On 1 June 2019, Edwina and her husband James exchanged a contract to purchase a residential property in Brisbane for $680,000. The couple took out a large loan with ANZ Bank for $800,000 to purchase the property at an annual interest rate of 5% (i.e., $40,000 per year). Settlement on the property occurred on 1 September 2019. At the time of purchase there was a long-term tenant in residence who remained in the property until March 2020, when the tenant gave notice to vacate. In early November 2019 however, Edwina and James lodged an application with the Council for approval of subdivision of the property into 2 lots. In March 2020, Edwina and James re-advertised the property for rent but due to the Covid-19 outbreak they could not find a tenant. In April 2020 they demolished the house and subdivided the land. On 1 May 2020 Edwina and James applied for new certificates of title for the subdivided lots. This required the services of a surveyor and engineer and cost a total of $120,000, which was paid from the original loan of $800,000 taken out to purchase the property. The two lots resulting from the subdivision were then sold for $450,000 for Lot 1 and $550,000 for Lot 2 (which was bigger than Lot 1). Edwina and her husband engaged the services of a real estate agent to advertise the two lots for sale. The agents fee was calculated at 3% of the sale price for each lot. Edwina and James also used the services of a conveyancer who charged $1,500 per contract of sale prepared. The contract of sale for Lot 1 was exchanged on 1 October 2020 with the original buyer placing a deposit of $45,000. Due to ill health however, the original buyer could not proceed with the sale and forfeited the $45,000 deposit on 4 November 2020. After deducting the real estate agents fee from the forfeited deposit, Edwina and James received $31,500 in their bank account. LAWS3070 Take Home Exam Spr 2023 5 Lot 1 was re-advertised for sale and sold under a new contract dated 20 February 2021 for $450,000. Settlement for Lot 1 occurred on 2 May 2021 with Edwina and James receiving $436,500 after payment of $13,500 for the real estate agents fee. Lot 2 was sold under contract dated 2 May 2021 but due to unforeseen delays settlement did not occur until 10 July 2021. At that time Edwina and James received $533,500 after the real estate agent deducted commission of $16,500. Unsure of whether the profits from the sale of the two lots are assessable as ordinary income under s 6-5 of the Income Tax Assessment Act 1997 (ITAA 97) or as capital gains under s 102-5 ITAA 97, Edwina has come to you for advice. Required: Ignoring any capital gains tax consequences, advise Edwina and James whether the proceeds from the sale of the two lots could be assessed as ordinary income. NOTE: Your advice must be supported by reference to relevant legislation, case law and/or tax rulings.