Question

Your client is a wealthy investor and property owner. Your client provides you with information (as detailed below) about various transactions that took place between 1 July 2019 and 30 June 2020.

1) Warehouse: On 30 April 1985 your client acquired a large parcel of vacant land at Rocklea, a suburb in Brisbane with a significant number of commercial buildings. The purchase price was $180,000 and your client incurred $2,000 in legal fees and $18,000 in transfer duty when purchasing the land. In April 2000 your client signed a contract for the construction of a large warehouse on the land. The final construction cost was $1,000,000. The warehouse is used to house your client’s extensive motor vehicle collection. Your client signs the contract to sell the warehouse for $2,200,000 on 1 June 2020. Your client receives the proceeds on 1 July 2020. At the time of sale, an independent valuation revealed the land component of the sale price was $1,200,000. Your client paid $80,000 to insure the warehouse building against flood and fire damage.

2) Boat: Your client owned a luxury motor cruiser that was moored at the Manly Yacht Club. Your client used the boat to go fishing over weekends and to cruise the waters of Moreton Bay. Your client purchased the vessel in late 2006 for $140,000 and sells the vessel on 1 June 2020 to a local boat broker for $90,000. During the period of ownership your client paid a total of $25,000 in weekly mooring fees to the Manly Yacht club and also incurred $20,000 in repairs on the vessel.

3) Dining Table: Your client acquires a large, hand crafted, English oak dining table for $8,000 in April 2001. The table is very old, having been constructed sometime during 1910 and was used by your client and his family in their formal dining room. Your client auctions the table on 2 April 2020 and it sells for a record price of $50,000. Your client pays $2,000 in auction fees. During your client’s period of ownership they paid $3,000 to insure the table against loss or damage.

4) Your client also has a capital loss carried forward from the 2017–2018 income year of $10,000.

You are required to: Calculate which amount(s), if any, must be returned as assessable income for the 2019–2020 income year. Show all your calculations and provide reasons for your answer, referencing relevant sections of the Income Tax Assessment Acts

Answer 1

sol: The values provided in the question is:-

Assessment Year 1st July 19 - 30 June 2020

1) Warehouse: On 30 April 1985 acquired at ,The purchase price was $180,000 and your client incurred $2,000 in legal fees and $18,000 in transfer duty when purchasing the land so total land cost at 2,00,000.

In April 2000 construction cost was $1,000,000.

therefore:

Total value @ 2,00,000+10,00,000 =12,00,000.

Sold the warehouse for $2,200,000 on 1 June 2020.

so proft = 12,00,000 - 22,00,000 = 10,00,000.

At the time of sale, an independent valuation revealed the land component of the sale price was $1,200,000. Your client paid $80,000 to insure the warehouse building against flood and fire damage

Expenses paid @ 80000.

Profit from house property = 10,00,000 - 80,000 = 9,20,000.

Sale proceeds at 12,00,000 - 9,20,000 = 280,000.

2) Boat: purchased the vessel in late 2006 for $140,000 and sells the vessel on 1 June 2020 for $90,000.

Paid a total of $25,000 in weekly mooring fees also incurred $20,000 in repairs on the vessel so total at 45,000.

sale proceeds @ 140000-90000=50000(Loss)

Expenses incurred @ 45000

3) Dining Table: Purchased dining table for $8,000 in April 2001.

Auctions the table on 2 April 2020 and it sells for a record price of $50,000.

Paid $2,000 in auction fees, $3,000 to insure the table against loss or damage.

So sale proceeds @ 50000-8000=42000.

42000-5000=37000 Actual Profit.

4. Capital loss carried forward from the 2017–2018 income year of $10,000.

So the amount of assessable income for the 2019–2020 income year is as follows:

1. 1200000

2.95000(loss)

3.37000

4.10000(half portion to be adjusted within)

so 1200000-(95000)+37000-(5000)= 11,37,000.Taxable income.