The Facts: Phil And Liz’s Case Report Writing - Law Assignment Help

Assignment Task

Phil and Liz live on a 3-hectare lifestyle block, which they purchased for $800,000 in October 2018 from Liz’s dad, George. Her father had actually purchased the property in 1981, and Liz fondly remembers growing up as a “country girl”, and taking pet lambs along to school on Pet Day. They now have the ability to build happy memories for their own three children – the kids each have a pony, and they share the property with a few chickens and the occasional pet lamb. Phil and Liz are not GST-registered (and nor was George). The main house and gardens are expansive. The property includes an old barn (hardly fit for purpose anymore, and something of an eyesore). The property is on the edge of town, zoned Rural-Residential by the local council, and is connected to city water, sewerage and stormwater services. They love to live the country life while having town on the doorstep.

Phil has been talking to Liz about the current state of the property market (which is quite hot) and has done a bit of research into a possible subdivision. He reports that they could subdivide the property into 5 titles – one with the original home and gardens on 1 hectare of land (which they would retain), but creating four
bare-land lots of 0.5 hectares each that they could sell. To provide adequate access to the four smaller lots, the old barn would have to be removed and a new driveway formed. Phil has costed the removal of the barn and construction of the new driveway at $20,000 (plus GST). And then it would cost a total of $30,000 (plus GST) for council services (water/sewerage/stormwater) and electricity to be provided to these four properties (obviously this is not required for the existing dwelling). Professional costs (survey and legal) would be $10,000 (plus GST). Initial discussions with a real estate agent are promising, as the suggestion is that they could sell each of the 4 smaller lots for $250,000 (so $1,000,000 in total before overall estate agent costs of $40,000 plus GST) while the larger home block would still be worth $600,000. However, Liz then learned that, as a condition of any subdivision, the local council would require them to pay a “contribution” of $46,000 (including GST) on each of the four smaller titles.

Given that they are paying separately for installation of council services, Liz is furious and sees the requested council “contribution” (which could represent more than 25% of any gain they might make) as nothing more than a “tax” on hardworking New Zealanders. And this gets her wondering about whether or not there might
be other tax issues that she needed to be aware of. So Phil and Liz have contacted you, as an accountant with specialist tax knowledge, to discuss the tax issues presented. Liz says “Given that the Government announced back in 2019 that they were not going to proceed with the Capital Gains Tax proposal as put forward by the Tax Working Group, and given the property has been in the family for generations, surely there are no tax issues to worry about here?”

Required:

Write a Report to Phil and Liz, setting out the tax issues that you foresee on their activities.Your report should address (but do not feel that the report necessarily be limited to):

1. Whether there will be GST output tax to account for on the sale of the 4 lots.
2. Whether they can claim GST input credits under the project.
3. Whether the project might create potential issues under any specific income tax rule.
4. Whether any specific income tax exclusions might be relevant.

5. Any alternative strategies or plans that you think may assist Phil and Liz to get the most tax-
effective outcome out of selling that part of their property.

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