Question

In 1979, a doctor who lived and worked in Sydney purchased a 20 acre parcel of rural land on the outskirts of the city for $100,000. Over the years, he used the property as a “hobby farm” for growing “fruit trees” and as a “weekend retreat” for relaxation. Recently, the surrounding area has become more developed and the property has increased in value substantially. The doctor has also recently run into financial difficulties as a result of a malpractice suit and he is considering selling the property. Advise him as to whether he would be required to include any amount in his assessable income as a result of the sale.

Answer 1

As per the provisions of Income Tax Assessment Act, 1996, any form of receipt of capital nature comes under the purview of capital gains. However, such act also covers the taxation of ordinary income.

But capital gains are not ordinary income. For example, If an individual A receives an amount against his services provided, the same will be taken into consideration as income generated as Ordinary Income. Hence, such income shall be taxable under basic tax calculation (i.e. the normal tax slab rates).

However, revenue generated from sale of capital assets is subjected to rules of Capital Gains Taxation.

In the given case, Doctor does not need to include any revenue generated from the sale of land that he had purchased in 1979 for $100,000 in assessable income, however from the sales consideration received, the deduction of Indexed Cost of land as on Present date shall be given and Net Sales Consideration/Net Proceeds would be subjected to Capital gains Tax.