TASK

This problem solving assessment task has two components, Part A and Part B. Each part has a different submission date. The Part A response is to be based on the data provided below under the heading Assessment item 2.

Question

On March 1 2012 Philip inherited a property in inner Sydney at 151 Temple Street from his Aunt. The property had been used for commercial purposes but as the area was central to his job as an interior designer he decided to move in immediately and renovate to convert to residential accommodation. The property was valued by the Aunts deceased estate at $370,000. Philip borrowed $100,000 on 1 April 2012 at fixed interest of 5.5% per annum payable over twenty years to finance the renovation.

In September 2014 Philip married Kim, a plumber, and they resided in the now completely renovated property, paying out the loan early on 1 April 2016. On 1 July 2017 they purchased jointly an adjacent property, 153-155 Temple Street, for $850,000, which was significantly larger with the view to develop it into two residential properties. They purchased this property using savings of $30,000 and a loan of $960,000 (legal and other costs to purchase were $40,000 and the balance was borrowed to finance the first stage of the renovation) and using the equity in the renovated property at 151 Temple Street which was valued to obtain the loan at $800,000, as further collateral. They again opted for a fixed interest rate, 4.7% per annum with the loan maturing in 30 years. They continued to live in the original property until they had completed the first phase of the renovation at 153 Temple on 1 August 2019. The renovation had come in on budget at a cost of $100,000. They were so pleased with the renovation and the larger residence it offered they decided to move from the original property on 1 August 2019 and rented 151 Temple for $759 per week to a cousin from 7 August 2019. The rental payment was approximately 10% below market in exchange for the cousin providing labour for the renovation of the remaining property.

Despite the rental income they are concerned that the next phase of the renovation is taking too long and are considering selling a property to raise funds quickly to complete the work. A local real estate agent has indicated 151 Temple St could be sold for $1 million and the more recently renovated 153 Temple St would sell for $1.3 million.

Required

Advise Philip and Kim of the tax implications of selling either property and any amount that would be included in the calculation of taxable income by Philip and Kim (you are NOT required to calculate any possible tax payable).

Your advice is to take the form of a report (adopting ILAC style) which will form part of the client work papers and should include a recommendation based on the known facts provided above as well as identifying any additional information that should be requested prior to providing any advice to the client. (15 marks)

RATIONALE

This assessment task will assess the following learning outcome/s:

be able to identify and explain the rules of law relating to taxation law topics covered in the subject.

be able demonstrate a capacity to engage in legal research

. be able to use legal research skills to apply the law to legal problems relating to taxation so as to reach a solution.

be able to analyse legal rules so as to differentiate between possible outcomes to the legal issues arising from novel fact situations.

Covering topics 6 to 11, this assignment has been designed to ensure that students are able to identify and apply legislation, rulings and case law to the issues identified as well as demonstrate the ability to analyse the issues fully and apply this knowledge to a hypothetical, practical situation

General Guidance for Law Assessment Tasks:

Word-process or type your assignment clearly.

Clearly show the subject name, your name and the date at the beginning of the assignment.

Use size A4 paper and leave at least a 3 cm margin on the right-hand side of the page. (This is the best format for both marking and photocopying.) Number each page of the assignment.

The answers should be confined to 3,500 words in total, bibliography excluded. Assignments should be neatly typed in Times New Roman, 12 point font.

The APA Referencing System is required. Case and statute names should be italicised.

Answers must be original. They should demonstrate that students not only have read and understood the Study Guide and prescribed readings but also have broadened their knowledge by having read other reference works. Marks will not be awarded for duplication of paragraphs from the Modules or textbooks.

Answers should have a complete bibliography listing all books and articles consulted. Beware of using the unacknowledged work of others. Plagiarism will result in zero marks and possible failure of the subject. (Refer to handbook rules).

Students must, in the course of answering questions, refer to and discuss relevant case authorities and appropriate statutory provisions in order to support the propositions and submissions made.