John Brown is a self-employed architect. He purchased a house in the outer suburbs of Melbourne in July of the current tax year. He purchased the property because it had a room which he could modify and use to conduct his architectural business. The room made up 15% of the house area. He borrowed a large sum of money from the bank in order to help finance the purchase. He pays interest on this loan to the bank. He specifically purchased the house because the room he uses for his architectural business faces the street. After purchasing the house, he had a builder install a new door, which enabled clients to enter the room without going through the main living area. Unfortunately, the local council fined him $1,000 in January of the current tax year for not obtaining a building permit before he installed the door. After moving into the house he replaced the old carpet in the room with better quality carpets. He also furnished the room with an antique desk, which he uses for his work. He claims that the room is the sole base for his architectural business. The only income-earning activity that he performs outside of the room is when he occasionally travels to client’s premises and delivers design drawings. He uses the rest of the house for private purposes. In May of the current tax year he sold the house for almost twice the money he paid for the property. At the same time he also sold the antique desk for half the price he paid for it. REQUIRED 

Advise John on the tax consequences of the above facts, referring to appropriate legislation and case law (there is no need to make any calculations). 

HINTS GIVEN (identify an appropriate source(s) of law to support your statement)

- Did you touch on deductibility/treatment of the home office?

- Did you touch on the impact on the main residence exemption?

- Did you touch on the installation of the door and consequential fine?

- Did you touch on the tax treatment of the carpet installation?

- Did you consider the tax treatment of the antique desk (hint here, what is the significance of the business use?)?

- Did you consider the tax treatment of the travel?

- Did you consider the tax consequences of the sale of the property (hint, you need to consider what you have already examined here as well)?

- Did you consider the tax consequences of the sale of the desk (hint, careful here - consider our earlier hint!)?