Reference no: EM133573767
Jack Williams purchased 80 acres of land in the Grampians region of Victoria in September 1983 to start an olive farm at a cost of $320,000. By 1989 the plantation was well established and producing olives and olive oil products of good quality and deriving reasonable profits. As a result, on 1 October 1989, Jack bought another 20 acres of land for $40,000. Costs associated with the purchase included stamp duty, legal fees and combining the titles to the 2 blocks of land into one land title. The total associated costs was $3,400.
Jack observed that the farmlands in the neighbouring areas were sold for significantly higher prices after subdivision as residential land. Jack therefore decided to sell the land by subdivision. After gaining council approval in June 2022, Jack spent $160,000 on the subdivision of the 100-acre block and finally sold the subdivided land for $700,000 in May 2023
to a local builder. Although the contract of sale was signed on 10 May 2023 and a 10% deposit paid by the purchaser on that date, settlement was not completed until 10 August 2023. Costs of disposal included agent's sale commission and legal fees
totalling $15,000
Your task:
Advise Jack of the potential income tax implications in relation to the $700,000 sale proceeds. Where appropriate, calculations must be made. You may ignore any GST implications which may arise pursuant to the contract of sale in May 2023. You may assume that each of land acquired and sold is equally valuable.