Question 1

Luke and Sarah lived in a house in Albury where they both had permanent jobs. In July 2012 they purchased a rural block of 30 acres for $160,000 with the intention of building a house and moving out of town. In September 2012 they listed their house in Albury for sale at $570,000, however given a downturn in the market the house remained unsold until March 2014 when they finally accepted an offer of $460,000. Settlement took place in April 2014 and they commenced construction on the new house in May 2014. Whilst the house was being built Luke and Sarah rented the Albury house back from the new owners at an amount of $480 per week.

In November 2014 the new house was completed at a cost of $410,000 and Luke and Sarah moved in. Additional costs incurred by them included construction of a road for $15,000, sinking a dam at a cost of $30,000 and connection of electricity at a cost of $40,000. They financed the new property with a home loan of $450,000 payable over 30 years at a rate of 4.20%.

Luke and Sarah began a horse agistment business in January 2015 to which they allocated 20 acres of their property. They constructed fencing to create smaller paddocks, built shade shelters and installed water troughs at a total cost of $80,000. To fund the cost of the improvements they took out a small business loan for $80,000 payable over 10 years at a rate of 5.30%.

In October 2019, Luke was offered a promotion in his job which required them to re-locate to Queensland. They listed the rural property for sale and in December 2019 it sold for an amount of $850,000 with settlement occurring in January 2020 at which time Luke and Sarah moved to Queensland.

Required

Advise Luke and Sarah of the taxation consequences of selling the rural property including whether any taxation exemptions or concessions may apply. You do not need to calculate the amount of any resulting capital gain or loss (25 marks).

Question 2

Melissa, an Australian resident, is a perioperative nurse employed full-time in the operating theatre at her local public hospital. In addition to this she also works at the local private hospital assisting orthopaedic surgeon Dr Harris on a contract basis. Dr Harris pays Melissa directly for her services.

In September 2019, Dr Harris asked Melissa to accompany her to Chicago in the United States to attend a week-long conference to learn new techniques for use during orthopaedic surgery. Dr Harris paid for Melissas conference registration fees, return airfares from Sydney to the United States and her accommodation and meals for the week.

At the conclusion of the conference, Melissa travelled from Chicago to New York where she stayed for an additional three weeks at her own expense. She stayed in a hotel which included breakfast and she ate out for lunch and dinner.

During the first two weeks she worked at the New York-Presbyterian Hospital, one of the largest teaching hospitals in the United States as part of an exchange program. Her employer, the public hospital in Australia, paid her usual wages for these two weeks. During this time she was able to assist with a number of surgeries working alongside some of the worlds top surgeons where she gained invaluable experience. Melissa took a cab from her hotel to the hospital each day to perform the work.

Melissa spent the last week of her two-week stay in New York sightseeing and catching up with friends. She flew back to Australia from New York using the ticket that had been paid for by Dr Harris.

Required

Advise Melissa of any amounts she may be able to claim as income tax deductions in relation to her trip to the United States (10 marks).

The first question is regarding the CGT (Capital gain tax) in Australia.CGT rules are mentioned in the ITAA 1997 '(INCOME TAX ASSESSMENT ACT 1997) under section 104.5. (http://classic.austlii.edu.au/au/legis/cth/consol_act/itaa1997240/) (.https://www.ato.gov.au/General/Capital-gains-tax/)

The second question is regarding general deductions. Rules are mentioned in the ITAA 1997 under section 8-1. (http://classic.austlii.edu.au/au/legis/cth/consol_act/itaa1997240/).