Dave Solomon is aged 59 and he is employed as a barrister at a leading law firm. The usual retirement age at the firm is 60. To prepare for his retirement, Dave decides to sell the majority of his assets. These are the facts relevant to his 2021–2022 income year:

- His gross salary for the year totals $345,000

- He sells the two-storey residence which he purchased and has lived in since 1989. He originally paid $120,000 for this home. He sells it for $2 million on 1 March 2022

- He sells a painting by Pro Hart that he purchased on 20 September 1985 for $15,000.

- He sells the parcel of shares as described in PoTL end of chapter question 11.6 (d):

1. On 5 June of the current tax year, he sold for $80,000 a parcel of shares in a newly listed mining company. He purchased these shares on 10 January of the current tax year for $75,000. He borrowed $70,000 to fund the purchase of these shares and incurred $5,000 in interest on the loan. He also paid $750 in brokerage on the sale of the shares and $250 in stamp duty on the purchase of these shares. Dave has contacted the ATO, and they have advised him that the interest on the loan will not be an allowable deduction because the shares are not generating any assessable income.
2. Dave has also indicated that his taxation return for the year ended 30 June of the previous year shows a net capital loss of $10,000 from the sale of shares. These shares were the only assets he sold in that year.

- He sells a warehouse that he used to house his extensive private motor vehicle collection. These are the facts relevant to the warehouse: On 30 April 1985, Dave acquired a large parcel of vacant land at Rocklea, a suburb in Brisbane. The purchase price was $180,000 and Dave incurred $2,000 in legal fees and $18,000 in transfer duty when he purchased the land. In April 2000, Dave signed a contract for the construction of the warehouse on the land. The final construction cost totalled $1,000,000. Dave sells the warehouse for $2,200,000 on 1 June 2022. At the time of sale, an independent valuation revealed the land component of the sale price totalled $1,200,000. Dave paid $80,000 to insure the warehouse building against flood and fire damage over the period of his ownership

- Dave owned a luxury boat that was moored at the Manly Yacht Club. Dave used the boat to go fishing over weekends and to cruise the waters of Moreton Bay. Dave purchased the boat in late 2006 for $140,000 and sells the boat on 1 June 2022 to a local boat broker for $90,000. During the period of his ownership, Dave paid a total of $25,000 in weekly mooring fees to the Manly Yacht club and also incurred $20,000 in repair costs on the vessel.

- Dave sells a unit in a unit complex that he held as a residential rental property investment. Dave purchased the unit ‘off plan’ on 1 January 2013 for the construction cost of $350,000. The unit was tenanted from that day. On 1 August 2021, Dave replaced the stove in the unit with a new one that cost him $1,800. He uses the diminishing value method for income tax purposes, and the effective life of the stove is 12 years. Dave sells the unit on 28 February 2022 for $450,000 and applies an apportionment of 0.2% of the sale proceeds to determine the selling price of depreciating assets included in the sale of the unit, as set out in the ATO Rental properties Guide for rental property owners. During the 2021–2022 income year, Dave received rent totalling $16,800. As at 30 June 2021, Dave had claimed Div 43 capital works deductions totalling $52,500 for the unit. During the 2021–2022 income year he spends $300 on landlord’s insurance, and $120 on a gift basket of fresh fruit as a Christmas gift for his tenant.

You are required to:

a. Calculate Dave’s taxable income for the 2021–2022 income year, taking into account that he has unapplied capital losses of $10,000 from previous income years from selling shares. Show all your calculations and provide reasons for your answer, referencing relevant sections and divisions of the Income Tax Assessment Acts.

b. Explain how your answer to part a of the question would change if Dave only used the boat as a source of income by chartering the vessel out to members of the public at an hourly rate. Assume that Dave has already claimed all of the possible capital allowances in respect of the boat in previous income years under Div 40.

Answer rating: 100% (QA)

a Daves taxable income for the 20212022 income year includes his salary of 345000 It also includes ... View the full answer