Your client Jacob comes to see you in December 2016 asking to prepare his income tax return for the year ended 30 June 2016. He is also seeking your taxation advice in relation to some other issues. He provides the following information;
Jacob wants to sell his current home and purchase a new home to live in. He purchased the house on 31 October 1987 for a cost of $190,000 and also incurred legal costs of $1,900 and stamp duty of $4,850 in relation to the purchase. Jacob has lived in the house as his main residence since then, except for a period from 31 December 2006 to 31 December 2014. The market value of the house at 31 December 2006 was $290,000.
In order to sell this house, Jacob needs to undertake some repair work as follows;
Repainting the whole house $6,200 Building a fence to make the front of the house more presentable $3,600 Repairing the front porch that has begun to fall down $2,400
He has found a perfect house to buy, so may have to buy it before he sells his first house, meaning there may be a period of time where he owns two houses. He could sell his first house for $480,000.
During the year Jacob saved a boy from a shark attack while he was patrolling his local beach in his capacity as a volunteer lifesaver. The boy’s parents gave Jacob an Apple watch worth $650. He was also given a medal for bravery for saving this boy.
In addition to the above transactions, Jacob had the following income and expenses for the year ended 30 June 2016;
Salary (occupation – teacher) 72,000 Franked dividends from Telstra shares 2,850 Holiday received for opening a new savings account with his bank 3,200 Family Tax Benefit for his 10yr old son (Jacob is a sole parent) 1,300
Purchase of work clothing and shoes 450 Use of private car for school activities – See additional information below Costs of studying a masters of teaching in order to obtain a promotion 3,650 This total includes $1,850 for a laptop purchased 1/2/16 Superannuation contributions for himself 3,000 Tax Agent fees 750
PAYG withholding from his salary 15,900
Jacob used his CX-9 (purchased in June 2013 for $42,000) for school activities. During the year he travelled 25,000 km, of which 5,600 were for school purposes. Running expenses include; Registration and insurance $1,700 Fuel $2,080 Speeding fine $450 Repairs and services $750
Prepare a Letter of Advice to Jacob that outlines/discusses/explains the following:
1. The tax implications of the sale of his first house and purchase of new house, including any
exemptions available and noting any additional information you may require from Jacob.
Calculate the assessable gain, if any. (10 marks)
2. The tax implications of the expenditure on his house. (5 marks)
3. The tax implications of receiving the apple watch and bravery medal. (4 marks)
4. The assessability and deductibility of all the other items listed in the information as you
calculate Jacob’s taxable income for the year ended 30 June 2016. (10 marks)
5. The tax payable/ (refundable) for Jacob for the year ended 30 June 2016, including all
additional levies and tax offsets. (7 marks)