Michael and Sophie are a married couple with no children. Michael runs a successful menswear store while Sophie works full-time as a financial planner. In June 2011, Michael receives an offer to buy the menswear store. Michael has long desired to return to university to study and he accepts the offer and sells the business on 1 July 2011. Michael and Sophie move to Armidale in July 2011 and in July 2012, they come to you as their accountant seeking advice for their 2012 tax return. They provide the following information.
Michael operated the menswear store as a sole trader in his own name and owned the land and building in which the menswear store was located in his own name. Michael purchased the building and land on 1 September 2003 for $315,000 and established the menswear store as soon as he took ownership of the property. For the year ending June 2011, the business turnover was $850,000. While he owned the building, Michael claimed $36,375 in capital works deductions and fittings and fixtures in the shop had an adjustable value of $75,000 at 30 June 2011. The business sale price was $900,000 and this was made up of good will $50,000, trading stock $320,000, fittings and fixtures $80,000, shop and land $450,000. Sophie decided to take a break from working as a financial planner and from July 2011, she started to trade shares on the share market, using some of the proceeds of the business sale. She set up an office at home and each weekday she researched possible share sales and purchases on the internet and in various financial newspapers and magazines. Her aim was to buy shares when the price was depressed and sell when the price is inflated and make a quick profit. At 30 June 2012 Sophie has $200,000 from the business sale, plus $100,000 of borrowed funds that she has
used to purchase shares. During the period 1 July 2011 to 30 June 2012, Sophie purchased 30 shares and sold 27 shares. Her total proceeds from the sale of shares is $1.5m. Share purchases for the period were $1.45m and Sophie spent $5000 on interest on the loan for share purchases, $1200 on internet and other subscriptions and $1500 in phone and office expenses.
Michael and Sophie sold their home in Adelaide on 20 July 2011 for $755,000. They had owned it since 1 August 1995 when they purchased it for $478,000. Sophie and Michael lived in the house from the time they purchased it until 1 December 2001 when Sophie was transferred overseas for her job. While they were away, the house was rented out to tenants through a real estate agency. On returning from overseas on 1 September 2003, Sophie and Michael moved back into the house where they lived until it was sold.
Michael and Sophie are both aged 42 at 1 July 2012 and have no other assets or liabilities other than those discussed.
With reference to legal authority, advise Michael and Sophie on the tax consequences of the sale of the menswear store, Sophie’s share trading activities and the sale of the house in Adelaide.
Michael and Sophie do not require advice on Fringe Benefits Tax, Tax Accounting, Partnerships, Trusts, Corporations, Small Business Entities,
Special Taxpayers, Goods and Services Tax, Tax Avoidance, Tax Administration or International Aspects.
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