TRANSACTION 2: SALE OF A RESIDENTIAL PROPERTY

Alex signed a contract to purchase a house on a 600m2 block of land in Kenmore for $460,000 on 24 November 2005 with the settlement date occurring on 24 December 2005. Alex also paid $7,650 in transfer duty and $1,350 (including GST) in legal fees at the time of purchase. As the settlement date was so close to Christmas, Alex found it more practicable to move into his new home on 28 December 2005 once the electricity was connected, and various businesses such as furniture and appliance stores had reopened after the long weekend.

The timing of moving out of his parent’s house into his own home was fortuitous for Alex as he had finished studying for his university degree in November 2005 and did not begin working full-time as a graduate IT professional until February 2006. This gave him plenty of time to settle into his new home.

After six years of full-time work, Alex decided to resign from his job and start his own IT business using his home as a base. Accordingly, he set up the downstairs guest bedroom as his office space, which included having an external door installed at a cost of $3,520 (including GST) in February 2012 so that clients could directly access his place of business without walking through his home. The floor space of this office area represented 10% of the total floor space of his home. Alex commenced his IT business on 22 March 2012. Just after commencing his business, Alex obtained the services of a professional valuer who advised him that the market value of his home as at March 2012 was $590,000, and also provided him with a quantity surveyor report specifying that the house was built in 1998 at an estimated construction cost of $190,000. The valuer charged Alex $250 (including GST) for the valuation and $350 (including GST) for the quantity surveyor report.

Alex continued to carry on his IT business from home until mid-2016, at which point he decided it would be easier to work for someone else. He wound up his business on 10 July 2016 and obtained his current job at the law firm in the city in August 2016.

In 2019 Alex decided that he would rather live closer to the city (and a train line) given that his daily commute to work via bus was taking around one hour each way. Also, his parents had relocated to the Sunshine Coast the year before so there really was no need to remain living in Kenmore. So, Alex placed the Kenmore property on the market and sold it for $870,000 under a contract dated 10 September 2019, with the ownership transferring on 24 October 2019. [During the settlement period, Alex bought the property that he currently lives in at Taringa, so on 24 October 2019 he moved from the Kenmore house to the Taringa house].

Note that Alex incurred the following costs in relation to the sale of the Kenmore property (all costs include GST):

• $4,750 in advertising costs

• $9,500 in sales commission (paid to the real estate agent)

• $1,250 in legal fees

During Alex’s total ownership period, he incurred the following expenses in relation to the Kenmore property (note that all expenses include GST): 

^ The Period 2 repair and maintenance costs relate to the exterior of the property only (that is, not to the space set aside for business purposes.

* The Period 1 capital improvement costs referred to in the table above relate to the installation of the external door and the Period 3 capital improvement costs relate to the renovation of the kitchen and main bathroom, with the construction work being completed on 20 November 2017.

FURTHER INFORMATION:

• Assume that all expenses can be substantiated.

• As at 1 July 2019, Alex has net capital losses carried forward as follows:

Net capital loss                             $3,800

Net capital loss (collectables)     $900

REQUIRED:

Using the Word document template provided on Learn.UQ, calculate Alex’s:

(1) Net capital gain for the 2019/20 income year as per the assignment instructions.

(2) Taxable income for the 2019/20 income year.