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HI6028 Taxation Theory, Practice and Taxation Legal Cases Assessment Answer

Assessment Details and Submission Guidelines
TrimesterT2 2019
Unit CodeHI6028
Unit TitleTaxation Theory, Practice & Law
Assessment TypeAssignment
Assessment TitleIndividual Assignment
Purpose of the assessment (with ULO Mapping)
Students are required to follow the instructions by your lecturer to confirm any relevant information. You also need to follow any relevant announcement on Blackboard to confirm the due date and time of the assignment.

The individual assignment will assess students on the following learning outcomes:
  1. Demonstrate an understanding of the Australian income tax system, the concepts of income and deductions, CGT, FBT, GST general anti-avoidance provisions and income tax administration. (ULO 1).
  2. Identify and critically analyse taxation issues. (ULO 2).
  3. Interpret the relevant taxation legislations and case law. (ULO 3).
  4. Apply taxation principles to real life problems. (ULO 4).
WeightThis assignment task accounts for 20 % of total marks in this unit.
Total MarksThis assignment task accounts for 20 marks of total marks in this unit.
Word limitMax 2000 words (acceptable to be 10% above or below this word limit).

Individual Assignment Specifications

Purpose:

This assignment aims at assessing students on the Learning Outcome from 1 to 4 as mentioned above.

Instructions: Please read carefully to avoid mistakes.

  • Answer all questions.
  • This assignment along with a completed Assignment Cover Page is to be submitted on Blackboard by the due date in soft-copy only (via Safe assign – Blackboard).
  • The assignment is to be submitted in accordance with assessment policy stated in the Subject Outline and Student Handbook.
  • It is the responsibility of the student submitting the work to ensure that the work is in fact his/her own work. Incorporating another’s work or ideas into one’s own work without appropriate acknowledgement is an academic offence. Students should submit all assignments for plagiarism checking (Via SafeAssign) on Blackboard before final submission in the subject. For further details, please refer to the Unit Outline and Student Handbook.
  • Late submissions will be subject to Holmes Institute policy on student assessment submission and late penalties (please refer to subject outline and Student handbook).
  • The assignment must be in MS Word format, no spacing, 12-pt Arial font and 2 cm margins on all four sides of your page with appropriate section headings and page numbers.
  • Reference sources must be cited in the text of the report, and listed appropriately at the end in a reference list using Harvard referencing style. You also must refer to relevant legislation and/or case law in your answer. Reference sources must be cited in the text of the report, and listed appropriately at the end in a reference list using Harvard referencing style.
  • All assignments are expected to strictly follow Holmes Institute’s Academic Conduct and Integrity Policy and Procedures. A copy of the Policy is available on the Holmes Institute home page. (About Holmes > Policies) This policy is also explained in your Student Handbook.
  • Plagiarism and contract cheating in any form will not be tolerated and will have severe consequences for the groups found committing the same, including receiving zero (0) for the entire assignment and possible failure in the entire unit.
  • For further details, please refer to the Subject Outline and Student Handbook.
  • Note: Assessment task is set around the work that you have done in class. You are not expected to go outside the content of the unit but you are expected to explore it.
  • Assignment Structure should be as the following
Question 1: The goods and services tax (GST)Weighting
Identification of material facts regarding The City Sky Co goods and services tax (GST) consequences discussed in the assignment question.1 %
Identification and analysis of legal issues / legal question and relevant laxation law.
2 %
Thorough yet succinct application of tax law to material facts.
3 %
Detailed and accurate conclusions are reached from the discussion.1 %
Correct information and taxation law have been used and properly cited. A detailed analysis has been performed.
2 %
Shows excellent understanding of the cases and/or section of legislation, its context and application of taxation law.
1 %
QUESTION 1 TOTAL MARKS:10 %
Question 2: Capital gains tax (CGT)Weighting
Identification of consequences question.material facts regarding ofEmma’stransactionsthe capital discussedingain thetax (CGT) assignment1 %
Identification and analysis of legal issues / legal question and relevant laxation law.
2 %
Thorough yet succinct application of tax law to material facts.
3 %
Detailed and accurate conclusions are reached from the discussion.1 %
Correct information and taxation law have been used and properly cited. A detailed analysis has been performed.
2 %
Shows excellent understanding of the cases and/or section of legislation, its context and application of taxation law.
1 %
QUESTION 2 TOTAL MARKS:10 %


Assignments’ Instructions and Requirements

QUESTION 1- (10 MARKS)

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 - (10 MARKS)

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.

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

Taxation 

Introduction 

This report reveals the key understanding on the taxation theory, practice, and implication of the taxation legal cases in the particular case study. The implication of tax on the individual or companies is based on the relevant taxation legislation and rules. In the first question, demonstration of the understanding of the Australian taxation system, and concept of deduction, CGT, FBT and income tax admiration have been taken into consideration. After that, critical analysis of the taxation issues and rules have been made to evaluate the given case study. Afterward, the taxation principles have been applied to the real life problem given in the project. 

Answer to question no-:1

The City Sky Co is a property investment and development company which purchased a vacant piece of land located at south of Brisbane on which the company is planning to build 15 apartment to sell it further. The City Sky Co took services to buy the land from a local lawyer, Maurice Blackburn. Maurice Blackburn took a sum of $33,000 to provide the legal services required for the development of the vacant piece of land in the south of Brisbane. The City Sky Co is entitled to take the Good and Service Tax input for the professional fees paid to the local lawyer they took the services for the purchase and development of the vacant land. The lawyer, Maurice Blackburn also runs an established business which has a turnover of $300,000 per annually. The City Sky Co is a registered company for the purposes of Goods and Services Tax. The business of Maurice Blackburn may also be a registered business within the Goods and Services Tax as the minimum turnover threshold of $75,000 or $150,000 in the case of Non-Profit Organization is required to register the business in Goods and Services Tax (Orinek,, & Serven, 2016). The Australian Taxation office suggests that if the client is registered for Goods and Services Tax, to the extent that legal services are acquired for a creditable purpose then the client is entitled to claim a tax input and tax credit for the Goods and Services Tax Component charged by the barrister (Feld, Heckemeyer, & Overesch, 2013). This refers to that if, The City Sky Co is a registered company under Goods and Services Tax they are entitled to take the full Goods and Services Tax input from the lawyer for the local services he provided for $33,000 (O'Connor, & Strauch, 2018). Also, the land which The City Sky Co acquired is the land which they will further build 15 apartments is a regular course of business activity for a company which is an investment and development company of property (James, 2018). Also the lawyer, Maurice Blackburn has a registered company under Goods and Services Tax but he granted the professional services to the City Sky Company. After assessing the case and legal existing of company, it is found that it has nothing to do with the tax input (Faccio, & Xu, 2015). The amount paid to the lawyer of $33,000 is entitled to include the professional fees of the lawyer and also the Good and Services Tax component which is approx the value of 10% of the total amount (Niemirowski, Baldwin, & Wearing, 2013).       

Answer to question no-:2

In the year 2015, Emma has done many transaction relating to the Capital Gain Tax of the Australian Income Tax. Here are the consequences of Emma's transaction in the context of Capital Gain Tax according to Australian Income Tax Laws.  

Sale of a Block land for $1,000,000:

Emma purchased a land for investment in the year 1991 for the price of $250,000 dollars. She also paid stamp duty of $5,000 at the time of purchase of this land. She also incurred a legal fees of $10,000 at the time of purchase of the land. Emma took a loan in the year 1991 to fund the purchase and paid a sum of $32,000 till the completion of loan. Emma sold the land in the year 2015 for a consideration of $1,000,000 dollars (Auerbach, & Hassett, 2015). During the tenure of her ownership her council rates, water rates and insurances were accumulated her a sum of $22,000. During the tenure of her ownership, in the year 2005, she faced a dispute with her neighbors over the use of land and incurred a sum of $5,000 in resolving the dispute. Emma also spent a sum of $27,500 to remove some dangerous pine trees that were on the land just before the time of selling. The legal, advertising and agent's fees for the sale of the land she incurred a sum of $25,000 (Evans, Minas, & Lim, 2015). The land purchased by Emma as investment was in the year 1991, so the Capital Gain Tax will be applicable on this property as according to the Australian Income Tax acquiring any property for investment or any asset of the nature of capital asset, after 20 September 1985 then the asset will be treated as capital asset and Capital Gain Tax will be applicable on it. In addition to this, the property is also held by Emma as an investment, if this property would be the main and permanent residence for Emma then no Capital Gain Tax would have been implied on this property (James, 2018).  At the time of purchase Emma incurred a total of $250,000 for acquiring the property, when calculating the Capital Tax at the time of selling this land, all the expenses Emma incurred at the time of purchase and for the time she had ownership of the land will be counted as the cost of the property. These all the expenses would be deducted from the value of the sale property at the time when capital gain tax computation would be made.  However, Emma bought this property as a capital asset and all the expenses she incurred cannot  be claimed as income tax deductions as because this land does not generate any source of income for Emma instead these expenses will be the part of the cost of the land. Therefore, all the expenses made on the capital assets would be counted as cost of the land. Emma paid an interest of $32,000 for the purchase of the land, she incurred expenses such as stamp duty and legal fees as $5,000 and $10,000 respectively these expenses will be added at the cost of the land, also during the period of her ownership she paid the council rates, water rates and insurances for the same land of amount $22,000 (Wild, 2018). In addition to this, the amount paid for the settlement of the dispute with the neighbor regarding the use of the land will also be a part of the cost of the land. The expenses she made to remove the pine trees before selling the property will also be counted as the cost and also the expenses she paid to the advertising and legal fees for the sale of the land (Deb, 2018). The total cost of the land would be $376,500. She sold the land for the consideration of $1,000,000. So, Capital Gain Tax would be applicable on the amount of $623,500. The total tax would be payable by Emma would be in the following case are given as below (Capital gain tax, 2019).  

Sale of Emma's 1000 shares in Rio Tinto for $50.85 per share: 

Emma initially purchased these 1000 shares of Rio Tinto for the price of $3.5 per share in the year 1982. The total profit Emma made by selling these shares would be $47,350 but this would be a Capital Gain income because these shares were acquired before the date 20 September 1985 (Harris, Hubbard, & Kemsley, 2011). .As stated in the Income Tax of Australia any asset acquired before the date of 20 Sep 1985 is not considered as a Capital Asset and no Capital Gain Tax is implied on the sale of these asset i.e. shares. So, Emma is not liable to pay any Capital Gain Tax on the profit she earned from selling the shares of Rio Tinto (Biørn, 2017).  Therefore, any taxation implication or tax computed on the shares sold by the Emma would be exempt. She will not be liable to pay any tax on the income earned by her on it (Brailsford, Handley, & Maheswaran, 2008).

Sale of a stamp collection Emma purchased, from a private collector, in January 2015 for $60,000:

Emma bought the collection of Stamps in the year 2015 for a consideration of $60,000. She also incurred a cost of $5,000 auction fees for the sales of these stamps. Emma sold these stamps for the consideration of $50,000. Emma suffered a loss of total $15,000 from buying and selling these stamp collections. The loss from selling and buying these stamp collection will not be considered under the Capital Gain Tax as these stamp collections were purchased by Emma in the month of January 2015 and she sold these collections before holding these stamps for less than one year (Feld, Heckemeyer, & Overesch, 2013). As stated in the Income Tax of Australia any Capital nature asset which is held by the purchaser for less than 12 months (one year) is not considered as Capital asset and no Capital Gain Tax is implied on the same of buying and selling of the following asset. So no Capital Tax Gain would be implied on the sale of the stamp collections.    

Sale of a Grand Piano for $30,000:

Emma bought this Grand Piano for a sum of $80,000 in the year 2000 and sold the Grand Piano for the consideration of $30,000 in the year 2015.  The Capital Gain Tax will be applicable on the Grand Piano as it was purchased in the year 2000 and Emma sold the Grand Piano in the year 2015, as this was held by her for more than 15 years, also this is a depreciable asset which is solely used for the private purpose of entertainment (Devereux, & Maffini, 2007).  If the Grand Piano or any depreciable asset is used to generate income then it is not considered as a Capital asset and no Capital Gain Tax is imposed on it, but since it is used for private use Capital Gain Tax will be applicable on this Grand Piano (Auerbach, 2019).  Emma made a profit of $30,000 from the above transaction as Grand Piano is a depreciation asset and the depreciation rate for the percussion instrument rate is 40% according to diminishing value rate. So the total tax payable for the above transaction will be charged on the whole amount $30,000. 

Conclusion

After assessing the cases given in this report, it could be given that fundamental concepts of the taxation laws and regulations provides in-depth understanding of the Australian taxation laws and its application in the areas of capital gain tax, goods and service tax,  fringe benefits tax and general anti-avoidance provisions taxation. In this report, computation of the tax credit entitlements by City Sky company have been computed and key aspects of the tax credit for the GST purpose have been analyzed. After that consequence of the capital gain tax on the capital gain made by Emma has been computed for evaluating her taxation liability. It is inferred that there are several taxation laws and regulations which needs to assess by Emma while computing her tax liability. However, proper tax planning could help her to lower down her tax liability on the earned income. 

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