PART A Amanda Sharp is a merchant banker who has lived in Germany all her life. She signs a contract with a large firm, to come to work in Melbourne for 12 months. Amanda arrives in Australia on 15 March 2014 and stays in an apartment provided by the firm. Amanda elects to travel to Australia alone because her husband is completing his postgraduate studies in Germany. Amanda is a keen archer and joins a local archery club. She also joins a local film appreciation group.
In December, her husband visits and they head to Sydney for a short holiday. After twelve months, Amanda returns to Germany.
Amanda earned the following income:
- Her salary in respect of her 12 month contract;
- A sizeable bonus from the firm, paid on 15 August 2016 after Amanda had returned to Germany
- Rent received from an investment property maintained in Germany.
Required:
a) Based on the above information, determine the residency status of Amanda for the 2014 and 2015 income years. Cite all legislative references.
b) Assuming Amanda is a non-resident, advise which items listed above will be considered assessable income in Australia. Explain your answer, legislative references are not required.
PART B Josephine is an IT Manager who, after 8 years working for the same employer, decides to follow her dream of starting her own business. Josephine decides to operate as a sole trader from home to keep start-up costs low. She sends out some glossy brochures and to her surprise, has quite a successful response after an initially quiet start.
The following details relate to Josephine's business operations for the eight months ended June 2015:
The business got off to a quiet start, so Josephine sought two quotes for brochures to promote her business, one for $1,100 and one for $2,800. Josephine chose the $2,800 option as it included a higher quality finish and the printer was able to print and deliver within a week of placing the order.
- Josephine raised invoices totalling $33,500 for IT services. Josephine had $3,000 in unpaid invoices at 30 June 2015.
- Josephine worked from her study at home which was solely dedicated to work; the office represented 15% of the total floor space of her home. Josephine incurred $1,600 in power and gas heating for the year.
- Josephine purchased account access to a tender website for $890 to try to win work, unfortunately this account did not lead to any new customers. The account access was for the six months ended 30 June 2015.
In addition to the above business related items:
- Josephine earned interest of $3,000 on funds in a term deposit which matured on 15 June 2015, Josephine elected to reinvest this interest as the term deposit rolled over.
- Salary of $45,000 relating to her previous role as an IT Manager from which $13,330 was deducted and remitted to the ATO as PAYG withholding.
- A net capital gain of $6,500 relating to the sale of shares purchased on 15 June 2010 and sold on 31 May 2015.
- Josephine has private health insurance which includes private hospital cover and has received the correct rebate applicable to her taxable income as a reduction in the premium.
Required: Based on the information above, calculate Josephine's minimum net tax payable for the 30 June 2015 income year. Cite all references.
PART C
Alex is an accountant with a creative flair, on the weekends Alex takes his easel and paints to the beach and produces some amazing work. Over the years Alex had accumulated many paintings and had no room to store them. A few of his friends commented that they thought his paintings were great, so he had a BBQ and invited his friends over to buy the paintings. Alex was happy for his friends to offer what they felt the paintings were worth. The BBQ was a success and Alex decided to hold a sale every 6 months to clear out the paintings that were accumulating. For the year ended 30 June 2015, Alex received $17,500 for his paintings. Alex also incurred $1,500 in art supplies.
Required: Based on the facts above, advise whether or not Alex is carrying on a business for income tax purposes and whether or not the $17,500 would be assessable income and the $1,500 could be deducted. Support your answer with relevant rulings and case law. (5 marks)
QUESTION 2
Manny is an Australian resident who presents the following information relating to the 2015 income year:
1. Sold BHP shares for $20,000. The contract for sale was signed on 29 June 2015 and settlement occurred on 2 July 2015. The shares were acquired in 2007 for $25,000.
2. Sold his stamp collection (which was not held for a profit making intention) for $5,000. He bought it for $2,000 on February 2015.
3. Sold a house in Manly for $1 million. Manny's grandmother bought the house for investment in 2000 for $300,000 and Manny inherited it in 2010. Manny continued to rent it out until it was sold. At the time of his grandmother's death, the house was worth $800,000. The total deduction claimed under Division 43 of the Income Tax Assessment Act 1997 was $60,000.
4. Received a trust distribution of $5,000. He was advised this was all the discount capital gains derived by the trust. Manny wanted to do a further research on this matter as he is not sure on its capital gain tax implications.
5. Received compensation of $50,000 for pain and suffering from a work-related accident.
6. Carried forward capital losses $2,000.
Required: Calculate Manny's net capital gain for the year ended 30 June 2015. Show your calculations in good form. If a capital gain is exempt, provide the relevant section reference.
QUESTION 3
PART A
Alpine Tech ("AT") is a company incorporated in Switzerland. AT develops custom software for public infrastructure projects worldwide.
AT is owned equally by Tom and Ingrid, Tom is a tax resident of Australia and Ingrid is a tax resident of Switzerland. They are jointly responsible for all of AT's business decisions, which they decide via teleconference from their home countries.
Tom and Ingrid also consult with key clients via teleconference from their home countries, although some critical development meetings require them to travel to their clients' head-offices in various locations around the world.
AT sometimes leases serviced offices when meeting with clients overseas.
Required: With reference to the background information above, determine the residency status of AT. You do not need to consider the double tax agreements. Explain your answer and cite relevant legislation.
PART B
Note: all amounts are GST exclusive.
Christine Davis is a sales consultant working for a large pharmaceutical company based in Sydney. Christine is an Australian resident aged 37 years. The following relates to the 2015 income year:
• The total salary amount for income year was $120,000, all was received in the 2015 income year except for $5,000 paid on 18 July 2015.
• Christine travelled 15,000 kilometres in her private motor vehicle during the year and incurred $10,600 in running costs. Christine maintains a log book which supports a work usage rate of 60%.
• To prepare for a major client meeting, Christine purchased a new suit for $1,100. The meeting was a success and her company won the account.
• Christine purchased an investment property in Brisbane on 1 September 2014 and received $16,500 rent on this day, being the rent payable until 1 September 2015.
• Christine spent the following amounts on the investment property during the 2015 income year:
- 15 September 2014 - $3,000 on repairing the roof of the property;
- 15 May 2015 - $1,500 on repairing the ducted heating in the rental property. The fan, motor, 7 ducts and the control unit were replaced with modern versions which significantly enhanced the performance and energy efficiency;
- 20 April 2015 - $450 to clean the gutters.
• Christine paid the following amounts in interest:
- $1,500 in interest on a loan used to fund the acquisition of various ASX shares
- $1,000 in interest on 30 June 2015 for this loan (not included in the $1,500 above), which was a prepayment of the interest for the next financial year; and
- $18,000 in interest on the loan from an Australian bank for the acquisition of the rental property.
• Paid $600 in bank fees on 31 January 2015 to establish the four year loan for the ASX shares.
• Paid $1,500 to her accountant on 2 December 2014 for preparing her 2014 income tax return.
Required: Calculate Christine's taxable income for the 2015 income year, excluding capital allowances. Cite legislative references and/or case law for inclusions and exclusions.
PART C
Samantha is the owner-operator of a popular state centre. The park is open to recreational skaters from 12-7pm each day and for professional skaters from 9-12noon and 7-10pm each day. There is also a small snack bar, serving milkshakes, hotdogs and pizza, which is very popular with patrons.
Due to the constant use and increased patronage of the skate park, the centre has started to look a little run down. The paint on the walls is cracked and peeling, furniture at the skate bar is falling apart and the ramps have started to show signs of wear and overuse. Samantha has obtained various quotes to conduct the necessary works. The walls will cost $3,000 to repair and repaint, furniture will cost $7,000 to replace. However, Samantha is surprised at the quote for $85,000 to install new ramps. Another quote estimates $35,000 to repair the existing ramps by sanding and resurfacing them. She decides to go with the lower quote. Samantha also decides to install a new speaker system worth $1,800 in the centre (she currently uses her portable music player connected to a docking station).
As part of the ramp repair work, she learns that a special finish will be applied to the ramps to toughen the surface and make the use of them less damaging, thereby reducing the need to resurface and repair them in the future.
Samantha wishes to obtain a full deduction in the current income year for the work, although she has negotiated terms not to have to pay for the work until the end of August 2016.
Required: Advise Samantha whether or not the above amounts are fully deductible in the 2015 income year. Cite legislative references to justify your answer.