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CASE STUDY

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Case Study One The following separate transactions require your advice as indicated:Kate is a teacher who was born in Australia and up to 12 August 2017 she worked in Toowoomba. Having resigned from her job in Toowoomba, Kate travelled to Fiji on 13 August 2017 to join her husband Jack who has been working at a university in Fiji. Jack and Kate have three children and from 13 August 2017 the family has been living in a rented house provided by Jack’s university employer. Jack has a 3 year contract with the university in Fiji which expires in June 2020 at which time they intend to retu...

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Question Preview:

Case Study One The following separate transactions require your advice as indicated:Kate is a teacher who was born in Australia and up to 12 August 2017 she worked in Toowoomba. Having resigned from her job in Toowoomba, Kate travelled to Fiji on 13 August 2017 to join her husband Jack who has been working at a university in Fiji. Jack and Kate have three children and from 13 August 2017 the family has been living in a rented house provided by Jack’s university employer. Jack has a 3 year contract with the university in Fiji which expires in June 2020 at which time they intend to return home. During the year ended 30 June 2017 Kate earned $14,000 in rent from renting out their home in Toowoomba (her share) and interest income of $500 from an investment in an Australian bank. She works part-time as a teacher in Fiji and earned $19,000 AUD during the year ended 30 June 2018. Provide advice to Kate as to whether she is a resident of Australia for the year ended 30 June 2018 and based on your conclusion advise Kate of the amount that she should include in her assessable income in Australia for the year ended 30 June 2018.Greg has been operating an illegal drug operation from his home in Brisbane for the past 10 years. He purchases the illegal drugs and on-sells them through a network of drug dealers throughout the city. On 1 July 2017 Greg had no drugs on hand but had drugs with a market value of $27,000 on hand at 30 June 2018. This stock of drugs cost him $11,000 to purchase and he considers that it would cost him $15,000 to replace these drugs. Sales of drugs during the year ended 30 June 2018 were $147,000 and purchases were $72,000. In addition to his drug receipts Greg won $15,000 in a lottery prize on 4 March 2018 and he used this money to purchase more drugs to sell to the public. Provide advice to Greg as to what amount(s) if any he should include in his assessable income for the year ended 30 June 2018. Bernie carries on a delivery business where he employs 4 staff. Bernie provided $5,000 worth of delivery services to Paul (one of his customers) but Paul indicated that he did not have any money to pay Bernie. Instead of paying Bernie cash Paul allowed Bernie to use one of his residential rental properties to live in with his family for 6 months during the year ended 30 June 2018. The market value of the rental property was $6,000 for the 6 month period. Provide advice to Bernie as to whether he needs to include any amount in his assessable income as a result of being provided with free accommodation. Melanie carries on a cleaning business and earned $500,000 in income during the year ended 30 June 2018. Her biggest customer Brown Pty Ltd (Brown) accounts for 95% of her work and paid her $475,000 in fees for the year ended 30 June 2018. Brown has just indicated to Melanie that it will be cancelling their cleaning contract and will pay her compensation of $200,000 for cancelling the contract. Melanie considers that due to the fact that Brown is paying her this amount she will have to close her business because she will have insufficient work to keep her business in operation. Provide advice to Melanie as to whether the $200,000 would be ordinary income.

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Case Study One

IssueWhat Incomes are assessable for the taxpayers?

A.Kate’s incomes from Australia and Fiji?

B.Greg’s Income from Illegal activities and lottery?

C.Bernie’s income from Barter Exchange?

D.Income to be received as compensation by Melanie for loss of Business?

Relevant Law

A.ITAA 1936 section 6-1

B.ITAA 1936 section 25-1Taxation Ruling 93/25

C.ITAA 1936 section 25-1Taxation Ruling IT 2668 Amended.

D.ITAA 6-5

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