Gordon Smith lives in Adelaide where he owns numerous residential rental properties. The
following information relates to Gordon’s tax affairs for the income tax year ending 30 June 2023. Gordon is not a tax expert, so he has asked you to complete his tax return.
Rent received from tenants $87,000
Prepaid rent at 30 June 2022 2,500
Prepaid rent at 30 June 2023 3,500
The rental agreement between Gordon and his tenants provides that tenants must pay their rent one calendar month in advance. All rental agreements are for a fixed term and cannot be cancelled unless by mutual agreement between Gordon and the tenant.
In April 2023, Gordon sold one of his rental properties for $897,000. This property was purchased in January 2012 at a total cost of $450,000. The property was not fit for renting out at that time due to requiring certain repairs to meet building and safety standards, but Gordon thought that he might be able to fix the property for a reasonable cost and sell it later. He sought
advice from a real estate agent regarding the property’s location and whether it constituted a
good investment. The agent confirmed that the location made the property a wise investment if the repair costs could be kept to a minimum. Unfortunately, due to rising building costs, demands from the local council, and the property requiring more repair work than expected, the repairs became quite expensive. To offset these costs, Gordon rented the property between 2015 and 2023 while he waited for an offer from a purchaser that he was prepared to accept. The repairs eventually cost $156,000. Costs to sell the property (including advertising and real estate agent commission) total of $12,500.
Required
Based on the information provided, calculate Gordon’s assessable
income for the year ended 30 June 2023. Gordon is NOT registered for the Goods and Services
Tax since residential rent is not considered to be turnover for GST registration purposes.
In the realm of taxation, accurate reporting of income is crucial to ensure compliance with the law and maximize financial benefits. Gordon Smith, a property owner in Adelaide with multiple residential rental properties, seeks assistance in completing his tax return for the income tax year ending 30 June 2023. This essay delves into the provided information to calculate Gordon Smith’s assessable income for the mentioned period.
Gordon’s primary source of income stems from the rent received from his tenants, which amounts to $87,000 for the year. To understand his taxable income, it’s important to consider the prepaid rent at the beginning and end of the year. At 30 June 2022, the prepaid rent was $2,500, and by 30 June 2023, it had increased to $3,500. Given that tenants pay one calendar month in advance, the prepaid rent at the end of the year represents income earned in advance for the subsequent year. Therefore, the net prepaid rent increase is $3,500 – $2,500 = $1,000, which contributes to Gordon’s assessable income for the current year.
In April 2023, Gordon sold one of his rental properties for $897,000. This property was purchased in January 2012 for $450,000. To determine the capital gain or loss from this sale, we need to consider the property’s cost base, which includes the initial purchase price and any related expenses. The expenses incurred to repair and bring the property up to the required building and safety standards, amounting to $156,000, can be added to the cost base. This expenditure is deemed necessary to determine the true cost of acquiring and improving the property for resale. The total cost base becomes $450,000 + $156,000 = $606,000.
Moreover, costs associated with selling the property, including advertising and real estate agent commission, totaling $12,500, should be subtracted from the sale price. The capital gain or loss can be calculated as follows: Capital Gain/Loss = Sale Price – Cost Base – Selling Costs Capital Gain/Loss = $897,000 – $606,000 – $12,500 = $278,500
As Gordon held the property for more than 12 months, the capital gain is subject to the 50% capital gains tax (CGT) discount. Therefore, the assessable portion of the capital gain is $278,500 * 0.5 = $139,250.
To calculate Gordon Smith’s assessable income for the year ended 30 June 2023, we sum up the rental income, the net increase in prepaid rent, and the assessable portion of the capital gain: Assessable Income = Rental Income + Net Prepaid Rent Increase + Assessable Portion of Capital Gain Assessable Income = $87,000 + $1,000 + $139,250 = $227,250
In conclusion, based on the provided information, Gordon Smith’s assessable income for the income tax year ending 30 June 2023 is calculated to be $227,250. This comprehensive calculation takes into account the rental income, changes in prepaid rent, and the assessable portion of the capital gain from the property sale. Accurate reporting of these financial aspects is pivotal for complying with taxation regulations and ensuring proper financial management.
As a renowned provider of the best writing services, we have selected unique features which we offer to our customers as their guarantees that will make your user experience stress-free.
Unlike other companies, our money-back guarantee ensures the safety of our customers' money. For whatever reason, the customer may request a refund; our support team assesses the ground on which the refund is requested and processes it instantly. However, our customers are lucky as they have the least chances to experience this as we are always prepared to serve you with the best.
Plagiarism is the worst academic offense that is highly punishable by all educational institutions. It's for this reason that Peachy Tutors does not condone any plagiarism. We use advanced plagiarism detection software that ensures there are no chances of similarity on your papers.
Sometimes your professor may be a little bit stubborn and needs some changes made on your paper, or you might need some customization done. All at your service, we will work on your revision till you are satisfied with the quality of work. All for Free!
We take our client's confidentiality as our highest priority; thus, we never share our client's information with third parties. Our company uses the standard encryption technology to store data and only uses trusted payment gateways.
Anytime you order your paper with us, be assured of the paper quality. Our tutors are highly skilled in researching and writing quality content that is relevant to the paper instructions and presented professionally. This makes us the best in the industry as our tutors can handle any type of paper despite its complexity.
Recent Comments