Charlie worked as a senior lawyer for a prominent law firm called Ellison and Page. He specialised in Property Law and was highly regarded.
In July 2017 Charlie was injured while riding his bike to work. The injuries meant that he was unable to work for several months. For four (4) months he received monthly payments of $10,000 under his income protection insurance policy. In December 2017 he returned to work.
Charlie was traumatised by the injury and even though he was physically able to continue work, he had great difficulty working. He made the decision to resign from Ellison and Page. His resignation took effect from 1 April 2018.
At the time of his resignation, Ellison and Page agreed to pay him $30,000 tonotwork in any other city legal firm for 6 months and to not solicit any of the clients for whom he had worked during his time at Ellison and Page. A ‘non-competition agreement’ was signed by the parties.
Charlie decided to move to the country (Mansfield, Victoria) to start a new life. Before moving to the country, he sold a number of items in June 2018:
Selling price and date
Purchase Price and Date
Other relevant information
$800,000 sold June 2018
-auctioneer costs and advertising expenses were a total of $12,000
$580,000 purchased May 2011
Plus stamp duty of $29,870
Charlie had never lived in the apartment. It had been purchased as an investment property.
Car (a Toyota)
$8,000 sold June 2018
$9,000 purchased May 2017
Personal use of the car only
$400,000 sold June 2018
-valuer and agent expenses were $2,000
A gift from his mother in June 2010
At the time his mother gave him the painting, it was valued at $250,000
Commonwealth Bank Shares
$20,000 sold June 2018
$25,000 in April 2017
$10,000 sold June 2018
$5,000 in January 2018
Charlie moved to Mansfield with a plan to set up his own business as a lawyer. He rented premises. He spent money on advertising. Between July 2018 and August 2018 he had three clients and sent invoices for a total of $20,000.
–Cont. next page–
A. Calculate Charlie’s net capital gain or loss for items that he sold in June 2018. Your answer must be supported by an explanation of your calculations, including legislation to support your calculations. Your answer must also advise Charlie of the appropriate tax treatment for his net capital gain or loss. (6 marks)
B. Advise Charlie of the relevant income tax issues (other than the CGT issues related to the sales made in June 2018) and the relevant GST issues arising from these facts (6 marks)
Support all your answers with relevant legislation and cases. No calculations are required for Section B. of Part Three.