Question 1
James is a dentist living in Melbourne and in October 2016, James inherited a 500 acre sugarcane farm in far north Queensland. The market value of the farm at the time of Jacob’s passing was $790,000. The farm had originally been purchased in two lots by Jacob. The first lot of 400 acres was bought in June 1983 for $440,000 and the other 100 acres was purchased in May 1997 for $380,000.
James employed a manager to run the farm. A downturn in the dairy industry over the next few years meant that James decided to sell the farm before he started incurring losses. A new market valuation obtained in January 2020 showed that the farm was now worth $910,000.
A real estate friend of James’ suggested that he could achieve a better sale price if he were to sub-divide the dairy farm and sell it off in smaller blocks. This seemed like a good idea to James so he hired the real estate to complete the sub-division and sell the blocks on his behalf.
The real estate obtained council approval and the farm was re-zoned to allow for a sub-division of 40 blocks of 5 acres each. The remaining block of 300 acres which included the homestead remained zoned as farmland. This block was part of the original parcel of 400 acres purchased in June 1983.
The real estate organised for a surveyor as well as connections for electricity, water and telephone along with road access to each block. All up the cost of the sub-division including the agent’s fees was $1,400,000.
In the year ended 30 June 2020, the real estate had managed to sell 15 of the small blocks for $80,000 each and the block with the house on it for $750,000. Agent’s commission and legal fees amounted to $70,000 for these sales.
Required
Advise James of the taxation consequences of the sales he made in the 2020 financial year. Note, you are not required to calculate any capital gain.
This assessment task will assess the following learning outcome/s:
• be able to locate and analyse the sources of taxation law in Australia.
• be able to describe and access the Australian regulatory taxation system and compliance regime.
Also note the following style guide:
1. You should use the ILAC style of essay writing for this assignment
2. Do not re-state the question as part of your answer. This often gets repeated in the 'issue' section, however that is incorrect.
3. Use in-text referencing. Do not use footnotes.
4. Names of cases or statutes should be italicised, and followed by the jurisdiction not in italics, for example: Acts Interpretation Act 1901 (Cth). Note the abbreviation for ‘Commonwealth’ is ‘Cth’ not ‘Cwlth’.
5. Do not start a new line simply because you are starting a new sentence.
6. Start each paragraph on a new line, and leave a clear line gap after the preceding paragraph. Don't make your paragraphs too long.
7. You must end your assignment with a bibliography that is divided into three separate parts, listing statutes, cases and books / articles / on-line Modules.