Ed’s grandmother died on 1 November 2007 and, in her will, left Ed cash and jewellery worth $500,000. The jewellery had been bought by Ed’s grandmother in August 1985 at a cost of $40,000, and its market value on 1 November 2007 was $150,000.
Ed used the money from his grandmother and his savings to buy the following assets in January 2008:
(a) an apartment in Melbourne (cost was $360,000 plus $20,000 legal fees and stamp duty),
(b) a rare painting (cost was $50,000), and
(c) 2,000 bank shares (cost was $20 per share, plus $200 brokerage).
In 2017/18, Ed disposed of these assets as follows:
(1) on 12 March 2018, he sold the apartment for $470,000 – he had lived in it all the time he owned it,
(2) on 1 April 2018, the painting was stolen from his apartment – he received $30,000 compensation from his insurance company,
(3) on 13 May 2018, Ed sold 1000 bank shares for $30 per share (brokerage cost $150), and
(4) on 15 June 2018, he lost the jewellery, which wasn’t insured, when he left his briefcase on a train.
Herman enters into a contract with Jake on 1 January 2014 to purchase a factory from Jake for $1 million. Herman pays Jake $800,000 and also transfers to Jake shares worth $200,000. Additional costs of purchase are:
(a) legal fees $10,000,
(b) stamp duty $50,000, and
(c) tax advice on how to structure the deal $8,000. On the basis of that advice, the factory is purchased in the name of Herman’s family company.
Herman then uses the factory for income producing purposes.
Soon after taking possession of the factory, Herman finds some of the walls need replacing because of white ants: cost $46,000.
In December 2014, the outside walls of the factory are repainted because the paint is peeling: cost $38,000 (Herman claims this as a tax deduction in his tax return for the 2014/15 year). In January 2015, Herman pays a landscape gardener $84,000 to beautify the grounds around the factory (trees, paths, etc).
During his ownership, Herman also pays rates ($22,000), insurance premiums ($25,000) and interest on the loan taken out to finance the purchase of the factory ($33,000).
In March 2018, Jake is accused of forging title deeds and of fraudulently asserting ownership of the factory that he sold to Herman. In danger of losing the factory, Herman incurs $80,000 court costs to successfully defend his ownership.
In June 2018 Herman sells the factory for $2.5 million. To arrange the sale, he incurs advertising costs of $10,000 and legal fees of $50,000.