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HI6028 Taxation Theory, Practice & Law T2 2019 Solution

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Question 1 (10 Marks) HI6028 Taxation Theory, Practice & Law

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.

Hi6028 Taxation theory, practice & Law

Answer 1 HI6028 Taxation Thoery, Practice & Law

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 in put 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.

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HI6028 Taxation Theory, Practice & Law