Income Tax implication arises to Allan and Betty in the Para 1, 2 and 3 is as follows:
Taxable Situation arises in the given Para is as follows:
Situation1 : Tax Liability in case of sale of Melbourne House
In the given situation Allan and Betty lives together in their home at Melbourne. They decided on tree change sold their Melbourne Home and purchased a large country house in Central Victoria on a 10 hectare block.
Income Tax Act of Australia generally provides that any gain arising from sale of home is taxable as capital gain Tax. However, Australian government also provide certain type of exemption in which taxpayer is not required to pay capital gain tax on home in which he used to live. The exemption is called Main Residence Exemption. Since, gain arising from sale of home is not taxable therefore the taxpayer is also not allowed to claim tax deduction of expenses relating to buying and selling of home. The exemption is allowed if
a) The house is used by the taxpayer as family home where he used to live with his family,
b) The house is not more than in 2 hectare.
c) No portion of the house is rented nor used in running the business. (Government 2012)
Assuming all the condition mentioned to claim Main residence exemption is fulfilled therefore, sale of house is not taxable as per Income Tax Act.
Situation2: Income of Betty by working as a Part time Accountant
Section 6-5 provide that any Income earned by the person as salary whether full time or part time will b taxable as ordinary Income. Therefore, Income earned by Betty as Part time Accountant will be taxable as ordinary Income.
Situation3: Income Tax Implication of Allan:
a) Fees received by doctor Allan as a doctor will be considered as fees received in business and the same will be taxable as business income after providing deduction of the expenses which will be incurred in the business for earning such fees.
b) Section 21A of Income Tax Assessment Act 1936 provide for taxability of non cash benefit received in the business. As per the said Act any non cash benefit will be first converted to monetary value by using the arm’s length price which will be sold in the market and from those value, the entertainment expenses which is not allowed to the taxpayer is deducted and the remaining will be taxable. So, in the given situation it is not possible to calculate the value of home made cakes and scones and also the same will also not be possible to sold in the market. Therefore, the same is not taxable. However, on occasion of receipt of wine for treating dog of wine maker, the same wine will be taxable because it is possible to convert it in money and the same will be easily sold as well. (Government n.d.)
Part A (A.2)
Situation 1: Surplus of Produce from gardening.
In the given Para it is established that Allan and Betty love gardening and the wanted to establish a few hectare of grapes wine and begin growing vegetable. For this they also under gone a education course on organic farming and in the second year they have surplus of produce. Since, there is intension of the taxpayer to earn income therefore, income earned by Allan and Betty from sale of Surplus produce will be taxable as Business Income.
Situation 2: Income Earned from Opening Stall at New town Market Grower’s
Income is only taxable if there is intension to earn income as per Income Tax Act. In the given situation Mrs. Betty make marmalade and relish by using her mom recipes which he used to distribute to the neighbors. The recipes become popular and just as a hobby he started selling the same at New Town Market Growers only on second Sunday of every month and not regularly. Since this is just an hobby and not the complete business setup therefore the same is not taxable.
Situation 3: Regularly Supply of recipes to three suppliers with sweet Potatoes and Pumkin
Since, Now they have started supplying recipes regularly to suppliers with sweet potatoes and pumpkins which is said to be business activity therefore the income derived after deducting eligible deduction will be taxable under Business Income. And now from onwards, they need to maintain records because initially the intension was not to earn profit but since now they are continuously supplying therefore records need to be maintained.
Part A (A.3)
Situation 1: Receipt of upfront Fees of $50
No differentiation has been made for Income Tax purpose for transaction incurred in Barter System and Normal Cash Transaction. Therefore Upfront Fees of $50 received from the member for keeping the administrative records will be taxable.
Situation 2: Receipt of Service Fees
If Allan and Betty Charge any Service fees from the member to enter transaction in barter system the same will also be chargeable for income tax purpose after allowing deduction for expenses required for keeping the necessary records or providing services to the members.
Answer to Question B
Income Tax Implication of Participant in Barter System is as follows:
a) Barter is a system in which goods and services are exchanged without the transaction being carried in money.
b) The Transaction entered in the barter system are deductible and also assessable for the income Tax purpose as no difference is being made by the government for transaction entered in barter system or normal cash or credit transaction.
c) The entity entraining in to the transaction is assessable to tax including GST if he is the member of trading organization.
d) The Transaction in the barter system is valued at Arm’s length price which is nothing but the market price.
e) Tax invoice is also required for all transaction entered into the barter system. The Tax Invoice must comply all the government rules.
f) All records of the transaction entered into the barter system need to b kept by the Trading organization.
g) ABN Number i.e. Australian business Number is required for the transaction that are entered in the barter system. (Office 2014)
Tax Implication of Nicole of the receipt and Payment is as follows:
(1) Section 8-1 of the taxation Act of Australia provide that any expenses which has been incurred and is necessary to be incurred to earn income is always allowed as deduction. In the given situation Nicole has incurred expenses on her food intake dramatically, by eating fast food and taking it multiple times in a week to gain 10kgs weight which is necessary to barge a role in telemovie set in the 1950s for which she was paid $50,000. Since gaining of weight was essential for the role and to gain weight it is necessary to increase the diet. Therefore, Expense of $1,000 which was incurred on food is necessary to earn Income. Therefore deduction will be allowed. She needs to pay tax on $49,000. (Governmnt 2014)
(2) Since Nicole is an actress and it is necessary for her to look charming therefore expenses incurred by her on purchase of new clothes and also cost incurred on hiring dietician took fit to get another role and expenses incurred on personal trainer and health clinic totaling to $7,000 will be allowed as deduction as all the expenses incurred is necessary to get another role for the actress.
(3) Amount received by Nicole from interview by Women’s word will be considered as ordinary income and will be taxable in the hands of Nicole amounting to $2,000 by virtue of section section 6-5 of taxation Act.
Further, donation made to Royal Children Hospital is only allowed if the said hospital is an registered donee by the taxation department to claim exemption. Because Australian government provide deduction of donation above $2 dollar only to approved institution.
(4) Amount received by Nicole of $ AUS 20,000 is taxable as ordinary Income. Further, expenses incurred by him in air ticket and accommodation totaling to $11,000 will be allowed as statutory deduction because all the expenses are incurred to earn income or in the expectation of earning income and as per the taxation department deduction of expenses incurred for earning income is allowed. Therefore, the said expenses is also allowed.
(5) Damages received by Nicole amounting to $50,000 will be considered as capital receipt because as per Australian taxation rule any amount receipt for damages of moral is considered as capital receipt. Further, any expenses which has been incurred for securing income which is not taxable will not be allowed as deduction.
But in the given case the expenses incurred by Nicole in filling legal suit amounting to $1,000 is considered to be necessary in order to earn more role and income because his carrier is in blossoming stage and with rumors it might be possible that he will not be able to get any role. Therefore, expenditure is considered necessary to earn income and deduction will be allowed under section 8-1.
(6) Amount paid by Nicole to her voice coach will be allowed as deduction. Since she is an actresses and it is necessary for her to keep her voice sweet to earn more role and income. Therefore, deduction of $1000 paid to voice coach to improve voice projection will be allowed and the expenses are not treated as personal expenses.
(7) Suggestion of manager is correct. Nicole is eligible for tax deduction for an apportionment of the rent. Australian Taxation as the clause in which rent paid by the individual will be apportioned in two parts one for personal and another for business. The apportioned may b done on the basis of the floor area. Since, Nicole is an actresses, therefore she needs one room for study and busnss purpose and deduction of such room will be allowed. Further, expenses on telephone, gas and another facility in such room related with business activity will also be allowed as deduction.
Government, A 2012, ato.gov.au, <https://www.ato.gov.au/General/Property/Your-home/Buying-and-selling-your-home/>.
Government, A, austlii.edu.au, <https://www.austlii.edu.au/au/legis/cth/consol_act/itaa1936240/s21a.html>.
Governmnt, A 2014, law.ato.gov.au, <https://law.ato.gov.au/atolaw/view.htm?DocID=TXR/TR977/NAT/ATO/00001>.
Office, AT 2014, www.ato.gov.au, <https://www.ato.gov.au/Business/GST/In-detail/Rules-for-specific-transactions/Barter-transactions/Bartering-and-barter-exchanges/>.