Discuss the tax consequences for Adam
Course:- Taxation
Reference No.:- EM132281344

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Questions -

Question 1 - Briefly explain whether the following are ordinary or statutory income for the taxpayer:

i. Harvey receives a phone from his employer for doing a great job at work. The mobile phone is locked to him and only he can use the device.

ii. Claire is a jockey who races horses full time. Claire goes to the Melbourne Cup with three friends and bets on some horses during the day. She wins $2,000 in prize money.

Question 2 - Briefly explain whether the following are ordinary or statutory income for the taxpayer:

i. Geoff runs a business buying and selling stolen property. This year, he made $50,000 from the sale of stolen televisions.

ii. Craig receives $450 in dividends from shares in QBank.

iii. Mark purchases some bulk office supplies for his boss. He is then paid back for this cost and $300 is transferred into his account.

iv. The taxpayers receipt in Bennett v FCT (1947).

Question 3 - Consider whether Sam has any assessable income as a result of the sale of her hats.

Sam works full time as a doctor but on the weekend she loves attending racing carnivals in Victoria. She always takes great pride in the different hats she wears. She frequently sells her hats from the year before, to pay for her newest hat to wear.

This year, Sam decided that she also wanted to restore old hats for other people to purchase to wear to the races. To do this, she commenced shopping at op-shops each Thursday to find old hats. She would then restore them and list them for sale on eBay. She buys the necessary equipment and products and sets up a storage area in her home. She spends about 10 hours a week on hat restoration. She does not advertise but relies on word of mouth.

Sam has listed and then sold approximately 100 hats this year from which she received $5,000.

Question 4 - Discuss the assessability for Anne of the receipt of the voucher:

Christine is the wife of John, the manager of a large retail store. John employs Anne as a casual employee of the store. On Anne's first day at work, she was introduced to Christine. Anne got on so well with Christine, that they have caught up every week for coffee since. This year, Christine buys Anne a gift voucher for her birthday.

The voucher (redeemable for online goods to the value of $100) has a card attached to it which states 'thanks for being a great friend to me, and a great employee for John. Love Christine and John'. Anne decides to purchase a new radio with the voucher.

Question 5 - Briefly explain whether the following receipt of $1,500,000 is ordinary income for the taxpayer:

The taxpayer bought a small farm in regional Victoria. At the time of purchasing the land he wanted to cease farming activities and build a school camp on the land. After some investigations the taxpayer realized he could make more money by selling the land in a few separate blocks.

The taxpayer also arranged a builder to build a small house on each of the parcels of land, as they were more likely to sell if they had a house on them. The necessary utilities were connected for each of the blocks. The taxpayer then decided to save money on the sale, and he arranged all of the marketing himself.

The development expenses were $500,000. He successfully sold all three blocks for a total of $1,500,000.

Question 6 - Discuss the tax consequences for Adam for both of his choices below (the $50,000 receipt and the monthly receipt).

Adam enters into a local radio station competition in which he has to guess the answer to a riddle. Clues for the riddle are released each week. The radio station call Adam and he successfully guesses the correct answer, and wins the prize. The radio station offers Adam two choices on how to redeem his prize. The first is a lump sum payment of $50,000. The second is that he can exchange his prize money for monthly installments. The monthly installments are $5,000 a month for 12 months.

Question 7 - Explain whether the following receipts are specifically exempt (please cite sections) from income tax:

i. A payment of $50,000 received by a community service society carried on for profit or gain of its individual members.

ii. A payment of $300,000 received by the NONA Art Society which is a club established for the continued encouragement of art.

iii. A single income family supplement paid to a working couple with two young children.

iV. An allowance paid to a defence force member who is deployed overseas but is not on eligible duty.

Question 8 - Discuss whether Emma has any assessable income as a result of entering into the below agreement:

Green Pty Ltd (Green) are a chain of plant nurseries in Australia with hundreds of stores across the nation. They sell rare and valuable plants. Emma is an employee with Green and she has enjoyed working there for many years. She works at Green's small warehouse in Collingwood. Part of her role with Green (as described in her contract) is attending national management meetings where she has input into marketing and sale strategies. This year, Emma enters into the following agreement with Green:

"Emma agrees that she will no longer be entitled to attend management meetings for Green. Emma agrees to the variation of her contract to reflect this change. In consideration, Green will pay Emma $20,000 for agreeing to this. Green further acknowledge the dedication that Emma has shown to Green over the past 5 years, and will pay her an Easter bonus of $5,000 in appreciation".

Emma signs the agreement and receives $25,000 into her bank account.

Question 9 - Discuss the assessability of both the following receipts for Jacob:

i. the $40,000 paid by Ryan.

ii. the $15,000 paid by Heather.

Jacob lived on a small property by the coast of Warrnambool which was located high up on a cliff overlooking the ocean. He spent his days taking photos of the ocean, and he would let other companies use these photos for advertising if they paid Jacob a fee each time they were published.

This year, Jacob was approached by a local builder called Ryan who was keen to collect limestone from Jacob's land. Ryan and Jacob entered into an agreement where Ryan would pay Jacob $4,000 per tonne of limestone removed. The agreement stated that a minimum of 10 tonnes and a maximum of 40 tonnes could be removed each year. The maximum was removed and Ryan paid $40,000 to Jacob.

Jacob decided he could do with some extra money to renovate his house. He entered into an agreement wither Heather where she would receive the payments relating to the use of the ocean photos for 5 years, in exchange for giving Jacob $15,000.

Question 10 - Discuss the assessability for Sparkle Pty Ltd for both the $100,000 and $20,000 amounts:

Sparkle Pty Ltd are a Melbourne company who sell wholesale cleaning products to local businesses. They have 3 forward selling contracts with these businesses. One of the businesses no longer wished to receive Sparkle's products, and cancels its contract. The contract was for a term of 4 years, representing about 20% of Sparkle's annual profit. Sparkle received $100,000 for the cancellation.

This year Sparkle had not made enough money from the sale of cleaning products. They decided they needed to quickly make some more money to continue trading and be able to pay their staff. They had some old plastic buckets lying around their factory. Ordinarily the buckets were for the storage of chemicals, but on this occasion, they were sold to a nursery (for plants). Sparkle received $20,000 for the sale of the buckets.

Note - 150 words each question.

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