Tax And CGT Advice For Cedars Building Partners And Monica

Building development advice for Cedars Building Partners

In the given case, the client Tony and Hub is building development business naming Cedar Building Partners (CBP). The clients own a property in 35b Bright Street valuing $10000000 which was formerly acquired by their deceased father Mr Joe in 1974. Both of the brothers have decided use the property as business purpose, not as a residential purpose. The main idea before developing the land is to make money from the property which is being given to them from their deceased father.

The land is hugged and categorised in to R2 zone, which means two secluded buildings, can be developed in the one block land (Braithwaite 2017). In that case there are few circumstances that are to be discussed in the given case that the following are.

1. In the given case if the client Mr Tony and Hub did not invest a penny in the building and only earning the rental income form the CGT asset then they will earn $12000 monthly which amounts to $144000 per Annum. But this is not the right process as there are chances of developing the structure then they could earn more then what they are earning now. This process can cost more money for the brothers, but in long run, this expenses will be regarded as investments. This will be held as the business taxable under ITAA97 s995-1.

Rental income
Particulars Save Time On Research and Writing Hire a Pro to Write You a 100% Plagiarism-Free Paper. Get My Paper	Amount
Rent per month	12000
Annual rent	144000

2. If the client sell the house then they will earn $1000000. Which will be added to the tax on the selling price after deduction of the index value of the asset. The tax will be chargeable under the ITAA 6-10 statutory income. Further the transfer from the deceased  father is not taxable as the gift or inheritance dose not attracts the tax under ITAA97.

3. In the given case there will not be any taxable activity that is carried on by the client. In that case, it is an investment not an income. The income will be derived by the client as the ordinary income if they further let out the newly build property (McNamara 2018). The cost of renovation will be of $200000. Moreover, for the new construction the amount will be $250000. This will be deducted from the income, as it will hold for the deduction from  the property.

4. Capital Gain Computation
Particulars	amount	amount
sale	1000000
Less: transfer cost	0
Total		1000000
Less : index cost of acquisition		2079683
Cost of Purchase	700000
Base year	37.9
Current year	112.6
Capital gain Loss		1079683-

5.

4.1: If the house or the plot is spliced into two parts after the creation of the house then each part will be valued at $1200000. In that case if any of the clients sell the property then in the case they will be charged to tax under CGT under the section 10 of the ITAA (Lobato and Meese 2016).

4.2: If the client holds the property jointly then they will be able to earn rental income from the assets and the value of the property will be increased to $2400000 after a term of five years.

Capital Gain Computation(house 1)
Particulars	amount	amount
sale	120000
Less: transfer cost	0
Total		120000
Less : index cost of acquisition		103984.1689
Cost of Purchase	35000
Base year	37.9
Current year	112.6
cost of renovation	200000	200000
Capita Gain		-183984.17
Capital Gain Computation(house 2)
Particulars	amount	amount
sale	120000
Less: transfer cost	0
Total		120000
Less : index cost of acquisition		103984.1689
Cost of Purchase	35000
Base year	37.9
Current year	112.6
cost of renovation	200000	200000
Capita Gain		-183984.17

Further the brothers Toney and Hub decided to build the house by own motion without appointing a builder then they could reduce the amount of the construction. They expects that the cost of development of the new house will be $200000-250000. It will be double in case it is transfer to the builder.

In that case there are some problems that required to be kept.

• The responsibility of the construction and the structure is to be borne by the builder. In case of any problem, the matter is to take care of by the builder.
• Secondly, in the case if the brothers develop the property then they have to indulge a huge time worth money.
• The biggest problem is that the clients are not professional in the construction business. In that case they might have calculated the estimated cost in a wrongly manner.

2. In the given case, Monica a financial advisor seeks advice on the financial activated that is performed by the clients in the financial year. In the given case, it is assumed that the assesse is an ordinary resident individual according to the ITAA97.

In the given case the assesse has acquired a rental property for $500000. This is will be treated as a CGT assets according to the ITAA.For the acquisition, the assesse has acquired a loan of $4500000 for 25 years.For the initial grant of the loan, the assesse has paid a loan amounting $5000 for the establishment fee. This is to be held as the processing charges of the financial institutions (Vann 2016).

The loan is repaid by the monthly instalments. The amount of the EMI is $21250 per month. In that case, the EMI is contributing to the principal payment amounting to be $10000 and interest on the loan of $11250. The interest amount is to be deducted from the income of the client if the acquired property is fully used for the business purpose. In case of any partial use the interest is allowable as deduction under ITAA 1997.

loan repayment
Month	Due	PRINCIPAL	Interest	total	closing due
1	450000	10000	11250	21250	440000
2	440000	10000	11250	21250	430000
3	430000	10000	11250	21250	420000
4	420000	10000	11250	21250	410000
5	410000	10000	11250	21250	400000
6	400000	10000	11250	21250	390000
7	390000	10000	11250	21250	380000
8	380000	10000	11250	21250	370000
9	370000	10000	11250	21250	360000
10	360000	10000	11250	21250	350000
11	350000	10000	11250	21250	340000
12	340000	10000	11250	21250	330000
13	330000	10000	11250	21250	320000
14	320000	10000	11250	21250	310000
15	310000	10000	11250	21250	300000
16	300000	10000	11250	21250	290000
17	290000	10000	11250	21250	280000
18	280000	10000	11250	21250	270000
19	270000	10000	11250	21250	260000
20	260000	10000	11250	21250	250000
21	250000	10000	11250	21250	240000
22	240000	10000	11250	21250	230000
23	230000	10000	11250	21250	220000
24	220000	10000	11250	21250	210000
25	210000	10000	11250	21250	200000

1. In the given case the property required modification and repair therefore the amount spent by Monica is $450000, which will be added if the asset is used for the residence. In case the CGT asset is held as the business assets then it will be deducted form the income.
2. In that case, the amount receivable for the sister of Monica who has obtain the financial advisory service from her will be treated as the doubtful debt. As there are reasonable grounds for that. In that case, the provision is deductible Expense according to the ITAA. Further, if the due is received in the future then it will be taken as the income and chargeable as income (Edmonds 2018).
3. In that case, the traveling cost from the home to the university is a deductible Expense. In that case, the Amount of $500 will be deducted form the income as an allowable Expense according to the ITAA 1997.
4. In case of membership fees to the Australian Financial Planners Association Monica spends $450. These fees are paid to build and maintain an elite class and the recognition as the financial advisor. This is a deductible expense according to the ITAA.

The fees paid to golf club of $500 is not a deductible expense, as this are only for the hobby of Monica and has a partial impact on the clients. But this are not to be taken as the deduction as these are personal spending.

Allowable Deduction
Particulars	amount per month	year
Interest	11250	135000
Repair	45000	45000
PBDD	500	500
Travelling	500	26000
membership fees	450	450
Total		206950

Reference:

Braithwaite, V., 2017. Taxing democracy: Understanding tax avoidance and evasion. Routledge.

Edmonds, R., 2018. Resource Capital Fund IV LP: The issues on appeal?. Taxation in Australia, 53(1), p.22.

Lobato, R. and Meese, J., 2016. Australia: Circumvention goes mainstream. EDITED BY RAMON LOBATO, p.120.

McNamara, J., 2018, June. Geoblocking in Australia: Intellectual property rights versus consumer freedom-where does the balance lie?. In Intellectual Property Forum: journal of the Intellectual and Industrial Property Society of Australia and New Zealand (No. 112, p. 38). Intellectual and Industrial Property Society of Australia and New Zealand Inc.

Vann, R., 2016. Hybrid Entities in Australia: Resource Capital Fund III LP Case.