Australian Taxation Theory, Practice and Law

Executive Summary

This report is based on the Australian Tax systems and its related structures; two separate given case scenarios have been discussed in this paper. The first case study is related to Australian products and service taxation law and the other case study is based on capital gains tax. Through the both cases each legislations and regulations of the tax system is evaluated here. Moreover, a detailed evolution process of Australian tax system is also evaluated here. Based on the present taxation structure and policy reviews, this paper has also provided some significant application of tax laws and these are able to provide an understandable approach towards country’s tax system.

Introduction

Taxation law and regulations are introduced for controlling business contracts properly. In order to ensure fair payment of tax, each system needs to consider various administrative measurements. In case of the Australian company City Sky Co bought a piece of vacant land, for which the owner requires to pay tax. Moreover, Emma planned to sell her old items and pay capital gain tax accordingly.

Question 1

Identification of material facts

The company City Sky Co is involved in development and property Investment in multiple businesses, which purchased a land in South Brisbane area. The company bought this area for selling 15 apartments. For this reason, it has engaged with Maurice Blackburn services. This organization helps City Sky Co by providing various legal services that are required for development. Furthermore, the firm Maurice Blackburn runs a sole trader business and generates about $300,000 per year. As stated by Nair and Eapen (2017, p.23), tax credit entitlement is an acclamation for overall amount of GST in any material fact. This includes price of services and goods as the input. The organization City Sky Co can only claim an input tax credit, if it is registered for GST. Therefore, input tax credit is known as GST credit. Material facts about input tax credit entitlement are mentioned as below.

  • The company can claim an input tax credit after registering for GST.
  • Not each material of the company is included in GST price, some of those falls under GST-free sale.
  • One can find an amount of GST over its tax invoice (Portal.santandertrade.com, 2019)
  • Accounting over cash basis GST from input tax credit and customers is necessary for City Sky Co, as this helps in making payment to suppliers.
  • City Sky Co is allowed to pay GST price by installment at each quarter based on ATO estimation (Gupta, V.K., 2018, p.33). 
  • This company can claim total input tax credit for business purchase, which can be applied in making adjustment and private purposes.
Selling value Computed cost base Capital gain
$330,000 $120,000 $330,000 – $120,000 = $210,000

Table 1: Details of financial transaction

(Source: Designed by researcher)

In case the company City Sky Co purchases any item for private or business purpose, it is required to claim input tax credit, since it is necessary for business portion. 

Analysis of legal issues

Business owners of City Sky Co are required to register it before commencing all business activities. Legal issues related to this company are stated as follows.

Figure 1: legal issues

(Source: Created by learner)

Business registration: In order to register business for GST entitlement, there is a range of taxes including ABN (Australian Business Number), GST (Goods and Service Tax), TFN (Tax file number) and PAYG (Pay as you go) withholding.

Fair trading: This ensures a competitive and fair business operation that helps to protect and inform customers. Purpose of legal services is to develop sole trader business and increase revenue. Fair Trading Act, 1992 and Australian Consumer Protection Act, 2010 address various forms of business conduct. As commented by Datt and Keating (2018, p.11), Competition and Consumer Act 2010 covers areas of market, relationship between wholesalers, consumers and suppliers.

Contracts: Business related contracts are legally enforceable, that may be written agreement or handshake deal. This commercial contract is required for exchanging money or getting other business related benefits.

Privacy Act: The Privacy Act, 1988 is based on storing and collecting consumer’s personal information. Method for handling personal information and direct marketing purposes are covered by this legislation (Portal.santandertrade.com, 2019).

Anti-bullying law: For avoiding any harassment in selling business of City Sky Co, this law attempts. 

Commercial lease: These are complex documents in business that state about responsibilities and rights of landlord. In case, a person fails to understand or analyze lease document, they would not be able to repair cost documentation, taxes and utilities.

Safety equipment: According to local lawyer Maurice Blackburn, it is essential to have appropriate process and equipment in place. Consequently, the business can comply health and safety legislation for protecting staff. 

Legal questions regarding the business of City Sky Co are mentioned below.

  • Disgruntled employees
  • Harassment and discrimination cases
  • Immigration audits
  • Patent and copyright issues
  • Other audit issues such as legal disputes and tax litigation (Giesecke and Tran, 2018, p.5)

Application and information about tax law

Australian legislation about taxation is involved in resident and non-resident both. Persons who are residents of Australia in various tax purposes are responsible for paying tax for the financial year. Moreover, the persons who do not have any full time education are required to pay this tax. As the turnover of City Sky Co is $300,000 per year, it needs to pay tax of amount $54,097 plus 45c for each $1 [Refer to Appendix].

CGT (capital gains tax) is imposed on profit realized from sale of asset. For Australian taxation purposes, assets subject to gain tax are wide and it includes intangible and tangible assets. Some personal use properties such as 15 apartments and vacant land in south Brisbane are subject to exemption. However, foreign residents of Australia are subject to only capital gains.

Fringe benefit tax is applied with Australian tax system by taxation office of Australia. This tax is imposed on non-cash benefits provided by employers at the time of employment. As opined by Yong et al. (2019, p.55), there is a great benefits of FBT in many business cases. It allows using business properties of City Sky Co for personal purposes. Furthermore, this tax provides entertainment, discounted loan and benefits under salary sacrifice.

Accounting standards of Australia are set by AASB (Australian Accounting Standards Boards), which is a fully independent government system. This agency is involved in issuing, maintaining and developing business related pronouncements. As stated by Krever and Teoh (2017, p.45), accounting principles of Australian businesses are defined by various corporation laws includes Corporation Regulation Act, 2001 and Corporation Act, 2001.

Nature of consumption tax is GST (goods and services tax) and its standard rate is 10%. Various input taxes such as leasing of residential premises, financial supplies and sale of businesses are some of the input tax supplies consisted in consumption tax. Although GST-free supplies in business are not subject to taxable amount, it increases input tax credit.

Detailed summary

Australian tax system contains corporate taxes, accounting rules, consumption taxes, taxation treaties, individual taxes and fiscal information. In reference to this matter, as argued by Graetz and Warren (2016, p.57), CGT of business allows some tax credits and deductions, which can be received from charitable organizations or development funds. Other taxes include FBT of 6.85%, land tax of 3.7%, PRRT of 40% and stamp duty of 7% (Portal.santandertrade.com, 2019). This tax rates are fixed by some regulatory bodies, such as CPA (Certified Public Accountant Professional Association), IPA (Institutes of chartered accountants in Australia) and ASIC (Australian Securities and Investment Commission).

Question 2

Identification of facts regarding CGT

Taxation is a administrative system by which government levies various compulsory charges on citizens of a country. This concept has been improved from multiple socio-economic duties and earning individuals in an organization. Government of Australia imposes these taxes over businesses for the purpose of selling assets. In reference to given case scenario, it is clear that Emma is purchasing a piece of land by taking a loan from bank. In the year 1991, purchasing price of land was $250,000 including $10,000 stamp duty. Capital of loan including interest rate is $32,000. Total of water rates, council rate and insurance rate is $22,000. However, in January of 2005, a conflict has occurred with neighbour that consumes legal and land fees of amount $5,000. Moreover, Emma had to remove many large pine trees on the land that needs $27,500.

Name of assets Land Stamp collection Share Grand piano
Cost price 2,65,000 60,000 3500 80,000
Selling price 1,000,000 50,000 with $5000 auction price 50,850 30,000
Capital 7,35,000 50,000 47,350 50,000

Table 2: CGT gained by Emma

(Source: Designed by researcher)

Therefore, overall gain from capital is = $7, 35,000 + $100,000 + $265,000 = $1100, 000 and total share is = 3500 + 50850 + 47350 = $101,700.

Hence it can be implied that by selling land, Emma has gained $623,500. This is the capital gain tax paid to Australian Government. If any buying and selling operation can generate a profit to seller, a fixed amount of earned capital is required to be paid. Regarding this tax, concerned government agency has decided to collect 50% of any financial gain. However, this body is needed to be in geographical periphery of Australia. Hence 50% of this property is $187,050. Therefore, she needs to pay only $623,500 – $187,050 = $436,450.

In the context of Rio Tinto of $50.85 per share, she paid a brokerage fee of 2% over sales. In the year 1982, Emma purchased this share for $3.5. She needs to pay capital gain tax of 50% on this sale. Consequently, she generated net capital = $50.85 * 1000 = $50850 for 1000 shares.

Moreover, she purchased this share for $3.5 in 1982, therefore, overall price was = $350. For brokerage fees, she paid = $1017.

Emma purchased stamp for $60,000 at the year 2015. Including auction fees, total selling price = $50,000 + $5000 = $55,000. This item has sold for $60,000, hence capital gain = $60,000 – $55,000 = $5,000. Tax for this capital gain = $5,000 * 50% = $25, 00.

In 2000, grand piano was bought at price $80,000 and she sold this item for $30,000. Therefore capital loss = $80,000 – $30,000 = $50,000.

Identification of legal questions and legal facts

Compliance with regulations and government sanctions: Capital income gained by Emma for her transactions is subjected to the standard of Australian tax structure. According to this rule, 30% CGT tax is required to pay to Australian Government. Owners of property need to be aware of bilateral sanction and United Nations Security Council sanctions, as these two sanctions comply with various measurements.  As mentioned by Weisbach (2016, p.31), this includes import and export restrictions, technical assistance prohibitions, travel sanctions and financing. Australian property law consists of interest and right of land (Emma does not have full ownership). These requirements of Australian law are imposed on some real estate properties, which are located in the concerned country.

Registration of intellectual property: Regulations of IP protection states that foreign applicants need to file registration within 12 months of transaction (Shi et al. 2016, p.593). Therefore Emma is required to pay legal fees, agent fees and advertising fees for her transaction.

Cancellation fees: Any cancellation fee related to property selling can be negotiated, as this assists to reduce capital gain tax at a certain amount (Portal.santandertrade.com, 2019).

Related legal issues are mentioned as below.

  • Local Government Act, 1993 is guaranteed by the Constitution Act of 1902.
  • Local Government Act, 2001 is guaranteed by the Constitution Act of 2001.
  • Local Government Act, 1995 is guaranteed by the Constitution Act of 1889.
  • Foreign Acquisition and takeover Act 1975
  • Foreign Acquisition and takeover regulation 1989
  • Application of tax law (Portal.santandertrade.com, 2019)

Detailed summary

For selling and purchasing multiple items such as stamp, grand piano, piece of land and share in Rio Tinto, Emma needs to pay a certain amount of capital gain tax. According to taxation principle of Australia, tax transfer system includes equity, cost, sustainability, policy consistency and structural features. A range of submission can be highlighted about Emma’s transaction (Feld et al. 2016, p.19). Detailed discussion about capital gain system can be seen in division 2 of part III of Taxation Administration Act, 1953. Moreover, tax payer needs to report an authentic official copy of detailed tax statement. 

Conclusion

It can be concluded from the above study that City Sky Co is required to follow Australian Tax structure that has been introduced in 1944. Moreover, it is necessary to pay a certain amount of capital gain tax for transactions within the country. New and upgraded taxation system of Australia is more simplified. Furthermore, it is based on detailed income and financial structure and incorporates government rules.

Reference

Datt, K.H. and Keating, M., 2018, April. The Commissioner’s obligation to make compensating adjustments for income tax and GST in Australia and New Zealand. In Australian Tax Forum (Vol. 33, No. 3).

Feld, L.P., Ruf, M., Schreiber, U., Todtenhaupt, M. and Voget, J., 2016. Taxing away M&A: The effect of corporate capital gains taxes on acquisition activity.

Giesecke, J.A. and Tran, N.H., 2018. The National and Regional Consequences of Australia’s Goods and Services Tax. Economic Record94(306), pp.255-275.

Graetz, M.J. and Warren, A.C., 2016. Integration of corporate and shareholder taxes. National Tax Journal, Forthcoming, pp.16-36.

Gupta, V.K., 2018. Good and Service Tax An International Comparative Analysis. GST Simplified Tax System: Challenges and Remedies1(1), pp.231-233.

Krever, R. and Teoh, J., 2017. Loan intermediary services: Australia. In VAT and Financial Services (pp. 51-66). Springer, Singapore.

Nair, S.R. and Eapen, L.M., 2017. Goods and Services Tax and Price Control Measures: Lessons for India from Australian Experience (No. 227).

Shi, S., Valadkhani, A., Smyth, R. and Vahid, F., 2016. Dating the timeline of house price bubbles in Australian capital cities. Economic Record92(299), pp.590-605.

Weisbach, D.A., 2016. Capital Gains Taxation and Corporate Investment. University of Chicago Coase-Sandor Institute for Law & Economics Research Paper, (740).

Yong, L.Y., Yahya, M.H., Noordin, B.A.A. and Selamat, A.I., 2019. The Effect of Goods and Services Tax (GST) Imposition on Stock Market Overreaction and Trading Volume in Malaysia and Australia. Jurnal Pengurusan (UKM Journal of Management)55.

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