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John was an architect and was employed by a small firm in the Melbourne CBD. He worked part-time. On his days off, he enjoyed designing and printing T-shirts. He started designing and printing T-shirts in August 2009, when his friend introduced him to the hobby. He printed T- shirts when he had the time and kept them for himself or gave them as gifts for family members for special occasions. As an architect, John had excellent design skills. Most of the time, John came up with new designs and logos etc during his train travel to work. Are You Daunted by the Thought of Due Assignments? Avail Our Services and Receive Assignment Help from Experts.  In January 2010, John started to receive requests for his T-shirts from people outside of his family. Without giving it much thought, John happily obliged and printed T-shirts for these people. He received $25 per T-shirt and sold about 20 T-shirts in the following 2 months. John always took the money for the T-shirt when the request was received and he promised delivery within 5 business days. John was keen to make extra income to supplement his architect wage, so on 1 March 2010, he decided to investigate into whether it would be profitable to sell the T-shirts to a wider market. He did some profit projections, conducted some research into how long the equipment generally lasts and enquired into whether he could obtain his materials (such as paint and T-shirts) at wholesale cost. As a result of his investigations, on 6 March 2010, John invested $2,000 to purchase some additional equipment and materials (such as a large drying rack for the T-shirts, a large quantity of paint, T-shirts and a new printing screen). Other than the drying rack and the printing screen, John did not require any other equipment for printing the T-shirts. John also started to devote more time to designing and printing the T-shirts before he received requests, so that he could meet the demand within the 5 business days of payment as he always promised. Over the month of March, John sold 30 T-shirts just by word-of-mouth. On 31 March 2010, John decided that if he wanted to sell the T-shirts to a wider market then he needed to advertise his product. On this date, John paid a friend $500 to set up a simple website to advertise his T- shirts. John also printed the website on all of the T-shirts that he sold from that date on. The website proved to be popular and John sold 80 T-shirts during the month of April 2010. Due to the increased sales, John was now spending approximately 35 hours per week on printing the T-shirts. He also commenced a filing system of all of the designs, logos and slogans that he had developed. He researched into what sort of designs were the current fashion in different age groups so that he could target his designs to the most lucrative market. For the first time, in May 2010, John started to also design pants and collared shirts, which he paid to have tailor-made and applied his prints to. On 15 May 2010, the owner of a chain of cafés, Ron, contacted John and requested him to design a uniform for the café staff. John successfully designed a uniform, which Ron was exceptionally pleased with. As well as looking modern and groovy, it was also very practical. As part of the uniform, John had designed the apron with a special belt, which could hold various attachments such as the electronic ordering pad, a cloth and other items. Ron ordered 200 uniforms for all of the staff across all of the café franchises. Due to the success of the uniform, John decided to apply for a patent over the apron with the belt. The uniform and belt was patented on 2 July 2010. In applying for the patent, John became aware of a patent over an automatic clothes folding machine being sold for a bargain price. The seller was in financial difficulties and therefore was selling it for a cheap price. John did some research into the potential income that could be generated from this patent and the popularity of the machine. Although John had never had any experience with such a machine, he thought this might be a good way to make a quick profit. John purchased the patent for $4,000 on 15 July 2010. John actively sought to exploit the patent and therefore managed to procure 3 significant parties who were keen to use the patent to build and sell these machines. This significantly increased the value of the patent and John subsequently sold the patent on 18 October 2010 for $10,000. REQUIRED John seeks your advice about satisfying his income taxation obligations in respect of his printing and designing activities. In particular, advise John of the income tax consequences and implications of: John’s receipts from printing T-shirts and designing clothes/uniforms. John selling the patent over the automatic clothes folding machine. In providing your answers, you should ignore GST, you should provide full details and reasons as to why and when amounts are taxable, and you should refer to any relevant case law, legislation and taxation rulings to justify and support your conclusions. ------------------------------------------------------------------------------------------------- SOLUTION Various facts and circumstances of the case have to be taken into consideration in the instant case in order to ascertain the tax liabilities and the accessibility of various receipts of money by John over the relevant accounting year. In order to render proper legal advice to John, all these factors have to be taken into consideration and accordingly, a brief discussion of relevant facts as ascertainable from the facts of the case has been undertaken hereunder so that correct advice can be given to John regarding his liability pertaining to receipt from painting and designing T shirts and regarding the liability from purchase and sale of patents. As the accounting year in the Commonwealth of Australia is from July 1 to June 30th of the next year, for the purpose of tax accessibility, figures and receipts during the relevant time in 2009-2010 have to be taken into consideration. A perusal of the facts of the case discloses that John, who was an architect by profession, worked in a small firm in Melbourne in a part time job. The facts further reveal that John was introduced to the hobby of designing and printing T shirts in the month of August, 2009 by a friend and he started to design T shirts, print them and keep them for personal use or to gift them to someone. As per the facts of the case, till the month of December, John had continued the entire process as mere hobby. Since January, as per the facts of the case, John started receiving
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