Spotless Services Pty Ltd (Spotless) provides cleaning services to other businesses. The company operates from premises in Randwick, and it has 23 employees. As a result of the company obtaining two new major cleaning contracts in the outer southern suburbs of Sydney in early 2020, the company immediately purchases land on which it will build its new southern suburbs headquarters. The new headquarters will not only be the base for meeting the new contracts, it will also provide the base for finding new customers in the outer southern suburbs. The land was purchased in June 2020, and its cost was $640,000.

One of the new cleaning contracts (Sofas Galore Ltd) was for five years and the remuneration under it was $370,000 per year. The other was for seven years and worth $460,000 per year. About one year after obtaining the new cleaning contracts, Sofas Galore Ltd advised Spotless that it wanted to withdraw from the contract due to a downturn in its business. After some negotiation, Sofas Galore Ltd pays Spotless compensation in the amount of $200,000. Due to delays, this was paid in August 2022. The $200,000 was calculated by reference to the loss of profits Spotless were likely to make if the contract was performed, which meant that an estimate of saved expenses was also taken account of.

As a result of the lost contract, Spotless decides not to proceed with the southern suburbs headquarters as the Randwick premises can service any new clients. Accordingly, Spotless decides to sell the southern suburbs land. Before selling it, Spotless hires a town planner to have the land rezoned and subdivided into six housing blocks. The town planner said that the sale proceeds would be much higher if these measures were taken compared to a straight-out sale of the land as one block. Spotless took the town planner's advice and spent $140,000 in getting the land rezoned and subdivided. The six blocks sold for $1,240,000 in total in May 2023.

Fully advise Spotless on the assessability of the profits, etc, on the land sales. Income tax legislation, tax cases and principles of income tax law must be referred to in support of your advice. Ignore CGT issues.