Taxation Law Assignment: Calculating Tax on House Sale in Australia

This assignment delves into the intricacies of Australian taxation law concerning the sale of a house, specifically focusing on the calculation of tax liability. The scenario involves a property purchased in South Melbourne, used for both residential and commercial purposes. The assignment analyzes the tax implications, considering capital gains tax, and allowable deductions such as interest on loans, renovation costs, and business-related expenses. It breaks down the calculation, distinguishing between the residential and commercial portions of the property, and determines the capital gain subject to tax. The assignment references relevant Australian Taxation Office (ATO) guidelines and provides a clear understanding of the tax treatment of property used for both personal and business purposes. It concludes with the calculation of the capital gain arising from the sale of the commercial portion of the property, which is then included in the taxpayer's assessable income.

Taxation law

Table of Contents
Calculation of the tax liability on the sale of a house......................................................................1
Selling the house in Australia: ...................................................................................................1
Property used in running a business ...........................................................................................1
The deductions that can be claimed are:.....................................................................................1

Calculation of the tax liability on the sale of a house
Purchase of House in South Melbourne in July 2017:
Interest on the loan : $34000 per annum
Fine imposed by local council: $1000
Replacement of old carpet: $ 6000
Cost of antique desk for decoration: $ 7250
use of car for work purpose: 72%
Sale of the house: $ 1,855,000
Sale of the antiques desk: $3850
Selling the house in Australia:
On selling a property in Australia which is used for residential purpose a tax payers
is not required to pay capital gain tax (Running your business from home, 2019). For such
home income tax deductions can not be claimed which are associated with the cost when
buying and selling the a residential home.
Renovating a house by the taxpayers and he/she is engaged in the profits making
activities of the property renovated or a business is carries out form the renovated property
there on the sale of such property tax implications may arise.
Property used in running a business
when a tax payers carry on a business from a property which he owns, or have
rented or leased (Property used in running a business, 2019). The property can be held as
a commercial premise like a shop or office or even at own home. The assessee is required
to
 includes the rental income in tax return,
 can claim tax deduction fro some of the property expense
 liable to capital gain tax on sale of the property
When the home of taxpayer is also principal place of business – that is, you run your
business from home, and a room is set aside exclusively for business activities.
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The deductions that can be claimed are:
 the cost of using room utilities,,
 business phone costs
 decline in value (depreciation) of office plant and equipment such as desk
 occupancy expenses
Computation of the Capital gain tax on the sale of the property:
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Particular Amount
Purchase of the house 1250000
Used for residential purpose 85.00%
Used for
commercial
purpose 15.00%
Amount relevant to
property 1062500 187500
Inclusion in the cost
Carpet 6000
Antiques desk 7250
Total cost 1062500 200750
Total sales proceed of the
house 1855000
Amount relevant to the
property 1576750 278250
Sale proceed of desk 3850
Total sales proceeds 1576750 282100
Deduction
Reduction in the value of
desk (=7250- 3850) 3400
Interest on the loan
(=34000*0.15*11/12) 4675
Fine imposed by local
authority 1000
Total deduction 9075
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Net sales proceeds 1576750 273025
Capital gain Nil 72275
From the above table it can be interpreted that that house purchased by John was
used fro both purpose as residential purse as well as the commercial use. Any gain or loss
on the sales of residential houses does not attract capital gain taxes. So the 85% of the
house is capital gain tax free (Buying and selling your home, 2019). The remaining 15 % of
the house is used for commercial purpose so its attract capital gain tax liability. The
deductions are allowed on the utilities in that area, reduction in the values of asset and
occupation expenses. The capital gain arsing out of the sale of property used for the
business purpose amounted to 72275 which will be including in the assessable income of
John for the income year 2019-2020.
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REFERENCES
ONLINE
Running your business from home. 2019. [Online]. Available through
:<https://www.ato.gov.au/General/property/property-used-in-running-a-business/running-
your-business-from-home/>.
Property used in running a business. 2019. [Online]. Available through
:<https://www.ato.gov.au/General/property/property-used-in-running-a-business/>.
Buying and selling your home. 2019. [Online]. Available through
:<https://www.ato.gov.au/General/Property/Your-home/Buying-and-selling-your-home/>.
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