Question

Assignments’ Instructions and Requirements QUESTION 1-

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 Sky Co has engaged the services of the local lawyer, Maurice Blackburn, to provide the legal services required for the development for $33,000. Maurice Blackburn runs an established sole trader business and turns over revenue of $300,000 per year.

Advise The City Sky Co of the input tax credit entitlements that they may be entitled to. Assume that The City Sky Co is registered for GST purposes.

QUESTION 2 -

Emma has provided to you a listing of the transactions she has undertaken throughout the financial year to assist you in completing her 2015 income tax return.

Sale of a block of land for $1,000,000: Emma purchased the land as an investment in 1991. The purchase price was $250,000, plus $5,000 in stamp duty, $10,000 in legal fees. To fund the purchase, she took out a loan on which she paid interest totalling $32,000. During the period of ownership her council rates, water rates and insurance totalled $22,000. In January 2005 a dispute occurred with a neighbour over the use of the land and legal fees incurred amounted to $5,000 in resolving this dispute. Before putting the property on the market $27,500 was spent to remove a number of large dangerous pine trees that were on the land. Advertising, legal fees and agent’s fees on the sale of the land were $25,000.

Sale of Emma’s 1000 shares in Rio Tinto for $50.85 per share: Emma paid brokerage fee of 2% on the sale. Emma initially purchased the shares for $3.5 per share in 1982.

Sale of a stamp collection Emma had purchased, from a private collector, in January 2015 for $60,000: Emma sold the collection at auction for $50,000. Auction fees totalled $5,000 for the sale.

Sale of a grand piano for $30,000: It was initially bought for $80,000 in 2000.

HI6028 Taxation Theory, Practice and Law Individual Assignment T2.2019 4

Advise Emma of the capital gain tax (CGT) consequences of her transitions. Ignore indexation. Your answer must include references to relevant tax law and or cases.

Answer 1

Since City Sky Co is a registered company, it will be eligible for availing input tax credit wherever applicable.

Company has purchased a vacant piece of land south of Brisbane and it is planning to build 15 apartments to sell.

Land is an immovable property, it is neither a good nor a service, hence it does not fall under the ambit of GST. Hence, no GST is applicable on purchase of vacant land. Further if it is planning to make apartments on vacant land, it will under the provisions of black credit ( any goods or services received by a taxable person for the construction of an immovable property whether on his own account or in the course or furtherance of business are nor eligible for input tax credit). Hence no input tax credit entitlements for this are applicable.

The city sky co. has taken development services worth $33,000 from local lawyer.
Any services taken from an advocate fall under reverse charge mechanism. Under reverse charge GST is to be paid by the receiver of services. If the receiver uses such services for its business purposes then it can claim input tax credit for the same otherwise not. Since the company is a development company, the services of the advocate are used for its business purposes only, hence it is eligible for the input tax credit of GST paid on services availed from the advocate, Maurice Blackburn. Also, the revenue of the advocate is mentioned in the question, but it is irrelevant for the company to claim input tax credit on the development services.

City Sky Co can avail input tax credit for the taxes paid on the services availed from the advocate for development services.