Part A (Max Limit 1300 Words)

Topic

ABC Ltd. is a property developer which manages a large shopping complex on five acres of land at Officer, Victoria. As part of the expansion, they purchased an adjoining two acres of land in 2020, at a cost of $7 million, for the future expansion of the complex.

Also in 2020, ABC Ltd. sold some of its share investments which had been acquired two years ago. The shares had originally cost $1.5 million and were sold for $1.8 million. The funds from the sale of the shares were used to partly finance the purchase of the two acres of land.

Unfortunately, because of planning difficulties ABC Ltd. was only able to develop one acre of the land. It therefore later decided to sell the acre that it could not develop. To make this land more attractive to potential developers it subdivided the land into 5 parcels. By the end of the 2020/21 financial year, ABC Ltd. had sold three of these parcels. The first parcel was sold for $555,000. The second for $573,000 and the third for $567,000.

Required:

1. Citing all Australian relevant legislation and case law, advise ABC Ltd. as to the tax consequences of the above transactions

2. If ABC changes its intentions to sell the remaining parcels of land and instead builds residential properties on the land and rents them out, what would be the tax and accounting consequences? Please advise with reference to tax law and relevant accounting standards.