Reference no: EM132218491

Question: Facts: Jill is employed full-time as an accountant at a top tier accounting firm. In the 2017/18 year of income, she receives a salary of $100,000 and a bonus of $30,000 for her outstanding dedication in assisting with the training of new graduates at the accounting firm. Jill spends many evenings working past 8pm at the accounting firm and her employer pays for her taxi travel to go home. Jill lives in the suburb of Epping. During the 2017/18 year, Jill also spends $5,000 on a range of contemporary suits, shirts and other ordinary items of clothing that she regularly wears to important client meetings which she is required to attend in the course of her work at the accounting firm. In September 2017, Jill receives an award for “Best Accountant in Sydney” from the Chartered Accountants Association, which includes a cash prize of $3000 and a top-of-the- range coffee machine (valued at $2000).

Jill is very hard-working and in recent years she has been able to supplement her income from the accounting firm, by also undertaking specialist consulting work for a company, CorpCo Ltd (located in Epping) where she works in the early mornings from 7:00 am to 9:00 am, before commuting directly to the accounting firm in Sydney where she is employed full-time. During the 2017/18 year of income, Jill incurs travel expenses of $6,000 in commuting from CorpCo Ltd's premises in Epping, to the accounting firm in Sydney.

Jill is also very talented at sewing curtains. Her friends are very impressed with the curtains that she has sewn for her home, and several of Jill's friends suggest that she should consider sewing custom-made curtains and selling them to customers. Jill is very keen on the idea of designing and sewing custom curtains for profit and she is confident of her ability to design and sew the curtains. In October 2017, Jill takes photographs of her various curtain designs, and puts together a glossy catalogue, which she distributes to her friends, colleagues and other potential customers. She keeps meticulous records of her expenses, including travel expenses incurred on her weekend visits to potential customers in their homes to give quotes and take measurements for custom-made curtains. During the 2017/18 year of income, she received and fulfilled four (4) orders for custom-made curtains, and gross receipts from the sale of curtains were $10,000.

Jill has also become quite a collector of rare books. In December 2017, she purchased a set of three (3) rare books for $900. The books are of equal value. In May 2018, she received an offer of $1800 for the set. She negotiates with the buyer to sell each book to them separately.

On 1 July 2017, Jill borrowed $1,200,000 from CashBank Ltd (an Australian resident bank) on an interest only basis at a rate of 5% per annum to partly fund the purchase of an investment property in the Blue Mountains. The balance of the purchase price was paid from Jill's savings. Jill also paid stamp duty of $50,000 and legal fees of $2,000 in relation to the purchase.

At the time of the purchase, the property was already rented out to tenants who continued to live in the property following the purchase. During the 2017/18 year of income, in relation to the property, Jill received rent of $60,000, and incurred the following expenses: council rates of $2,500, water rates of $500, and insurance premiums of $1,000. Unfortunately on 1 June 2018, during a bushfire in the Blue Mountains, caused by a lightning strike during a severe storm, the rental property was destroyed by fire. Jill received compensation of $500,000 from her insurer in August 2018.

Required: Advise Jill regarding the income tax consequences of the above transactions for her, in relation to the 2017/18 income year. In your answer, make sure you consider whether any of the amounts/benefits that Jill receives will be included in her assessable income, and whether any of the expenditures that she incurs will be deductible to her for Australian income tax purposes. Also make sure you apply the HIRAC methodology and refer to any relevant cases, legislative provisions, tax rulings and principles of tax law.