Patricia (an Australian resident taxpayer) signed a contract to purchase a house in Sydney as an investment property on 1 December 2011 for $880,000....

Patricia (an Australian resident taxpayer) signed a contract to purchase a house in Sydney as an investment property on 1 December 2011 for $880,000. At the time of signing the contract, she paid a deposit of $80,000. She obtained a mortgage from Oz Bank (an Australian bank) for $800,000 to purchase the house. Settlement (i.e. transfer of ownership) occurred on 1 February 2012 (at which time the remaining $800,000 was paid).

The mortgage was for 25-years and had an interest rate of 5% per annum. Interest is payable on the first day of each month. (Note: For ease of any required calculations, you can assume this is an interest only loan - this means only the interest paid each month and the principle remains fixed. You can also assume that the interest is not compounded). In addition to the cost of the property, Patricia incurred the following costs at the time of purchase:

 Stamp duty (on home): $23,000  Legal (conveyancing) fees: $1,000  Mortgage broker commission: $2,000  Application fee for mortgage: $500

As noted above, Patricia purchased the house as a rental property, and at the time settlement of the property occurred, there were existing tenants living in the property (the "original tenants"). The original tenants continued to live in the property for a number of years after Patricia purchased it, paying rent of $750 per week. They moved out of the property on 1 July 2015.

Once the original tenants move out, Patricia pays $15,000 to recarpet the house. Patricia expects the new carpeting will last for 10 years. The re-carpeting commences on 3 July 2015 and is completed on 10 July 2015. Patricia starts advertising for a new tenant on this date (i.e. 10 July 2015).

Unfortunately, although she spends $1,500 in advertising expenses, Patricia is having trouble finding a new tenant. She decides that she will install an in-ground swimming pool. Not many houses in the area have swimming pools and she thinks this may encourage tenants. The construction of the pool starts on 15 August 2015 and is completed on 1 September 2015. The cost of the pool was $18,000. Patricia starts re-advertising the property again once the pool is completed, and spends an additional $500 in advertising costs. She is successful in finding new tenants, who move in on 15 September 2015 (at a rent of $850 per week) (the "new tenants").

On 1 January 2017, one of the new tenants falls down the front steps of the house. The tenant indicates he plans to sue Patricia. Although Patricia does not believe she is at fault (and believes the tenant was drunk after being at a New Year's Eve party), she sees a lawyer, who advises her to settle the dispute before it goes any further as this will be the most cost effective outcome. Patricia incurs $4,000 in legal fees and pays $10,000 in "damages" to the tenant. The tenant signs an agreement saying he will not pursue any further action against Patricia. This is signed on 1 May 2017, the same date the legal fees and "damages" are paid. The "new tenants" move out on 1 June 2017.

Due to the legal dispute, Patricia decides that owning the property is too much hassle, and decides to sell it. Her real estate agent says she should repaint the property before selling it as this will increase the sale price. Patricia follows this advice. Painters commence painting the property on 15 June 2017 and finish their work on 30 June 2017. The cost of repainting the property was $12,000. Patricia advertises the property for sale (via her real estate agent) on 1 July 2017 for $1,500,000. On 15 July 2017, a buyer offers Patricia $1,400,000 for the property. Her real estate agent advises her that she is likely to receive a higher offer if she is willing to keep the property on the market for a bit longer. However, as Patricia is anxious to sell the property, she accepts the offer of $1,400,00 and a contract of sale is signed on 20 July 2017. On the same day, a deposit of $280,000 is paid. Settlement (i.e. transfer of ownership) occurs on 1 September 2017, at which time the remaining $1,120,000 for the house is paid.

Costs associated with sale include:  Advertising: $2,800  Real estate commission: $35,000  Legal fees: $2,000  Mortgage discharge fee: $800

Required: Advise Patricia on the tax consequences for each of the above transactions. This includes calculating any capital gain/loss on the sale of the property.

Note:  You are to ignore GST for the purposes of this question.  If relevant, you should assume that Patricia has used the 'diminishing value' method to calculate any deductions for depreciating assets.