Problem:
Glenn and Andrea are both highly paid professional people living and working in Melbourne. They decide to opt out of the ‘rat race’ and settle for a much quieter life. With the money from the sale of their house in Melbourne they buy a large house with a swimming pool and tennis court on a ten hectare block in country Queensland. Andrea works part-time as an accountant in a local firm and Glenn works part-time as a doctor. Glenn’s bedside manner is a hit with the elderly ladies in the town and he often receives homemade cakes and biscuits along with his fee. On one occasion he received 12 chickens from a grateful local chicken farmer for using his medical knowledge to save the life of a pet dog when the vet was not available.
Glenn and Andrea enjoy the slower-paced country lifestyle and particularly enjoy gardening. They begin growing their own vegetables and attend an adult education course on organic gardening. In their second season they find they have vegetables far in excess of their needs. Andrea makes jams and relishes with some of the excess and gives them to her neighbours. They prove so popular Andrea is encouraged to make more and soon has her own stall at the markets, held once a month. Andrea also donates her products to be sold at any school fundraising activities. Glenn sold the remainder of the excess vegetables to the local supermarket. He now regularly supplies three retail outlets with pumpkins and sweet potatoes. Glenn and Andrea spend most weekends in their vegetable garden. They don’t keep any records of their income and expenses, as they don’t have the aim of making a profit. However, they estimate their gross receipts from vegetable and jam sales is around $50- $70 per week.
Glenn and Andrea’s neighbours have a citrus orchard and throughout the year they regularly swap vegetables for oranges and lemons. This seems such a good idea that they decide to set up a ‘barter’ system in their area. To join the system a person must pay an up-front one-off payment of $15. Glenn and Andrea keep this as a charge for keeping the administrative records. Thereafter people register their goods or services to be bartered. For example, Sally is a retired hairdresser and will cut people’s hair at their home. No cash changes hands, but she receives a credit on her account for 15 ‘barts’. She can then choose to use that for goods or services to the same value (fresh vegetables, child minding, lawn mowing etc.) Sally thinks this is a great idea as she can barter for her services without needing cash.
a) Advise Glenn and Andrea which, if any, of the amounts received by them may have income tax implications.
b) Advise the participants in the ‘barter’ system of the income tax implications, if any, of participating in the system.
Rationale:
This assignment is designed to assess your understanding of Ordinary Income. Please refer to relevant case and statute law to support your advice. This assignment should be approached in IRAT format. The referencing style for law subjects is the AGLC style:
https://www.lib.latrobe.edu.au/referencing-tool/aglc/