Question

Required: Discuss the Net Capital Gain for Simon for the 2019-20 tax year. In your answer, ignore any possible application of the small business concessions.

Where appropriate support your answer with legislative and case authority.

Simon bought his first house in April 2015 and paid $600,000 for it, as well as paying stamp duty in the amount of $30,000. After living in it for 2 years, he commenced renting it out in April 2017. At the time, its market value was $650,000. After it had been rented out for a year, Simon had the entire house repainted, during April 2018, at a cost of $5,000. At the same time, Simon also put in new decking in the backyard of the house (there was no decking there beforehand). This cost $3,000 in wood and other parts. Simon did the work on the decking himself. He estimates that the labour would have cost $7,000 had he paid someone else to do it.

In 2019, Simon paid $5,000 in legal fees. The next-door neighbour to the house disputed ownership of the some of the land that Simon’s house occupied. The neighbour was unsuccessful in their claim.

During February 2020, Simon sold the house to his sister for $800,000. He estimates that the market value at the time was $900,000.

Simon also inherited an apartment from his uncle in May 2017, which he immediately rented out. At the time, its market value was $500,000. His uncle had purchased the house in 1980 for $50,000 and had used it as a rental property. During May 2018, Simon took a $40,000 mortgage on this apartment, which he used to renovate the kitchen and bathroom. During May 2020, Simon sold this apartment for $700,000, with the purchaser agreeing to take over the remaining mortgage of $30,000 on the apartment.

During June 2020, Simon sold some shares for $250,000. These had been purchased in 2017 for $320,000.

Answer 1

• Solution :

• Net Capital Gain fro the year 2019-20 of Simon =  $ 777,000

values from given question  , ( step by step for your better understanding )

• Computation of Net Capital Gain fro the year 2019-20 of Simon :

Particulars	Amount ($)	Amount ($)
On sale of own house feb,2020
Sale Price		800,000
Less :  Cost of House
Purchase Price	6,00,000
Stamp Duty	30 ,000
House repainting cost	5,000
Cost of wood and other parts	3,000
Legal fees	5,000	6,43,000
(A) -Profit on sale of own house (800,000 - 6,43,000)		1,57,000

• (B)- On sale of house inherited from uncle :

Sale Price		7,00,000
Add : Mortgage amount		40,000
Less : Cost of house in Simons hand		(50,000)
(B) -    Profit on sale of house inherited		6,90,000

• (C) - On sale of Shares :

Sale Price		2,50,000
Less : Cost Price		(3,20,000)
(C) - Loss on sale of shares		- 70,000

• Net Capital Gain (A+B+C) { 1,57,000 +   6,90,000 + (70,000) }
• = $ 777,000

• Notes :

1. Market value of house $ 650000 and $ 900000 for the sale of own house is not relevant.
2. Labour cost of $ 7000 for decking is notional, Hence not relevant.
3. Purchase cost of inherited house $ 50000 will be treated as purchase cost in Simon's hand.
4. Market value of house $ 500000 for the sale of inherited house is not relevant.

  

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