Taxation: CGT, Rental Income, Allowable Deductions

Running head: TAXATION
Taxation
Name of the Student:
Name of the University:
Authors note:

1TAXATION
Table of Contents
Answer to Question 1:.....................................................................................................................2
Answer to Question 2:.....................................................................................................................5
Reference.......................................................................................................................................10

2TAXATION
Answer to Question 1:
In the given case, the client Tony and Hub is building development business naming
Cedar Building Partners (CBP). The clients own a property in 35b Bright Street valuing
$10000000 which was formerly acquired by their deceased father Mr Joe in 1974. Both of the
brothers have decided use the property as business purpose, not as a residential purpose. The
main idea before developing the land is to make money from the property which is being given
to them from their deceased father.
The land is hugged and categorised in to R2 zone, which means two secluded buildings,
can be developed in the one block land (Braithwaite 2017). In that case there are few
circumstances that are to be discussed in the given case that the following are.
1. In the given case if the client Mr Tony and Hub did not invest a penny in the building and
only earning the rental income form the CGT asset then they will earn $12000 monthly
which amounts to $144000 per Annum. But this is not the right process as there are
chances of developing the structure then they could earn more then what they are earning
now. This process can cost more money for the brothers, but in long run, this expenses
will be regarded as investments. This will be held as the business taxable under ITAA97
s995-1.
Rental income
Particulars Amount
Rent per month 12000
Annual rent 144000
2. If the client sell the house then they will earn $1000000. Which will be added to the tax
on the selling price after deduction of the index value of the asset. The tax will be
chargeable under the ITAA 6-10 statutory income. Further the transfer from the deceased
father is not taxable as the gift or inheritance dose not attracts the tax under ITAA97.

3TAXATION
3. In the given case there will not be any taxable activity that is carried on by the client. In
that case, it is an investment not an income. The income will be derived by the client as
the ordinary income if they further let out the newly build property (McNamara 2018).
The cost of renovation will be of $200000. Moreover, for the new construction the
amount will be $250000. This will be deducted from the income, as it will hold for the
deduction from the property.
4. Capital Gain Computation
Particulars amount amount
sale 1000000
Less: transfer cost 0
Total 1000000
Less : index cost of acquisition 2079683
Cost of Purchase 700000
Base year 37.9
Current year 112.6
Capital gain Loss 1079683-
5.
4.1: If the house or the plot is spliced into two parts after the creation of the house then each part
will be valued at $1200000. In that case if any of the clients sell the property then in the case
they will be charged to tax under CGT under the section 10 of the ITAA (Lobato and Meese
2016).
4.2: If the client holds the property jointly then they will be able to earn rental income from the
assets and the value of the property will be increased to $2400000 after a term of five years.