Annie O’Donnell, an architect, acquired a house in Tarragindi under a contract dated 1 January 2014 for $520,000. She also paid $15,000 in legal fees and stamp duty upon settlement of the property on 31 January 2014. Annie initially used the house as her main residence.

Three months later on 1 April 2014, Annie decides to use one room of the house as an office and studio for her new architect business. Annie has recently set up this business and her home address is listed as the registered business address.

The room which was converted into an office and studio represented 20% of the total floor area of the house and her home based business was opened on 1 April 2014.

The market value of her property as at 1 April 2014 had risen to $570,000 as per a written market appraisal acquired from her local real estate agent.

Six years later, on 31 March 2020, Annie closed her architecture business but she continued to use the room as a home study area.

Annie then sold the home at Tarragindi under a contract of sale dated 31 March 2021 for $800,000 and was charged $20,000 in sales commission by the real estate agent.

Required:

(i) Advise Annie of the capital gains tax consequences in relation to the sale of her Tarragindi house. Please quote appropriate sections of the ITAA (1997) in your answer.

(ii) Calculate Annie’s net capital gain arising from the disposal of the Tarragindi house. Assume that Annie does not have any capital losses.

Note: There are 2,192 days from 1 April 2014 to 31 March 2020

There are 2,557 days from 1 April 2014 to 31 March 2021

There are 2,647 days from 1 January 2014 to 31 March 2021

Answer rating: 100% (QA)

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