Case Study
Billy is a resident of Australia for tax purposes and has informed you of the following transactions which occurred during the income year ended 30 June 2015. Billy also informs you that he has carried forward capital losses from the 2012 year of $11,000. This loss relates to the sale of shares. Additionally he has a $1,200 carried forward capital loss from the 2009 income year in relation to the sale of an oil painting.
House
During the current income year Billy decided to sell his 4 hectare property near Toowoomba and move to Brisbane. The Toowoomba property had always been used as Billy's main residence. Billy had never carried on a farming business on the land, only having a few sheep to eat the grass. He first purchased the land on 1 October 2000 for $100,000 plus stamp duty of $2,000. Billy built the house immediately after purchasing the land, and paid $180,000 in construction costs. Billy signed a contract to sell the property for $620,000 on 1 June 2015 and the properly settled on 15 July 2015. The real estate agent's commission on the sale was $15,000. The real estate agent valued the two (2) hectare yard the house was located on at $420,000 and the remaining two (2) hectare paddock at $200,000.
Coin
Billy acquired a rare Roman coin from his father's estate. His father had purchased the coin on 1 September 1998 for $1,000. At the time of his father's death in May 2013 the market value was $6,000. Billy sold the coin for $6,800 on 1 June 2015, incurring $950 in commission fees at the time of sale.
Letter of Advice:
-Provide advice to Billy as to any net capital gain he will have to include in his assessable income for the income year ended 30 June
2015 as a result of the above transactions. Your advice must be in the form of a Client Letter of Advice.
-Your letter of advice should be written in language suitable for the audience (individual taxpayer) and discuss the capital gains tax consequences of each transaction. You should also advise Billy of any record-keeping requirements.
-The calculations of any relevant capital gains should be included in an Appendix to the letter, showing explanation for these
calculations. This is where you should make reference to all relevant legislation, case law principles and rulings in approaching this question. Please consult the marking criteria for further information.