the competitive market, the utilities rendered by the lawyer are to be utilized for the business purposes only. Therefore, it is suitable for the input tax credited on the goods and services tax is to be compensated to the utilities given by the lawyer. The revenue lawyer is also talked about in the question, though it is inappropriate for the business to demand input tax credit on the improvement utilities (Wei S.J 2000).
Question 2
Emma has provided you a list of transitions she has undertaken through the financial year to assist you in completing her 2015 income tax return
Sale of a block of land for 1000000 Emma purchased the land as an investment in 1991. The purchase price was 250000, plus 5000 in stamp duty, 10000 in legal fees. To find the purchase, she took out a loan on which she paid interest totalling 32000. During the period of ownership her council rates, water rates, and insurance totalled 22000. In January 2005 a dispute occurred with a neighbour over the use of land and legal fee incurred amounted to 5000 in resolving the dispute. Before putting the property on the market 27500 was spent to remove several large dangerous pine trees that were on the land. Advertising, legal fees and agent fees on the sale of the land were 25000
Sale of Emmas 1000 shares in riot into for 50.85 per share Emma paid breakage fee of 2 on the sale. Emma initially purchases the share for 3.5 per share in 1982.
Sale of a stamp collection Emma had purchased, from a private collector, in January 2015 for 60000 Emma sold the collection at auction for 50000. Auction fees totalled 5000 for sale.
Sale of a grand piano for 30000 it was initially bought for 80000 in 2000
Advise Emma of the capital gain tax CGT consequences of her transactions. Ignore indexation. Your answer must include references to relevant tax laws and or cases.
Answer
Ill first begin by giving a summary of the transaction that Emma did before giving a full and detailed analysis of all the transactions (Christians A 2007).
First of all, the share of riot into depicts a 47280, extended capital gain. The profit from the sale is 50850 and the shares accounted for are 3570 including the 2 breakage fee that was charged. Therefore, after removing the accounting figure doing the profits, the totalling amount is a 47,280 extended net capital gain (Avi Yohan R.S 1995).
In all the transactions that Emma did, the most complicated undertaking is the sale of the land that was used investment. Originally, Emma had received a 623500 net extended capital earning, though after the costs incurred were enumerated to the basis. Emma cannot remove any of the goods from the annual income because it is not a remuneration producing item. Therefore, all the expenses relating to the possession of the land should be capitalized and increase the basis (Wei S.J 2000).
Main analysis
To start with Emma sales a block of land at 1000000, which she had purchased for investment. Which she had purchased at 250000 plus addition of 5000 in stamp duty and a legal fee of 10000. In the sale of the land that was set for the investment, he earned a net profit of 735000 where (1000000-(250000500010000). Therefore, with this, there is an introduction of the capital gain tax CGT that was brought up in 1985 and is usually stated in the part IIIA ITAA36. The CGT is also introduced because the asset is being disposed of. Emma incurred several tax expenses during the purchase of the land, therefore gets included in the expense payment benefit. This kind of expense is fully dependent on the external payment of the expense benefit. Emma took a loan amounting to 32000 so that she could complete the purchase of the land.
The borrowing expenses are stated in section 25-25 ITAA97, where the eliminations that are rendered for the expense that is incurred on the loaned money is used for the benefit of giving assessable income (Musgrave R.A 1989). This amount based on the section is usually deductible in the period that the borrowed amount is stated to be paid. Similarly, in the section amounts that are lesser than 100 are fully deductible in the year that the loan is given. During the ownership of the land, her council rates, legal and water bills and the insurance premiums totalled to an amount of 22000(Wei S.J 2000). In the substantiation (division ITAA91) states that and individual owning a property is required to state the expenses incurred during his purchase of the property, he can, therefore, claim for the deductions during the sale of the property(Moore J.B 1906). This evidence should be in the form of a receipt or an invoice and should state the amount of the expenses, the nature of the service, and the dates that the expenses were incurred. In the division, some exemptions that are usually made where substantiations are always not required for expenses under 300 a year. In January 2005 a dispute occurred with the neighbour over the use of land and hence the legal fees that she incurred amounted to 5000 to resolve the dispute (Akehurst .M 1972). There is some capital gain tax that may bring gains or loses a good example in this case where a dispute aroused. This is contained in division 104 ITAA97, the capital gain tax of event A1 to the event L8. The major capital gain tax scenario is A1 which entails the use of disposable assets in this case land. In the capital gain tax applied on separate assets that are adjacent are usually treated separately. Before Emma placed the land for sale, she used 27500 to remove large dangerous pine trees that were on the land.
It cost her 25000 for the legal, advertising and the agent fee to sell the land (Avi Yonah R.S 1995). The capital gain tax CGT under section 25-5ITAA97 describe the tax-related expenses. This where the taxpayers are allowed removals to a point where the expenses got from handling the tax affairs. Similarly, on section 25-10 ITAA97 it speaks about the repairs that may be incurred. In this case, is the scenario where Emma had to remove some trees that were bad in the land The section goes ahead giving conditions on the circumstances under which the repairs need to be done. They are the restoration of an asset to its normal condition without altering with any character. The sale of Emmas 1000 shares in Rio tin for 50.85 per share (Doernberge et al 2001) Emma paid a brokerage fee of 2on the sale. Emma initially purchased the shares of 3.5 per share in 1982. The rules for calculating FBT part XIA FBTAA (section 135A-section 135L) the shares are calculated by references to based year. A good example is the section 27-5 ITAA97 that denies a reduction to the extent that more loses are included. Share that is to be sold are usually written in the taxpayers accounts, For the benefit of the ant avoidance rule, it usually applies to ensure the correct transfer of shares is done. The sales stamp purchase by Emma from a private collector for 60000(Wei S.J 2000). Emma sold it at 50000 minus the auction fee that was 5000. In this transaction are made a total loss of 15000 that is (60000-50000-5000). In these events, the lose she made is not deductible in the event that she sold the property acquired. Therefore, the deduction may not be exposed by the FBT under section 8-1 ITAA97. Emma also sole a piano that she initially bough at 80000 for 30000. In this transaction we are talking about the sale of a commodity that is depreciating in its value. This is because the keyboard was bought in 2000 and therefore being sold in 2015 its there for the piano had a depreciation value of 2.5 on an annual basis in the 15 years (O Hear M.M 1989).
References
Wei, S.J., 2000. How taxing is corruption on international investorsReview of economics and statistics,82(1), pp.1-11.
Musgrave, R.A., 1989.Income taxation and international mobility. MIT press.
ChGraetz, M.J. and OHear, M.M., 1996. The original intent of US international taxation.Duke lJ,46, p.1021.oi, F.D. and Meek, G.K., 2008.International accounting. Pearson Education.
Avi-Yonah, R.S., 1995. Structure of International Taxation A Proposal for Simplification.Tex. L. Rev.,74, p.1301.
Doernberg, R.L., Razin, A. and Sadka, E., 2001.International taxation in a nutshell. West Group.
Akehurst, M., 1972. Jurisdiction in international law.Brit. YB Intl L.,46, p.145.
Avi-Yonah, R.S., 2007.International tax as international law an analysis of the international tax regime. Cambridge University Press.
Moore, J.B., 1906.A Digest of International Law..(Vol. 4). US Government Printing Office.
Christians, A., 2007. Hard law, soft law, and international taxation.Wis. Intl LJ,25, p.325.
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