Diamond Constructions Ltd (Diamond) is a large construction company. Diamond is an Australian resident company for tax purposes. The company accountant, Bob, is in the process of preparing income tax returns for the company and staff and seeks advice on the following matters:

a) Diamond had recently purchased a residential property as an investment from a retiring couple for $800,000. The house was badly run down, so Diamond’s CEO, Charles, decided that Diamond should carry out work on it to improve its resale value. Diamond accordingly carried out work on the property to replace old fences (cost $2,000), repaint the house (cost $3,000) and replace the moldy ceiling in every room and replace several decaying walls (cost $18,000). Diamond also installed underfloor heating in the bathroom and bedrooms (cost $5,000). In August 2021, Diamond entered into a contract to sell the property to a third party for $2 million. Settlement occurred in September 2021.

Required: Advise Diamond, Bob, and Charles regarding the income tax implications arising from the above facts in relation to the 2021/22 income year. In your answer make sure you refer to any relevant cases, legislative provisions, tax rulings, and principles of tax law. (Australian Taxation Law)