Referencing Styles : APA The following separate scenarios require your advice as indicated: Part A Pierre is qualified chef and a citizen of France. He has always lived and worked in his home town of Paris. Pierre was offered a full-time position as a pastry chef at an exclusive Melbourne hotel for a period of 2 months to cover the Christmas holiday season. Pierre signed the contract of employment before he left France. Pierre is not married and has no dependants or family ties in Paris. Pierre moved out of his apartment in Paris and placed all his belongings in storage. Due to Pierre’s world renowned experience, the Melbourne hotel offered Pierre the use of a fully furnished apartment at another property owned by their group at no expense during his stay. Pierre arrived in Melbourne on 1 December 2013 and finished working at the hotel on 31 March 2014 after gaining a 2 month extension on his contract. Pierre stayed on in Australia for a holiday until the end of April 2014 before returning to Paris. Pierre lived in the Melbourne apartment for the whole length of his stay. During the income tax year ended 30 June 2014, Pierre earned interest on a French bank account of $1,500 (EUR); salary and wages from his work in France prior to November 2013 $30,000 (EUR); and salary and wage income from his Melbourne job of $27,500 (AUD). Pierre had PAYG of $4,200 deducted from the Australian salary. Required: Discuss with reference to legislation, case law and/or rulings (where relevant) whether Pierre would be considered a resident of Australia for tax purposes for the income year ended 30 June 2014. Based on this conclusion and discussing the source of income principles, state which amounts would be included in his assessable income for the year. Part B At the beginning of the 2014 income year, Carl and Jill set up an eBay account to sell unwanted personal items from their garden shed. Setting up the account was free. During the period July 2013 through to November 2013, their total sales were $4,200 and this all related to second hand personal items sold below cost. Carl and Jill discovered through this process there was a large market for garden tools. Carl and Jill have therefore begun to source foreign made garden tools and sell this through their eBay account. Carl and Jill have spent $27,000 during the income year acquiring stock. Some of the stock is sold exactly as it was purchased, whereas some stock is modified through the addition of ergonomic handles for older gardeners. All listings are made with a minimum bid price of 150% of the cost price. Up to 30 June 2014 Carl and Jill have made total sales of $31,500 in relation to gardening tools. Carl and Jill have also received total postage income of $4,000. The total cost of postage to customers was $3,000. Carl currently has a full-time job as a carpenter and Jill works part-time in an accounting firm. All income received from sales of gardening tools is currently being put back into purchasing new stock. Jill is also working on a website which will launch in January 2015. The website will allow Carl and Jill to sell their stock directly online without the need for eBay auctions. Required: 1. Discuss with reference to appropriate legislation, case law and/or rulings whether Carl and Jill are carrying on a business for taxation law purposes in either the 2014 or 2015 income years. 2. Ignoring your answer in (1), assuming that Jill and Carl are carrying on a business for taxation law purposes, provide advice as to whether the cash or accruals basis of accounting should be used. Part C Eddie is a semi-retired mechanical engineer. Throughout his working life he always worked on new inventions at his home workshop. Eddie’s specialty is solar powered farm equipment. Eddie’s prototype was almost complete when the Global Financial Crisis hit and he ran out of money to continue building and testing the machine. His intention had been to begin either manufacturing the equipment or enter into licence agreements (for royalty income) once the designs were completed and certifying them. Fortunately for Eddie, after an appearance with his design on a television program, he was approached by a manufacturing company to purchase his prototype and working designs. Eddie was paid a lump sum of $650,000 during the 2014 income year in exchange for transferring all designs, prototypes, past drawings and in-progress drawings to the company. The agreement also stated that Eddie would provide knowledge and input into the ongoing design process and any new designs for a period of 12 months. There was to be no additional remuneration for Eddie’s time in working with the company, simply the lump sum payment. Eddie was also given 10% of the shares in the company (market value of $100,000) in exchange for entering into the agreement. As a result of entering into the agreement, Eddie transferred all existing patents into the name of the manufacturing company. Required: Discuss with reference to appropriate legislation, case law and/or rulings whether either the lump sum or the shares are ordinary income to Eddie in the 2014 income year. You should provide brief comment about whether there is likely to be any CGT consequences. Case Study Two Part A As a result of a fire in January 2014, the downstairs kitchen area of Toni’s rental property in Brisbane was damaged. Toni’s rental property was tenanted at the time of the fire; however it has been vacant since that time while repairs are being carried out. Toni has had the following expenses up until 30 June 2014 in relation to the rental property; Replacement of all kitchen cupboards and bench tops at a cost of $14,000. The old kitchen cupboards were damaged from the fire and the old bench tops were not able to be used on the new cupboards. However, all other aspects of the replacement were of a similar design and with similar materials to the old kitchen. Toni made two payments in relation to the installation of the kitchen. The first payment was $7,000 on 1 March 2014 and the second final payment of $7,000 was made on 20 June 2014. The kitchen was fully installed and completed on 1 June 2014. Replacement of the downstairs rear entry door. As a result of the fire damage the door would not close properly. The cost of the replacement door was $850 including installation and was paid on 1 April 2014. The old door was a plain solid timber door, whereas the new door included some decorative stained glass at the top. Toni also took the opportunity to add a security screen to the door at an additional cost of $1,800. Required: Discuss with reference to appropriate (and most relevant) legislation, case law and/or rulings whether the rental property expenses are deductible in the 2014 income year. For the purpose of this discussion you can assume Toni is not covered by insurance for this type of event. Part B Karen carries on a bakery business in Toowoomba where she sells directly to the public and also supplies restaurants making deliveries in her delivery truck. Karen is a small business entity. Karen had the following outgoings in the year ended 30 June 2014: One of Karen’s customers, Mrs Smith swallowed a small metal object that was in one of the cakes that Toni sold to Mrs Smith. Mrs Smith sued Karen for damages and Karen paid $6,000 to Mrs Smith on 16 April 2014. Karen paid her own legal costs of $5,000 related to legal advice on the claim on 12 April 2014. Karen is married to Adam; Karen borrowed $50,000 from the National Bank and purchased shares in Adam’s name and he will get the dividends. Karen paid interest of $2,000 on the loan for the bank in the year ended 30 June 2014. Karen paid $6,800 in child care expenses during the year to put her daughter in child care to enable Karen to carry on her business. Karen paid for the cost of food and accommodation being $150 for staying overnight at the Novotel Hotel in Brisbane while attending a baking and catering conference. Required: Based on this information what amount can Karen claim as a tax deduction under s 8-1 Income Tax Assessment Act 1997 for the year ended 30 June 2014? Support your discussion with reference to appropriate authority. Part C Oliver carries on a computer repair business, employing 3 qualified IT technicians. At 30 June 2014 he provides the following information in relation to her trade debtors/accounts receivable: Oliver estimates that around 10% of his trade debtors ($4,800) will not pay him for work done and invoiced. The 10% is based on Oliver’s experience of bad debts in the past. Total debtors at 30 June 2014 were $48,000. Oliver has identified that ABC Pty Ltd, who owes him $2,300 for computer repairs, has just been made insolvent. Oliver made a written note on 27 June 2014 that he considers that he will not receive any amount from ABC Pty Ltd. Oliver has not removed ABC Pty Ltd from the trade debtor balance at 30 June 2014. Oliver had written off a debt of $1,700 as bad in the 2013 year. The debtor, William O’Conner, had told Oliver that he could never pay the money and that he did not have any assets. However, after a change in his financial position, on 13 April 2014 William paid Oliver the $1,700 owing. Required: Based on this information what amount can Oliver claim as a tax deduction for the year ended 30 June 2014? Will he have to include any amount in assessable income? Support your discussion with reference to appropriate authority. Case Study Three Paula is a resident of Australia for tax purposes and has informed you of the following transactions which occurred during the income year ended 30 June 2014. Paula also informs you that she has carried forward capital losses from the 2012 year of $4,000. This loss relates to the sale of shares. Additionally she has a $700 carried forward capital loss from the 2009 income year in relation to the sale of an antique. Vacant Land and House Paula purchased a vacant block of land in Brisbane QLD on 1 October 1984 for $87,000 for investment purposes. On 1 July 2012 Paula sub-divided the land into two equal allotments at a cost of $40,000. At the time of the sub-division the total land area had a market value of $230,000. The total cost of council rates and other maintenance fees incurred on the vacant land up until 1 July 2012 was $27,000. On 1 January 2013, Paula entered into a contract with a builder to build a house on one of the blocks of land. The construction commenced on 1 February 2013. The total cost of construction of the house was $320,000 and the construction was completed on 1 August 2013. After the construction was completed, the new home was rented out to tenants immediately. Paula entered into a contract on 1 January 2014 to sell the new home (with tenants) for $620,000. Information provided by the local Council indicates that at the time of the sale, the relevant land was valued at $345,000. During the period the property was rented out Paula incurred $1,200 in council rates and fees and $7,000 in interest on a loan taken out for construction of the house. On 1 June 2014 Paula entered into another contract to sell the remaining vacant block of land for $405,000. Settlement took place on 1 August 2014. Paula incurred $3,800 in council rates and maintenance fees during the period 1 July 2012 through to the sale of the land. Shares Paula acquired 1,000 shares in XYZ Ltd on 1 November 2007 at a cost of $7,500. She also incurred $450 in brokerage fees at the time of purchase. On 1 March 2014, she also acquired an additional 2,000 shares in XYZ Ltd from her Grandmother’s estate. Her Grandmother died on 1 February 2014 when the shares had a market value of $11 each. Her Grandmother had acquired the shares on 1 July 2000 at a total cost of $6,000. Paula sold all 3,000 shares on 1 June 2014 for $45,000. She incurred $900 in brokerage fees and transfer costs at the time of sale.