Anthony is aged 64 years old and has worked as a sole practitioner solicitor for the previous 36 years. He has a successful career and has collected a number of investments, but has not followed a particular strategy, tending largely to accumulate income producing investments without much planning. He is considering selling some of these investments and comes to you seeking advice regarding the taxation treatment of selling the following assets:
1. His own home in Melbourne, which is a house that he purchased in 1984 for $150,000, which is now worth $1.6 million. No renovations or other improvements had been undertaken since the house was acquired. Anthony and his family have lived in this house continuously since it was acquired.
2. An investment property in Sydney that was acquired in 2000 for $350,000, which is now worth $720,000. This has been rented out continuously since acquisition. In 2002, Anthony undertook renovations that cost $50,000.
3. Shares in ABC Ltd, which were purchased in 2006 for $200,000 and are now worth $60,000.
4. Shares in XYZ Ltd, which were purchased in July 2016 for $100,000 and are now worth $210,000.
Anthony has also been made an offer to sell his practice to another practice, Shark & Partners Lawfirm. As part of this offer, Anthony would be paid $300,000 not to practice accounting in Melbourne for five years (assume that such an agreement is legally valid and would be inding).
Anthony also provides you with details of the following expenditure items:
5. Interest on a loan used to purchase the XYZ Shares. The loan was taken out on 1 July 2016, the loan funds were used exclusively to acquire the property and the amount of interest was $7,000.
6. Establishment fee of $1,000 relating to the loan described in item 5 above.
7. Expenditure of $1,500 to his tax agent to prepare his income tax return and business activity statements for the previous year.
Undertake the following tasks in advising Anthony. Assume all events (unless otherwise explicitly noted) take place in the 2016/17 year of income.
A. Calculate the net capital gain (if any) that Anthony will need to include in his income tax return assuming he undertakes all proposed sales.
B. Advise Anthony of the tax treatment of the payment he would receive from Shark & Partners if he agrees not to practice in Melbourne for five years. Do not consider any interaction with Part A.
C. Advise Anthony of the tax treatment of the expenditures identified in items 5 to 7 above.
demonstrate the ability to analyse the issues fully and discuss the application of taxation principles.