LAW3130-Revenue Law and Practice

Task

Part A

Part A Catherine is 22 years old and was born in Cardiff, Wales. On 20 August 2018, she arrived in Brisbane on a 12-month working holiday visa. Prior to arriving in Brisbane Catherine had always lived with her parents in Wales.

Catherine had worked in Cardiff prior to leaving for Australia and had been saving for her travel. She did not own any significant assets in Cardiff, only personal possessions such as clothes and a few electronic items. She left most of this with her parents while she was in Australia.

Catherine stayed in a hostel in Brisbane for 2 weeks after arriving, visiting the Gold Coast and Sunshine Coast and other tourist attractions. She then moved into a shared house with other working holiday makers, and worked at a café and hotel in Brisbane city as a casual employee.

As she was required to work in a rural area as part of her visa requirement, in February 2019 she travelled to central Queensland to work on a cattle station for two months. When she returned to Brisbane in April 2019 she went back to live in the same share house.

On 16 July 2019 Catherine decided to return to Cardiff and moved back into her parents’ house. She wanted apply for a working holiday in Canada and started working and saving for her next adventure. After six months she started travelling again. 

Required

Discuss with reference to legislation, case law and/or rulings whether Catherine would be considered a resident of Australia for tax purposes for the income year ended 30 June 2019. You do not need to consider the temporary residency rules. 

Part B

Roy lives in Mitchelton and carries on a pet food retail business in the local shopping centre. During the year ended 30 June 2019 he had the following receipts:  

1.On 31 March 2019 Roy received a non-refundable non-transferrable holiday worth $15,000 from one of his suppliers for having the highest sales of that brand in Queensland. Roy will not be able to take the holiday but is not permitted to sell it to one of his friends. 

2.Roy received $24,000 on 12 November 2018 from the owner of a nearby shopping centre in Keperra as an incentive for Roy to move his shop to Keperra and sign a 5-year lease. Roy had also been offered $8,000 to sign a new lease by his current landlord, but Roy decided to accept the higher offer.

3.Roy donated dog food to Guide Dogs Queensland for their Bald Hills kennels. The food cost Roy $5,000 but he would have sold it to his customers for $10,000. Roy also took some dog and chicken food home during the year to feed his own pets. Roy recorded that he took products costing $3,000 for his own use which he would have sold to his customers for $6,000. 

4.On 28 May 2019 Roy placed an order with an organic food producer based in the United States costing $45,000. The goods were loaded onto the ship on 10 June 2019 and arrived at Roy’s shop on 5 July 2019. The shipping terms were FOB, meaning Roy took ownership, risk and control of the stock once it was loaded onto the ship. 

Required

Based on this information what are the income tax consequences of the above transactions for Roy for the year ended 30 June 2019? Support your discussion with reference to legislation, case law and/or taxation rulings. 

Part C

Jenny operates a beauty therapy business in Toowoomba providing various beauty therapy services as well as the provision of a tanning bed (a machine which provides artificial UV light to tan patient’s skin). Jenny estimates that at least 30% of her total revenue relates to services from the tanning bed.

The Federal Government recently announced that as of 1 July 2020, all such equipment will be banned from use nationally due to the potential link to skin damage and associated cancer. She is concerned that the loss of this part of her business will have a significant long term impact on her business.

Jenny joined a lobby group to protest the changes on behalf of her clients. The lobby group employed a solicitor and policy professional in an attempt to lobby the Government and stop this legislation from passing. Jenny gave $25,000 to the lobby group to fund the campaign during the 2019 income year. 

Required

Discuss whether the expenditure incurred by Jenny would be allowable as a deduction during the year ended 30 June 2019 under any section of the Income Tax Assessment Acts. Support your discussion with reference to legislation, case law and taxation rulings.  

Part D

Your client, Laurina, purchased an apartment in Brisbane on 1 July 2018. The purchase price was $545,000. Laurina borrowed $445,000 from a bankas well as using her savings to purchase the apartment. The apartment was listed for rental immediately, and a tenant moved in within two weeks, paying $450 per week. The real estate agent charged commission of 10% for managing the property. Laurina incurred the following expenses during the year ended 30 June 2019 in respect of the apartment:

a) Legal fees on the purchase of the apartment, $750.

b) Queensland Government stamp duty on the purchase of the apartment, $16,500.

c) A quantity surveyor’s report estimated that the construction costs for the apartment were $260,000. The quantity surveyor charged a fee of $350 for the report.

d) A loan application fee paid on 1 July 2018 to the bank for the loan, $500. Interest on the loan totalled $13,500.

e) A new microwave was purchased by Laurina and installed in the apartment at a cost of $195 on 14 July 2018.  LAW3130 Assignment Semester 3, 2019 Page | 5

f) At the time Laurina purchased the apartment the interior paint work was very faded and chipped. Prior to the tenants moving in Laurina paid $1,750 to have the interior walls re-painted. She paid the painter on 8 July 2018.

g) A severe storm smashed a window on the apartment on 2 February 2019 and needed to be replaced at a cost of $550.

h) Laurina replaced the dishwasher with a second-hand machine she had previously used in her house. Laurina estimated the value of the dishwasher was $400 on 15 April 2019.

i) Contents and public liability insurance for the apartment was paid on

1 July 2018 and totalled $1,100.

j) Body corporate fees for the year ended 30 June 2019 totalled $1,800 and were paid by Laurina on 30 April 2019.

k) Brisbane City Council rates were paid each quarter during the year, totalling $2,400.

l) Laurina travelled 80 kilometres in her car during the income year to inspect her rental property.

You can assume that any depreciating assets have an effective life of 10 years and that Laurina use the prime cost method of depreciation when relevant.

Required

Discuss whether any amounts of expenditure incurred by Laurina would be allowable as a deduction during the year ended 30 June 2019 under any section of the Income Tax Assessment Acts. Support your discussion with reference to legislation, case law and taxation rulings.