Simpson Enterprises Pty Ltd, a company owned by the Simpson family, amongst other investments, owns and operates a chain of profitable hardware stores. Simpson Enterprises Pty Ltd also has a small number of investments. Simpson Enterprises Pty Ltd is an Australian resident company for tax purposes. The companys Senior Accountant, Ned is in the process of preparing income tax returns for the income year 2021/22, for the company and staff. He approaches a prominent firm GraussWaterhouseCoopers (GWC) which employs a highly skilled team of tax lawyers and tax accountants. GWC is renowned for providing integrated tax solutions for their clients. GWC organises a meeting between Ned and one of GWCs tax partners. The CEO of Simpson Enterprises Pty Ltd, Bart Simpson, also attends the meeting. Shortly afterwards the parties sign an Engagement Letter which provides for Simpson Enterprises Pty Ltd to engage the services of GWC. Simpson Enterprises Pty Ltd seeks advice on the matters set out below.

Prepare GWCs Memorandum of Advice. Advise Simpson Enterprises Pty Ltd, Bart and Ned regarding the following in relation to the 2021/22 income year:

PART B - any relevant income tax and/or capital gains tax implications, regarding the sale of property arising from the facts in PART B. In your answer make sure you show your calculation of any relevant amount included in LandCos assessable income in relation to the sale of property. (5 marks)

A couple of years ago, on 1 August 2019, Simpson Enterprises Pty Ltd, acquired all of the shares in another company LandCo Pty Ltd. (Eight years earlier LandCo Pty Ltd had acquired two acres of land in the Central Coast. The purchase price of the land was $1 million. At the time of the purchase of the land, the minutes of the directors meetings recorded that the purpose of the purchase was to build single- storey beach villas for holiday rental to tenants. However, the work never actually began on the construction of beach villas.) Simpson Enterprises Pty Ltd, in determining a purchase price for the shares in LandCo Pty Ltd, valued the Central Coast land at $1 million. LandCo Pty Ltds previous business activities have not involved residential construction projects.

Following the purchase of the shares in LandCo Pty Ltd, new directors were appointed to LandCo Pty Ltd. The new directors passed a resolution to seek a rezoning of the Central Coast land, aiming to construct 8 homes on the land and to sell each home at a profit. LandCo Pty Ltd submitted a rezoning application to the council which involved the payment of council fees of $5000 and also legal fees of $4000 in relation to obtaining legal assistance in the preparation of the rezoning application. The rezoning application by LandCo Pty Ltd was successful.

Following the rezoning LandCo Pty Ltd obtained an estimate of the market value of the Central Coast land. The valuation of the land was $3 million. In January 2020 LandCo Pty Ltd commenced work on the building of the homes. On 1 March 2021 the building of the homes was completed at a total cost of $2 million. There was significant market demand for the homes and LandCo Pty Ltd sold each home for $2 million.