BUSL320-Taxation Law and Practice

Case Study

Mike Smith is a distinguished American dermatologist who has been undertaking a two-year fellowship program sponsored by the Australian Cancer Council since 1 July 2018. Mike received a fellowship grant of $240,000, which has been paid by the Australian Cancer Council spread over two years on a monthly basis. His medical research is developed mostly in USA, where he owns and runs a dermatology clinic. However, he is required to be in Perth for two weeks in September, December, February and May annually to hold meetings with the Australian Cancer Council shareholders and present his research results. On these occasions, he stays in service apartments in Perth and Sydney, where he also conducts seminars and master classes at clinics and hospitals. He normally does not bring his family along, but in February 2019 his wife accompanied him on a one-week holiday trip to Queensland.

 On 1 June 2019, Mike sold the following assets:

• 20,000 shares in a USA company: acquired on 1 July 1984 at cost of $10,000 and was sold for $25,000 on 1 June 2019.

• An investment flat in USA: acquired on 15 July 2018 at a cost of $230,000 and was sold for $420,000 on 1 June 2019.

During the year 2019, Mike received $120,000 of his fellowship grant. All these amounts were paid into an Australian bank account and earned $2,000 of bank interest.

A statement of account from his US bank showed the interest earned in his bank account during the year 2019 was $12,500 (in American dollars’ terms). On 31 December 2018, while celebrating the new year at the casino, Mike won $100,000 in the pokies.  

Required

1) Advise Mike on what amounts may be included in his Australian taxable income for the 2018/19 tax year. (17 Marks)

2) Calculate his tax liability for the year ending 30 June 2019, taking into account of the low-income tax offset, low and middle income tax offset, the Medicare levy and the Medicare levy surcharge where they are relevant.