Jill is employed full-time as an accountant at a top tier accounting firm. In the 2018/19 year of income, she receives a salary of $100,000 from working at the accounting firm.
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 2018/19 year of income, Jill incurs travel expenses of $3,000 in commuting from CorpCo Ltd’s premises in Epping, to the accounting firm in Sydney. Jill receives $60,000 consulting fees from her specialist consulting work during the 2018/19 year of income.
Jill also has a spare room at home which she uses on weekends to do work in relation to the accounting firm. On 1 July 2018, Jill paid $30,000 for a new piece of equipment to use for her accounting work. The equipment has an effective life of five
- The equipment is used 80% for her accounting work and 20% for private purposes.
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 January 2018, 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 2018/19 year of income, she received and fulfilled twenty-five (25) orders for custom-made curtains, and gross receipts from the sale of curtains were $150,000.
On 1 July 2018, Jill also purchased an investment property in the Blue Mountains for $700,000. (Jill paid a 10% down payment and borrowed the balance of the purchase price from BigBank at market rates.) Jill also paid transfer (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 2018/19 year of income, in relation to the property, Jill received rent of $40,000, and incurred the following expenses: council rates of $2,500, water rates of $500, insurance premiums of $1,000 , and $40,000 interest on the loan. Jill also arranged to use the property herself as a holiday home for four (4) weeks during the year, as she enjoys bushwalking in the Blue Mountains.
Advise Jill regarding the income tax consequences to her, arising from the above facts, in relation to the 2018/19 income year. In your answer, make sure you refer to any relevant cases, legislative provisions, tax rulings and principles of tax law.
Bob is employed as a full-time accountant by CorpCo Ltd and works in the accounts department. He is an Australian resident for tax purposes. In the 2018/19 year of income, CorpCo Ltd pays Bob a salary of $80,000.
Bob is also a rowing champion. He is committed to the pursuit of excellence in rowing and over the last couple of years he has achieved world ranking as a rower. Bob has competed successfully in a range of national and international competitions and has won several prizes. During the 2018/19 year of income, Bob is invited to compete in the following competitions: (1)“ Men’s National Rowing Championships”, where he wins a free, non-transferable holiday to Hawaii, valued at $20,000; and
(2)”Asia-Pacific Rowing Competition” where he wins a cash prize of $15,000. Bob is also invited to make an appearance at a number of other rowing events and he is paid $30,000 for his appearances in the 2018/19 income year.
On one occasion, while Bob is training in the wilderness of Northern Queensland, his boat capsizes due to the extremely strong winds in a severe and unexpected tropical storm. He nearly drowns and is almost attacked by a large crocodile, however miraculously he manages to swim to shore safely. Subsequently, Bob is approached by a media company. On 1 January 2019, Bob enters into an agreement with the media company in which he agrees to make himself available for a series of interviews with journalists, regarding his near-death experience in Northern Queensland, in consideration of a payment of $30,000 made to Bob, by the media company. On 1 January 2019, Bob also enters into a second agreement with the media company in which he agrees not to give any other similar interviews for a period of 18 months, in consideration of a payment of $70,000 made to Bob, by the media company. Bob incurs legal fees of $5,000 in relation to the second agreement.
Advise Bob regarding the income tax implications for him, arising from the above facts, in relation to the 2018/19 income year. Make sure you refer to any relevant cases, legislative provisions, and principles of tax law.