Two years ago Peta purchased a house in Kew. This house had two old tennis courts down the back which were in poor condition. She purchased the property for two reasons:
so that she and her family could live in the house; and
so that she could build three units on the tennis courts and sell them at a profit.
In the current tax year the tennis club next door offered to buy the old tennis courts, but only if Peta first restored them to good condition. Peta decided to accept the club’s offer instead of going ahead with her plan to build and sell units.
Peta spent $100,000 on preparing the tennis courts for sale. This involved a great deal of work. Peta had to resurface the tennis courts and build new fences around them. She then sold the tennis courts in the current tax year to the tennis club for $600,000.
Ignoring capital gains tax, discuss whether the receipt of $600,000 is ordinary income under s 6-5.
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