Question -
In 20002 Hassan inherited a small family farm valued at $600,000. The farm was located about 45 kilometres from central Melbourne. By 2015 Melbourne had expanded and the farm property had become very valuable as a potential residential area.
In 2016 Hassan realised that the value of the property had increased significantly. Hassan also decided that it was time to retire and his adult children had no desire to take over the farm. He discussed the situation with his accountant who advised him to discuss his options regarding the sale of the farm with a property developer. Following that meeting he arranged a meeting with a town planner an architect and to discuss what options he had in regard to selling the farm.
The advice that he received suggested that he should cease farming and subdivide the land, put in roads and footpaths and start building houses which he could then sell.
Hassan proceeded to implement this plan and he appointed the various contractors required to do the work.
As the houses were built Hassan and a real estate agent organised their sale. During the year ending 30 June 2018 Hassan had built and sold twenty houses He made a profit of $300,000 for each house sold.
Required:
1. Advise Hassan on the alternatives that the proceeds of the sale of the town houses could be assessed on under the Income Tax Assessment Act.
2. Discuss which of those alternatives are likely to apply to Hassan.