Question:
Peta bought a house in Kew two years ago.
The house was home to two tennis courts that were old and in bad condition.
The property was purchased by her for two reasons.
So that her family and she could live in the house.
So she could build three units for the tennis courts and make a profit.
The tennis club next door offered to purchase the old tennis courts in the current tax year, provided Peta restored them to good condition.
Peta accepted the offer of the club and decided to go ahead with her plans to build and sell units.
Peta spent $100,000 to prepare the tennis courts for sale.
It was a lot of work.
Peta had to resurface and construct new fencing around the tennis courts.
The tennis court was then sold to Peta for $600,000.
Answer:
The case study shows that Peta bought the house in large part two years ago. It also has two tennis courts.
Peta intended to live in the house and generate income from the nearby tennis courts.
Peta eventually sold the tennis courts at $600,000. This is what is commonly called the assessable income.
Peta’s main goal was to live on the property and make a living from the tennis courts.
Peta spent $100,000 on the construction of the fence and the development of the court.
The expense could be subtracted off the assessed amount Peta received from the sale of the tennis court.
This method of identifying ordinary income is most commonly identified in Section 6(5) (Ato.gov.au 2017, 2017).
Peta, being a moderate woman, is not involved with real estate transactions. However, the motive was to generate profits from selling tennis courts.
Peta’s plan was to sell the property in pieces and not the whole.
According to section 10(5), individuals can mainly categorise the total amount from property sales.
Peta also deducts expenses from income to determine the total tax.
Peta could use the capital gains from her overall income to reduce the overall income tax (Long, Campbell & Kelshaw, 2016, p.
Section 6(5) states that Peta’s total income is not ordinary income.
The justice lens on Australia’s tax policy.
St Mark’s Review (235), 94.
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