Peter and Mary have conducted a valuation practice in partnership for many years. Business is going well, and they decide it is time to expand. They purchase the business premises next door to their existing business. The purchase price is at a cost of $1,890,000 and they spend a further $330,000 having the two shops converted into one. This includes removing sections of the dividing wall - which is a load bearing wall; rewiring the old electricity cables; and reinforcing the structural integrity of the building; etc.

In keeping with the new expanded premises, Peter and Mary hire an interior decorator at an additional cost of $120,000 to give the combined premises a co-ordinated modern look. They have the whole of the combined premises repainted at a discounted additional cost of $30,000. They advise you that the painting would have been necessary anyway as the paintwork in the old shop was starting to peel off the walls.

A short time after the expansion of the premises a severe storm struck the area and caused extensive damage to the roof of the premises. Repair of the existing tile roof was quoted to cost $88,000. Alternatively Peter and Mary could have the tile roof replaced with a corrugated iron roof for $62,000. They chose the cheaper option of the corrugated iron roof.

In thinking about providing for their retirement Peter and Mary have purchased some investment properties. In 1995 they bought an investment property, which they leased to a real estate company. In 1997 they purchased a vacant block of land, upon which they intended to eventually build a luxury home that they proposed to rent out.   The purchase was financed by a loan secured by a mortgage over the property rented to the real estate company. In 1998 initial plans were prepared for the luxury home and in 1999 the first costing of the home was prepared. In 1999 they also purchased an arcade of tenanted shops as a further investment. As at 30^th June of this current year the luxury home has never been built and Peter and Mary have decided to sell the vacant land.

Required:

a) Advise Peter and Mary on the allowable deductions and capital works deductions for the work and costs associated with their properties. Your discussion should include reasons for your approach and if any alternative approaches are possible.

b) Advise Peter and Mary of any capital gain tax obligations and GST consideration with regards to the vacant land. Where possible, your discussion should include reasons for this approach.

c) Advise Peter and Mary of their tax obligations with regards to the Australian Business Number, (ABN), and the Goods and Services Tax (GST) requirements for their property holdings and their valuation practice.

Answer rating: 100% (QA)

Step 1 a Peter and Mary are able to claim deductions for the costs associated with the purchase and conversion of the premises as well as the cost of the interior decorator The painting costs may also ... View the full answer