Reference no: EM13840406

Income Taxation Law & Practice

Assignment:

INSTRUCTIONS

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2. Please answer all parts of the question

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7. DUE DATE:....... Please check with the Course Description for details of where and when to submit your assignment. If you need an extension you must ask for one BEFORE the due date (unless this is impossible).

8. The assignment should not exceed approximately 2000 words.

Assignment

Part A

1. Allan and Betty were living and working in Melbourne. They decided on a ‘tree change', sold their Melbourne home and purchased a large country house on a 10 hectare block in central Victoria. Betty works part-time as an accountant and Allan as a locum doctor. Allan is popular with the elderly patients in the town and regularly is given home-made cakes and scones, along with his fee. On one occasion he treated a local wine maker's dog for snake bite when the vet was unavailable and was given a dozen bottles of Lonarch Brae shiraz in appreciation. The wine had a retail value of $360.

2. Allan and Betty enjoy gardening. They plan to establish a few hectares of grape vines and begin growing vegetables. They attend a continuing education course on organic farming and find in their second year they have a surplus of produce. Betty started making marmalade and relish using her mother's recipes. Initially she gave them to neighbours but they became so popular that she opened a stall at the Newtown Growers Market held on the second Sunday of every month. Allan sold some of the excess to a local supermarket and now regularly supplies three retailers with sweet potatoes and pumpkin. They don't keep records as they never intended to make a profit but estimate that in a good month gross receipts could be $500 to $600.

3. Their neighbours have a citrus orchard and throughout the year vegetables are swapped for oranges and mandarins. This seems like such a good idea Allan and Betty decide to set up a ‘barter' system in the area. To join the system a person must pay an up-front, one-off fee of $50 to Allan and Betty as a charge for the keeping of administrative records. Thereafter people register their goods or services to be bartered. For example, Suzie is a retired hairdresser and will provide hairdressing services at her home. No money changes hands. Suzie would receive a credit to her account of 15 to 20 ‘barts' that she can exchange for goods or services of equal value from other registered participants in the scheme (fruit, vegetables, child minding, lawn mowing etc.).

Required 1:

(a) Advise Allan and Bety otf any income tax implications arising in paras 1, 2 and 3 above.

(b) Advise the participants in the barter scheme of any income tax implications.

Part B

Nicole Grownman is an Australian actress who has had a number of roles in films and guest appearances in serials. During the year the following events occurred:

i) Nicole was offered a role in a telemovie set in the 1950s. She was required to put on 10 kilograms to play the part offered and would be awarded the role only if she put on weight. Nicole increased her food intake dramatically, dining-out several times a week and eating ‘fast food'. She estimated she spent $1,000 on food that she would not normally have eaten. She was paid $50,000 for her role.

ii) As a result of her weight gain Nicole had to buy new clothes at a cost of $2000. At the end of filming she wanted to loose weight and get back into shape so hired a dietician at a cost of $1,000 and a personal trainer ($2,500) and spent a week at a health clinic ($1,500).

iii) Nicole was paid $2,000 by Woman's World for an interview in which she spoke about the new telemovie as well as her personal life. She donated the money to the Royal Children's Hospital.

iv) The telemovie received critical acclaim and Nicole was offered a small role in a Hollywood movie. Under the contract she was to receive $AU20,000. She flew first class to the United States at a cost of $5,000; economy class would have been $2,000. After filming she spent a week visiting agents in Hollywood in the hope of securing more roles. Nicole regarded the week as a ‘working holiday' and she treated herself to ‘five star' accommodation at a cost of $6,000.

v) A well know gossip magazine Eye Spy published a story about Nicole that contained a number of untruths. Ordinarily she would not have bothered about such thing but with her career blossoming she was concerned that her reputation might be tarnished and future roles lost. She spent $10,000 in legal fees, sued the magazine for libel and was successful in securing damages of $50,000.

vi) A short break in acting followed and at her manager's suggestion Nicole paid $1,000 to a voice coach to improve her voice projection.

vii) In the expectation that her career was to take off at last, Nicole shifted to a rented town house. She specifically selected a two bedroom unit so that one room could be set aside for exclusive use as a study/office. There she could read scripts, deal with correspondence and meditate. Her manager suggested she would be entitled to a tax deduction for an apportionment of the rent.

Required

Advise Nicole of the taxation implications of the receipts and payments.