Capital Gains, GST Consequences, Main Residence Exemption, And Partnership Income Calculation

Capital Gains on Property and Shares

1.

Computation of Capital Gains
In the Books of Kang
Particulars	Amount ($)	Amount ($)
Sale price of House	$700000
Less: Cost of selling	$6,000
Adjusted sale price	$694,000
Purchase price	$12000
Add: Cost of purchase and ownership	$0
Adjusted purchase price of asset	$12,000
Capital gain/loss		$682,000
Sale price of Shares (44$x1000)	$44000
less Cost of selling
Broker Fees	$300
Adjusted sale price	$43700
Purchase price	$30000
Add: Cost of purchase and ownership	$0
Stamp Duty	800
Adjusted purchase price of asset	$30800
Capital gain/loss		$12900
Total Capital Gain		$6,94,900

2.According to the Australian taxation office an individual business with GST turnover of less than $20 million, the individual taxpayer in this respect can select to pay the amount of GST on the quarterly basis. As evident from the current situation of Collins Pty Ltd the sales revenue of the company on the regular basis has gone past the $100,000 and in respect of this Collins Pty Ltd will be liable to pay GST under the GST instalment method on the quarterly basis. Furthermore, the aggregate sales revenue of Collins Pty Ltd is lower than $10 million and they would be required to pay GST quarterly and report the same in the activity statement on the yearly basis.

The meaning of the creditable purpose is laid down under the section 11-15 of the GST Act 1999. According to the GSTR 2008/1 an individual will be entitled to claim an input tax credit relating to the acquisition that is made on creditable purpose (Woellner et al. 2016). To make the creditable acquisition or importation an individual is required to make the acquisition or importation entirely or partly for the creditable purpose. Similarly, the purpose of car by Collins will be regarded as the creditable acquisition and Collins Pty Ltd will be able to claim an input tax credit relating to the creditable acquisition made. This is because the creditable acquisition of car was made by Collins Pty ltd in the course of carrying on of the business.   

The GST instalment amount at the label G21 on the business activity statement is usually computed based on the actual GST net amounts an individual reported on their business activity statements or in their most recent yearly GST return. An individual can decide to report and pay GST yearly (Barkoczy 2016). An individual can only use this method given that an individuals are voluntarily registered for the GST. The concept of GST is important where an enterprise have the GST turnover of $75,000 or more and include the GST where the price of the taxable sales is included in it.

It is noteworthy to denote that if an individual is eligible and have decided to report and pay the GST on the yearly basis an individual under such circumstances will not be required to report of pay GST during the accounting year. However, at the conclusion of the financial year an individual taxpayer is required to report and pay any amount due. Given that an individual is reporting and paying GST on yearly basis they will be required to use the BAS reporting method. Under this method of reporting an individual taxpayer reports less information on their annual GST return and they can calculate and pay their amount of GST on yearly basis.    

GST Consequences for Collins Pty Ltd

3.The current case study is based on the determination whether Robert will be able make use of the main residence exemption. According to the Australian taxation office an individual is generally allowed to claim an exemption relating to the capital gains tax. To obtain the exemption, the property should have a dwelling on it and the individual must be residing on the property (Woellner et al. 2016). More importantly, an individual is not entitled to claim exemption for the vacant block of land. As evident in the current situation it is understood that Robert bought a home in which he lived for two years. On being posted to overseas for a period of eight years the house was leased by Robert to tenants. Upon returning Robert continued to live in the home and the home was finally sold in 2013.

Usually a dwelling is regarded as the main residence given that an individual along with his family resided on the land with their personal belongings (Miller and Oats 2016). However, an important consideration stated by Australian taxation office provides that not a single factor can be considered decisive in deciding about the main residence exemption weightage needs to be paid on the circumstances of individual as well. The length of time an individual stay on the house along with the intention in occupying it might turn out to be relevant as well.

As a general rule a tax payer main residence will be exempted from the capital gains tax. However, there are certain circumstances where an individual is only provided with the partial exemption. A partial residential exemption is provided to the taxpayer relating to the dwelling if the property was the taxpayer’s main residence only for the part of the period of ownership (Robin & Barkoczy 2018). Normally, a taxpayer is able is provided with the exemption to reduce the period for which the dwelling was not the main residence of the taxpayers. As evident in the current case study of Robert it is evidently understood that Robert stayed in the property for a period of two years after purchasing the property. However, upon being transferred the property was rented out by Robert that resulted the property being used by income producing activities.

In respect of this a partial main residence exemption will be available to Robert in respect of the capital gains that originates upon the disposal of dwelling. This is because the taxpayer has used the part of the dwelling for producing the income for a particular period of time during the period of ownership (Blakelock and King 2017). Robert will not be able to claim the full main residence exemption since the dwelling of the home was not owned by Robert for the full period. Given that whole exemption is applicable an individual is able to disregard the capital gains or loss made from the property and are not required to pay tax on capital gain. In the present context of Robert full exemption will not be applicable for the capital gains made on the disposal of dwelling and Robert will be required to pay tax for the capital gains made.

4. 

Statement showing Calculation of Income from Partnership
Particulars	Amount ($)	Amount ($)
Assessable Income
Gross Receipts		80000
Expenses eligible as deduction:
Wages to employees	10000
Lease Payment on Cars	2400
Cost of goods sold {(Opening stock + purchases) – Closing stock}	17600	30000
Net income of the partnership firm for the income year		50000
Assessable Income of Partners
Rachel Share (4/3)		37500
Bill Share (4/1)		12500

Computation of Taxable Income
In the Books of Bill
For the Year Ended ……….
Particulars	Amount ($)	Amount ($)
Assessable Income
Gross Receipts		12000
Income From Partnership		12500
Australian Sourced Dividend Income
Fully Franked Dividend
Fully Franked (net)	787.5
Gross up for franking credits (787.5*30/70)	337.5	1125
Total Assessable Income		25625
Allowable Deductions
Subscriptions of Magazines		800
Total Allowable Deductions		800
Total Taxable Income		24825
Tax on Taxable Income		1258.75
Add: Medicare Levy (24825*2%)		496.5
Less: Franking credit		337.5
Total Tax Payable		1417.75

 5.

Statutory method
Taxable value of fringe benefits
Particular	Amount ($)	Amount ($)
Base value of the car	50000
Statutory rate	20%
Car Available for Private use (Days)	183
Number of days in the FBT year	365
Taxable Value of the Car Fringe benefit		5013.70

Reference List:

Barkoczy, S., 2016. Foundations of taxation law 2016. OUP Catalogue.

Blakelock, S. and King, P., 2017. Taxation law: The advance of ATO data matching. Proctor, The, 37(6), p.18.

Miller, A. and Oats, L., 2016. Principles of international taxation. Bloomsbury Publishing.

ROBIN & BARKOCZY WOELLNER (STEPHEN & MURPHY, SHIRLEY ET AL.), 2018. AUSTRALIAN TAXATION LAW 2018. OXFORD University Press.

ROBIN, H., 2017. AUSTRALIAN TAXATION LAW 2017. OXFORD University Press.

Woellner, R., Barkoczy, S., Murphy, S., Evans, C. and Pinto, D., 2016. Australian Taxation Law 2016. OUP Catalogue.