Steven, an accountant, had just returned from a business meeting interstate towhich he was informed of his
Question:
Steven, an accountant, had just returned from a business meeting interstate towhich he was informed of his uncle's passing and the inheritance of a piece of property located in Adelaide which was owned by his uncle. The property had amarket value of $400,000 (basically land value) at the time of inheritance in July2020.
Steven was made aware years prior to his uncle's passing that he would inherit the property. Steven having already built a life in Melbourne with his family and kidshad no intention of living in the property and as such had always planned onselling the property upon inheritance.
As the property was small and did not capitalise on the amount of land available,Steven had decided that the most profitable way to sell his uncle's property was to knock down the original building and sub-divide the land into two, to which twohouses would be made and sold individually.
Steven hired a builder to subdivide the land, costing $20,000, and build two houses,costing $200,000 each. Within the same financial year, Steve sold the propertiesfor $600,000 each, making a profit of $390,000 per home.
Based on the information provided, which of the following statements is true?
1.The profit from the sale of property is ordinary income only.
2. The profit from the sale of property is a mere realisation of capital.
3. The profit from the sale of property is both ordinary and statutory income and s118-20 ofthe ITAA 1997 would apply to reduce the amount of statutory income by the amount ofordinary income.
4. The proft from the sale of property is statutory income only.
Auditing a business risk appraoch
ISBN: 978-0324375589
6th Edition
Authors: larry e. rittenberg, bradley j. schwieger, karla m. johnston