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Winnie, aged 36, is employed full-time (on a salary of $79,000 per year) as an assistant manager in a large retail Menswear clothing store in the Sydney Central Business District (CBD) (Menswear Galor

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Winnie, aged 36, is employed full-time (on a salary of $79,000 per year) as an assistant manager in a large retail Menswear clothing store in the Sydney Central Business District (CBD) (Menswear Galore). Her normal work hours are 9.00 am to 5.00 pm, Tuesday to Saturday. Winnie left school at 15-years of age and has worked very hard for some 21-years (sometimes working two or three jobs). She has three investments, and is always on the lookout for more good investments. Winnie is also a [potential] beneficiary, along with siblings, under her mother’s discretionary trust. Winnie is comp...

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Winnie, aged 36, is employed full-time (on a salary of $79,000 per year) as an assistant manager in a large retail Menswear clothing store in the Sydney Central Business District (CBD) (Menswear Galore). Her normal work hours are 9.00 am to 5.00 pm, Tuesday to Saturday. Winnie left school at 15-years of age and has worked very hard for some 21-years (sometimes working two or three jobs). She has three investments, and is always on the lookout for more good investments. Winnie is also a [potential] beneficiary, along with siblings, under her mother’s discretionary trust. Winnie is completing her tax return for the 2015-16 income year, and she would like your advice on the correct tax treatment of the following transactions: All staff of Menswear Galore at assistant manager level (or above) are entitled to receive, on top of their normal salary, one extra benefit per year, but the benefit cannot in total exceed a value of $1,200. If the benefit satisfies the otherwise deductible rule, Menswear Galore’s benefit cap is $1,600 per year. Winnie elected to have her annual gymnasium membership fees of $1,000 paid for her. Winnie visits the gymnasium 3-4 times per week to work on her fitness. Winnie was thinking that in the long-term, she may think about starting a career as a personal trainer (i.e. helping people to get fit through exercise). Indeed, Winnie also reads fitness magazines and stays up-to-date with developments in fitness techniques. And, she has been discussing the idea of taking some exercise classes at the gymnasium but Winnie has been advised that she cannot be employed before she has the required fitness industry qualifications (which she does not have yet). Menswear Galore paid Winnie’s gymnasium membership account ($1,000) for her direct to the gymnasium operator on 23 March 2016. Both Menswear Galore and the gymnasium operator are registered under the goods and services tax (GST). Winnie is a volunteer counsellor at the Lifeline Association (LA) in the Sydney suburb of Parramatta two nights per week, Tuesday and Friday. LA provides advice and support over the phone to people who are distressed or upset with their life or an event that occurred. Winnie is one of the phone counsellors at LA. Winnie had to undergo quite a lot of training to become a volunteer phone counsellor with LA. Winnie does not get paid for her work with LA (i.e. she is a volunteer), even though she is thinking of getting into counselling in the long-term as a possible career or job. She travels directly by train from her day job to LA’s premises at Parramatta. A small number of times, Winnie took a taxi if she was running late from work. (LA insists that its counsellors cannot be late). LA provides her with some snack food and/or sandwiches before she starts her shift at 6.30 pm. Winnie’s train travel on these trips for the year came to $520, and the taxi travel came to $180 for the year. Winnie has been doing some research into investment properties (residential rental properties). She is focusing on Brisbane in Queensland because of the better value for money of properties in Brisbane compared to Sydney and Melbourne. After considerable discussion (by email and phone) with a real estate agent in Brisbane, Winnie decides to travel to Brisbane to inspect four potential properties. She flys to Brisbane early on a Sunday and returns to Sydney late on Monday afternoon (18 and 19 October 2015). The real estate agent meets Winnie at the airport and drives her to her motel. The agent also drives Winnie around to the various properties (all of which have tenants in them). The agent also pays for Winnie’s motel accommodation in Brisbane. Winnie incurs $580 in airfares going to and from Brisbane. She also incurred $140 in taxis to and from the airport in Sydney. In the end, Winnie does decide to purchase one of the properties that the agent showed her for $420,000. The purchase was completed (settled) on 15 December 2015 (exchange of contracts was on 9 November 2015), and she began receiving rent immediately after that from the tenants. 4. After repeated requests from the elderly tenants (aged 71 and 73 respectively), Winnie arranges for a concrete ramp to be placed at the back of the house of one of her three rental properties (Botany property). Previously, there was only stairs going from the house to the backyard. However, the stairs were quite steep, and somewhat dangerous, especially for elderly people when walking down the steps. The concrete ramp makes it much easier for the tenants to get to the backyard from the house, and to get back to the house from the backyard. The cost of installing the concrete ramp at the Botany property was $3,300. The contractors started work on 28 October and the ramp was completed on 31 October 2015, and it became usable the day after (when the concrete had completely dried). Winnie purchased this property back in August 2012 for $325,000. Winnie decides to sell the Botany property, partly to reduce the loan outstanding on the newly acquired Brisbane property. Winnie finds a buyer very soon. Contracts for the sale are exchanged on 20 May 2016 and settlement takes place on 5 July 2016. The sale price was $530,000. The real estate agent’s commission on sale was $12,600 and solicitor fees on sale were $2,000. Stamp duty on purchase, and solicitor fees on purchase were respectively $11,000 and $1,800. The bank also charged Winnie an early loan termination fee of $1,400 under the loan taken out for the Botany property. Winnie was surprised by this, but she accepted that the loan contract did have this fee in it. 5. As noted above, Winnie is also a potential beneficiary under her mother’s discretionary trust, the Sartor Family Trust (SFT). The accounting profits of SFT for the 2015-16 financial year were $206,000. Gani, the trustee, allocated the profits under a trustee resolution made on 15 July 2016, as follows: Beneficiary Share of Profits Angel 40% Julie 20% Winnie 30% Tommie 10% SFT’s taxable income (net income) for the 2015-16 income year was $214,000. Required 1. Advise Winnie on the tax treatment of the above transactions to her. Fully explain your advice by reference to tax legislation and tax cases. (Note, there is no need to calculate Winnie’s taxable income or liability to ATO because we do not have all the information that allows for this). Also, ignore the purchase cost of the Brisbane property and the rent from the Brisbane property, unless these are relevant to another issue(s). (22 Marks) 2. Calculate Menswear Galore’s fringe benefits tax (FBT) liability (if any) in regard to Winnie’s gymnasium membership fees. (3 Marks)

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Answer 1

Issue

What will be tax consequence on the activities done by Winnie in the taxation year 2015 – 2016?

Legislation

ITAA 1997

Application

According to section 8-1, ITAA 1997, a taxpayer is entitled to deduct the expenses which are incurred to make any income, which is taxable as per the Income Tax Assessment Act, 19971. However, the exceptions to it include the expenses which are incurred as a capital expenditure, or for a personal purpose or which are of a domestic nature. Those activities

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