Principles of Taxation Law - Case Study Example

A supply will not be regarded as a 'taxable supply' to the extent that it is a 'GST-Free' supply or an 'input taxed' supply. The GST payable is calculated at 10 percent of the value of the consideration that entity receives for making the supply (excluding GST). Entities registered for GST are entitled to claim input tax credits for the GST included in the costs of various goods and services that the business has acquired for its activities. "However where an acquisition relates to input taxed supplies, the registered entity may be restricted in its ability to claim input tax credits for that acquisition depending on the purpose of the acquisition and the supplies to which it relates"3.

Depending on the size of the turnover the entities registered for GST are subjected to certain reporting obligations. The entities are required to prepare and lodge with the Australian Tax Office (ATO) GST returns on a monthly, quarterly or annual basis. The entities whose turnover is more than A$ 20 million per annum are required to file the GST returns on a monthly basis. . On the contrary if the input tax on the acquisition is more than the amount the entity is liable to pay then the entity is entitled for a refund from the ATO.

Tax Credits on Land Purchase:As per the GST rules if the land is purchased after 30th June 2000, then the input tax credit on the land purchased can be claimed. However this claim for tax credit is subject to the condition that the sale to the entity must be a taxable supply and was not subjected to any margin scheme. In this case since the GST of 10 percent has been paid on the land cost while purchasing the trust can claim tax credit for the GST amount paid on the land cost.In respect of other capital items purchased like kitchen outfit, tables and chairs and cutleries the trust can claim the input tax credit of any GST included in the items purchased.

This also covers the GST included in the services acquired after paying GST. The trust should have invoices for all the purchases it has made in order to claim the input tax credits. "Some supplies of goods and services will be GST-free, for example basic food, exports and some health services. This means that GST will not be included in the price of these goods and services."4Calculation of Taxable Income:The calculation of the taxable income of the trust is shown below:DescriptionAmount A$Sales 165,000Add: Closing Stock 8,000Total Revenue 173,000Less : ExpensesPurchases 33,000Wages 40,000Superannuation 3,600Administrations Costs 8,000Interest 12,000Demolition Costs 5,500Total Expenses102,100Net Income 62,900Income Adjusted for Tax Purposes:Gross Income as per Statement A$