Chris Matthews is one of your tax-accounting clients. He is a 55-year-old health professional employed by Watchful Pty Ltd (a chain of mental health clinics in Melbourne). Chris works at Watchful Pty Ltd for 3 days per week, and he also sees private patients in his own consulting room on the remaining time.
Chris sends you an email (see below) following a meeting where you discussed the potential tax consequences of the sale of his house, the tax treatment of legal fees incurred in relation to a lawsuit settled in May 2018 and the preparation of his 2017/18 tax return.
1) subscription to “e-Clinic” (an electronic booking and payments system) with a cost of $1,500 per year; and
2) cleaning with a total cost of $400 per year.
3) All plant and equipment have been fully depreciated in previous years, so I know I am unable to claim any further depreciation in relation to them.
Sale of House:
I bought it for $400,000 on 1 March 1999 and I’ve lived in it ever since. At that time, I also paid $8,000 in conveyance fees and $20,000 stamp duty in relation to the purchase. Not sure if this would be relevant, however since 3 July 2014 I’ve been running my private consultations at home (I converted one bedroom into a consultation room). The house has a total area of 200 square meters, and the size of my consultation room is 10 square meters.
I signed the contract of sale on 19 June 2018, and the sale price was $1,000,000.
I sold my previous residence and I was never taxed on the profits of that sale. However, I am unsure if this would be the case here… Anyway, I googled it and I found some info on this link: https://www.ato.gov.au/general/capital-gains-tax/your-home- and-other-real-estate/your-main-residence/using-your-home-to-produce-income/ – would this be applicable to my case?
Finally, I would like your advice on whether I could claim a tax deduction for the cost of $25,000 that I paid in legal fees defending myself in a medical negligence lawsuit. The lawsuit was settled on 10 May 2018, and the fees were paid on that date. On a side note – my private health insurance number is 123456789, I’ve held this insurance during the entire year.
1) Applying the relevant legislation, identify and discuss the tax implications related to the sale of Chris Matthews’shouse, and calculate any net capital gain/loss which may arise thereof.
2) Applying legislation and case law, advise Chris Matthews on whether he could claim a deduction in relation to the legal fees incurred in May 2018.
3) Considering the information provided by Chris Matthews as well as your answer to items 1 and 2 above, prepare Chris Matthews’s statement of taxable income and calculate his final tax refund/liability including Medicare Levy for the year ending 30 June 2018, stating the applicable legislation and case law (note: calculation of private health insurance rebate not required).
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