Task: Provide advice to your client. Your answer must include relevant legislation, cases and Rulings. You must clearly reference your answer with footnotes in compliance with AGLC3.
Rob Joseph is the sole owner of a demolition business trading as Joseph & Sons. Rob has come to you for tax advice. Rob operates his business from a factory located at 2 Foreshore Road, Botany NSW.
Rob inherited the business—that includes the small parcel of land at 2 Foreshore Drive—from his father in 1982.
On 1 July 1993, Rob purchased an adjacent block of land at 8 Booth Street for $250,000 with a view to setting up a concrete recycling plant. Rob also paid $5,000 stamp duty and $2,000 for legal fees.
Due to a fierce resident-led anti-development campaign they are unable to get council approval for the new concrete recycling plant despite Rob spending $50000 on legal fees.
Since the failed application Rob has been using 8 Booth Street as a carpark, spending another $6,500 getting it resurfaced for this purpose.
This year, Rob decided to cash in on the local residential property boom and sought the advice of a property developer. The developer devised two options:
Option One is to sell both parcels are they currently are to the developer for:
$3,000,000 for 8 Booth Street; and
$1,500,000 for 2 Foreshore Drive
Option Two is to appoint the developer as an agent and spend another $500,000 in subdividing the land, getting council approval and taking other steps necessary to sell individual residential lots. The agent’s fee for option two would be 10% of the total sales revenue. The developer assures Rob that the land can be subdivided into 20 residential blocks, with each block selling for an average price of $500,000.
Rob comes to you seeking advice on the tax consequences of the two options.
What are the tax consequences arising in relation to Option 1 – Sale of land “as is”?
What are the consequences arising in relation to Option 2 – Appoint agent and develop land further to sell as residential blocks?
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