Information and Instructions
- Weighting of this assessment task: 20%
- Format of submission: Microsoft Word document, 12-point type, double spaced.
- Method of submission: on-line, uploaded to iLearn
- Your written response to this assignment must be presented in a report format. Bullet points are not acceptable.
- Responses to this assessment task must not exceed 1,500 words.
In March 2014, Jeremy and his wife Maxine, who were living in the Blue Mountains at the
time, saw an advertisement in the Domain section of The Sydney Morning Herald for the
sale of a duplex in the Sydney suburb of Marrickville for $1,250,000. It consisted of two
three-bedroom flats described as “the renovators dream”. These two flats were on
separate titles. Inspection revealed that although the property was in a run-down
condition, it was quite livable. They decided to buy the property and live with their children in the bottom flat while they rented out the top flat.
The signed contracts were exchanged for the premises on 15 May 2014 and the purchase
price of $1,250,000 was paid on 28 June 2014, when the property was formally conveyed to Jeremy and Maxine. Soon after this, Maxine’s parents, who were living in the country- town of Bathurst, both had major health crises. Jeremy and Maxine decided that it would be best to have her parents re-locate to Sydney, and live closer to them, so that they could
monitor and support them during their treatment.
Following the purchase of the duplex, Maxine’s parents moved in and lived rent-free in the
upstairs flat continuously for the entire period of ownership, whilst Jeremy, Maxine and
their children lived in the bottom flat.
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a. Before purchasing the property, it was necessary for Jeremy and Maxine to travel
to Sydney to inspect the property. On two occasions during this period, they had
to stay overnight at a hotel in Sydney. The cost of transportation to Sydney and
accommodation in Sydney amounted to $1,400
b. Stamp duty at the time of purchase was $72,000
c. Legal expenses on purchase amounted to $4,300
d. The cost of obtaining and registering a mortgage (loan) of $850,000 on the property
e. Monthly interest payments on the mortgaged loan $3,100
f. Annual local government rates (taxes) on the property $3,200.
g. Before moving into the property they had it painted throughout and several minor
repairs completed. A contractor was paid $18,000 for this activity. Jeremy also helped the contractor and contributed 60 hours of his own labour. His labour was valued commercially at $58.00 per hour.
Jeremy and Maxine seek your advice on the following matters:
i. They would like to find out whether the sale of the property would give rise to any CGT liability, considering the fact that the ground floor flat was their main residence, and that Maxine’s parents lived in the top floor flat rent-free. Please provide explanations to support your answer. (4 marks)
ii. They would also like to find out whether they can claim deductions for the expenditures listed in items (a) – (j) above, that they can offset against their incomes in the relevant year? Would it have made any difference if the property had been rented out on an arms-length basis?
Explain and calculate (for relevant transactions) any capital gain resulting from the transactions listed above. Please show all workings and provide explanations. (8 marks)
iv. If any capital gain has been made, how much tax is payable? (3 marks)
v. Your advice to Jeremy and Maxine on the matters outlined above (excluding
the calculations) must be presented in the form of a report to the clients.