Referencing Styles : Harvard For all questions cite relevant legislation and case law where appropriate. 1.Sally is employed as a part time chef and wants to make some extra money by offering a cleaning service. She prints business cards and drops off flyers in her neighbourhood advertising her services. She buys the necessary cleaning equipment and products and sets up a storage area in her home. Sally receives many responses to her advertising; one in particular is from a nearby childcare centre. By agreement with the childcare centre, Sally cleans for five hours each Friday, in return, her daughter Zoe is allowed to attend childcare 3 days a week for free. Sally calculates that this has saved her $350 a week in fees. Consider whether Sally is in a business for tax purposes and whether she has any assessable income as a result of cleaning the childcare centre. (4 marks) 2. Ben is employed full-time at Star Accountants. Ben’s best friend and owner of Star Accountants, Jacob, employed Ben because he didn’t have anyone in the office that he really liked. Further, Star Accountants had been illegally importing and selling cigarettes, and they made most of their profit through these activities. Jacob knew Ben would keep quiet about the illegal deals that Star Accountants were undertaking because the two had been friends since high school. Last week was Ben’s birthday and he arrived at the office to find a note on his desk that said ‘Dear Ben, thank you for keeping me sane at work and thank you for helping me with the cigarettes, here’s a birthday bonus. From Jacob’. Attached to this letter was $1,000 cash. Consider whether Ben should include the cash in his assessable income. (4 marks) 3. Briefly explain whether the following receipts are ordinary income for the taxpayer: i.The taxpayer purchased land to use for cattle grazing in 1990 for $400,000. As the city expanded, his farming land greatly increased in value. Consequently, the taxpayer decided to stop farming and develop the land for sale. He used an agent to subdivide and arrange for the connection of necessary services such as roads, power, sewerage and gas. He sold 10 individual blocks in 2015 for $300,000 each. The development expenses totalled $600,000. (1.5 marks) ii.The taxpayer purchased a large house with a large backyard. At the time of purchase, the taxpayer considered living in the house at the front, and either subdividing the property or alternatively, extending the house into the back yard. Two years are purchase, the taxpayer developed and subdivided the back of the property and sold it to a local primary school. The taxpayer received $300,000 from the sale. (1.5 marks) iii.The taxpayer purchased a property in Burwood and decided to rent out this property for $2,000 per calendar month for a 2-year term. The taxpayer needed a deposit for a new house and she sold the right to receive the rent to her sister for a lump sum of $90,000 while retaining ownership of the property. (1 mark) 4.Ms Wong operates a savings bank account with a large bank but after receiving notice of the interest paid on the account she questioned the amount of interest. After investigation the bank discovered that the software calculating interest was faulty and was showing interest 20% less than entitled. The total interest lost by Ms Wong was $350. The bank paid Ms Wong the $350, but also paid her an additional $5,000 for agreeing to not make any additional claim against the bank. Consider the tax treatment of the $350 and $5,000 amounts. (4 marks) 5.Discuss whether the following receipts would be included as assessable income for the taxpayer: i.The taxpayer Eddie is a commerce student who occasionally bets on big horse races like the Melbourne Cup. He usually loses because he prefers to bet on horses that are not expected to win so as to increase the size of the win if he does win. He has kept records of all of his betting activities over the past few years. At the Melbourne Cup in 2015 Eddie placed one bet of $24 and won $6,500. He spends part of the $6,500 on rent and puts the rest towards his university fees. (2 marks) ii.The taxpayer has a full-time job as a lawyer. She loves singing and enters into regular karaoke competitions (usually once a fortnight). She keeps a calendar of upcoming competitions and practices regularly. Her uniform is provided by the local music store that sponsors her. This financial year she received $5,000 in cash prizes from competing. (2 marks)