TAX LAW QUESTION -
Mary was born and raised in central New South Wales. She moved to Sydney to attend University in 2010, and graduated with a Bachelor of Commerce from the University of Sydney in December 2013.
In 2009, Mary had inherited a large sum of money from her grandmother. When she moved to Sydney, Mary used part of her inheritance to buy a house in Petersham (the contract was signed in January 2010 and settlement occurred 1 month later). The purchase price was $1,200,000 and she received an exemption from stamp duty as it was her first home purchase. In March 2010, Mary made another significant purchase using her inheritance. She bought a piece of rural (vacant) land outside Sydney. The purchase price was $400,000 and stamp duty of $13,500 was also payable. Mary planned to one day build a holiday house on the rural land. Mary did not incur any legal expenses on either purchase as her cousin Ivy (who has her own legal practice) did the legal work and is happy to provide free services to family members.
During 2014, Mary worked in an accounting firm in Sydney. Then in January 2015, she obtained a transfer to the firm's London office. She lived and worked in London from January 2015 to the end of 2017. In the period 1 July 2017 to 31 December 2017, Mary earned £5,000 per month from her work in London. During the entire time she was in London, she leased a 1 bedroom apartment in Winchmore Hill (close to central London). The apartment was owned by a family friend who charged rent of only £200 per month.
While Mary was in London, she rented out her home in Petersham. In the period from 1 July 2017 to 31 December 2017, she received $2,800 rent per month. An agent managed the property for Mary, and charged 5% of rent as commission. Mary also had to pay council rates on the property: $240 in September 2017 and a further $240 in December 2017.
Mary returned to Sydney on 1 January 2018 and resumed living in her house in Petersham (the tenants vacated in late December 2017). In January and February 2018, she took a break from work. On 1 March 2018, Mary started a new job at a boutique financial advisory firm. She earns a gross salary of $9,000 per month.
In 2018, Mary decided to sell her rural land (the nearby properties had become very valuable in recent years). She entered into a contract to sell the land on 9 March 2018 for $600,000, and settlement occurred on 9 May 2018. She incurred $500 in advertising expenses in connection with the sale.
In 2018, Mary also decided she would prefer to live in an apartment in Darling Harbour. On 20 June 2018, she entered into a contract to sell her Petersham house. The sale price was $2,000,000, and settlement occurred on 1 August 2018. Mary incurred $1,000 in advertising expenses in connection with the sale. Since late July 2018, she has been living rent-free at a friend's apartment in Darling Harbour while she looks for her own apartment.
Mary engaged in some share transactions in 2018. In January 2018 she purchased 10,000 shares in Telstra Ltd for $3.60 per share. Brokerage of $30 applied to this purchase. In February 2018, she purchased 1,000 shares in Woodside Petroleum Ltd for $29 per share. Again, $30 brokerage applied to this purchase.
In June 2018, she sold all her shares in Woodside Petroleum for $35 per share and also sold all her Telstra shares for $2.80 per share. On each sale, she incurred brokerage of $30.
INSTRUCTIONS:
1. For the 2017/2018 income year only, discuss Mary's residency status under Australian tax law. Provide explanations, and cite relevant law.
2. Does Mary have a net capital gain under Australian tax law in 2017/2018? Discuss, providing full reasons for your answer, and cite relevant law. If you consider that she has a net capital gain, calculate this. Explain all your steps.
3. What is Mary's taxable income for 2017/2018? Outline all your reasons. Provide explanations and cite relevant law. Calculate Mary's final tax liability (if any) under Australian tax law in 2017/2018. Assume that Mary has top-level private health insurance.
Word limit: 1,000 words (30% excess permitted without penalty). Note: you do not need to reach 1,000 words.