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

Capital Gains on Property and Shares

1.Mr Kang sold his home in which he has lived for the past 30 years. The original cost of the house was $12,000. The house was sold under a contract dated 1 May 2009 for $700,000. The sale was finalised on 30 June 2009. Selling costs associated with the sale Were $6000. Mr Kang also sold a parcel of 1000 shares in National Bank of Australia.

These shares were purchased at a cost of $30 each on 30 November 2008 and sold for $44 each on 26 June 2009. He incurred $800 in stamp duty on the purchase and $300 in Stockbroker’s fees on the sale. Based on this information, determine Mr Kang’s net capital gain or net capital loss for the year ending 30 June 2009.

2.Collins Pty Ltd is a small company incorporated in Victoria, Australia. The company was incorporated in 2001 to manufacture plastic cups. Its sales revenue regularly exceeds $100,000 each year. The company sells its plastic cups to a local retailer for $3.40 per dozen. It also sells its plastic cups to a retailer in Fiji as the plastic cups have been very popular there for $4.40 per dozen. On 1 January 2009, Collins purchased a car for $34,000 which it provided to its managing director as he has to do a lot of travelling for work. The car was purchased from Car Retailer Pty Ltd, a large national car retailer with sales revenue in excess of a million dollars per year.

Advise Collins of its GST consequences arising from the above information.

2) How is the ‘net amount’ for a tax period calculated in GST? Why is this concept important?

3.Robert purchased his home on 1 July 2000. He lived in the home for two years and then was posted overseas for eight years, during which time he leased the house to tenants. On his return he continued to live in the home until it was sold on 30 June 2013.

Requirement:

Advise Robert as to whether he will be able to use the main residence exemption.

4.Rachel and Bill carry on a partnership together with gross receipts for the current income year of $ 80,000. During the year the following

payments were made:- $

Purchase of trading stock 18,000

Wages to employees 10,000

Advances to Rachel 35,000

Lease payments on two cars 4,000

Rachel and Bill share the profits in the ration of 3:1. Stock on hand at the beginning of the year was $ 3,000 and at the end of the year was $ 3,400. Both cars were used for business purposes, but Bill uses his 40% for private purpose as well. Bill also works part-time as a trainer and generated a gross income of 12,000. He subscribes magazines that update his knowledge on the industry and trainings to be provided to his own clients and it costs him $ 800 in annual subscription fees. He also received fully franked dividends from ABC Company of $1,125 in the current income year.

Requirements:

1. a) Calculate the net income of the partnership and the assessable income of the partners.

1. b) Calculate the final tax liability of Bill.

5.Errol provides his employee with the use of a car for 183 days during the FBT year. During this period the travelled 16000 km. Errol purchased the car last year for $50,000. The employee contributed $1000 towards the cost of running the car and has provided Errol with relevant

documentation.

Requirement:

Calculate the taxable value of the car fringe benefit using the statutory formula. 

1.

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.

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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.