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PDCV103 Conveyancing Law And Practice

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Answered

Questions

Question 1 (15 marks)
Your conveyancing client is purchasing a block of land at Orange, NSW to build a home and a small farm. The block is 10 hectares and is vacant.
They currently have a principal residence in Sydney and are considering whether to retain it or sell it.
Provide them answers for their questions regarding transfer duty and land tax:
a. Explain to the buyer the main residence exemption for land tax.
b. Should the buyer decide to retain the Sydney property, explain the land tax consequences.
c. Explain the calculation of the transfer duty if the proposed price is $1.5M (GST exclusive). No need to calculate the actual duty liability.
d. Explain the transfer duty consequences for a buyer who is a foreign person.
e. Would there be any consequences for land tax and transfer duty if the buyer chose to buy the property in the name of a family trust? 

Question 2 (10 marks)
Suppose the buyer from Question 1 decided to keep the Sydney home (land value: $2M) and rent it out as an investment property while buying the vacant land in Orange, NSW.
Answer the following questions from your client:
a) Explain the CGT implications to the client arising from this decision. Provide any relevant advice on requirements for CGT under tax law.
b) Is it possible to treat this Sydney property as the principal residence for CGT (to retain the main residence exemption)?
c) Is it also possible to treat this Sydney property as a principal residence for NSW land tax (to avoid land tax)?
d) List the type of property related expenses that could be deductible to the client and support all suggestions from tax law.
e) The owner periodically drives to Sydney to:
Inspect the property, meet with the managing agent and perform routine maintenance. Would the travel costs be deductible against the rental income?

Question 3 (10 marks)
The property sold in Question 1 was previously part of an operational farm for 5+ years. The buyer would like to know if GST will be charged on the purchase. Assume the seller is registered for GST, having been in the farming business.
Answer the following questions from your client:
a. In what circumstances could the purchase be ‘GST free’?
b. Would it make any difference if the seller was a family member?
c. What are the conditions necessary to apply the Margin Scheme for the sale? Is it possible for the seller and buyer to use the Margin Scheme?
d. What if the block of land was sold from a deceased estate trust (not a trading trust and not registered for GST)?

Question 4 (15 marks)
You are handling the conveyancing of the sale of the vacant land in Question 1 for $1.5M and the seller would like a rough estimate of CGT liability (since you have studied some taxation law). He understands that you are not a tax professional.
The following details are given:
• Acquisition price of $800,000 (10 years ago)
• Council rates over 10 years, $23,000
• Clearing trees, bush and building a gravel road, $75,000
• Agent’s commission on sale, $45,000 (3% of sales price)
• Legal costs (for both buying $5,000 and selling $15,000): $20,000
• Transfer duty on original purchase, $31,500
• Legal costs to resolve a dispute with a neighbor over the boundary of the property, $25,000
• Wood fencing installed over the years, $30,000 ($15,000 of depreciation has been deducted over the past 10 years)
You are required to:
a) Explain the considerations in calculating a capital gain or loss
b) Identify the CGT event
c) Identify, explain and calculate the different elements of the cost base
d) Provide details of the cost base calculations
e) Calculate the current and net capital gain or loss

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