Reference no: EM133066937

2150AFE Taxation Law - Griffith University

Practice-based Case Study Assignment

Task Description:
You are required to individually write and submit an original answer to the case study question(s):

July 2020 to December 2020

Fred, a single 40-year-old employed lawyer for a large Australian commercial law firm, received a salary of $100,000 from his firm's Sydney office for the first six months of the tax year ended 30 June 2021.

Because of lockdowns imposed as a result of the COVID pandemic, Fred's firm agreed for Fred to establish a ‘home office' from the beginning of the tax year. Fred lived in Cremorne Point in Sydney, and his residence (a home unit) consisted of three bedrooms, one bathroom, one lounge room and a kitchen. In addition, there was a loft space in the roof that Fred had cordoned off to be his home office space. Fred bought some basic office furniture to furnish the space, including a desk ($150), chair ($80), lamp ($30), filing cabinet ($300), printer ($100) and general office supplies ($100). All of these Home Office furniture amounts included GST. Fred did not instal any signage to suggest from the street front that his office was inside, and he continued to use the laptop and mobile phone provided by his employer. No clients or colleagues physically visited the home or home office, and there was no available space for client car parking. However, Fred would have up to six online Zoom meetings each working day, and sometimes on the weekend. Fred worked from home five days each week to achieve a 40-hour week. He used the office space for his employment only and no personal effects were stored in the room, except for a piano that remained in one corner, leaving the home office space a little cramped. During the first six months of 2020/2021, Fred caught the ferry to and from his workplace in the CBD once a week for weekly practice strategy meetings, at a cost of $30 per week.

During this period, in addition to his salary, Fred also received the following amounts (all in AUD):

(a) $1500 in tips and gratuities from clients for ‘doing a great job.' This amount comprised $700 in cash, and $800 in kind (in the form of whiskey decanters, glasses, expensive whiskies and cigars);

(b) $1,000 in bank interest;

(c) $10,000 in winnings from gambling at the races (as well as a $7,000 loss on the Melbourne Cup race - but Fred is trying to forget that); and

(d) A $5,000 gold watch for winning the Lawyers' Cup, a tennis tournament held every year between staff from the Top Six law firms in Australia.

January 2021 to June 2021

On 1 January 2021 however, Fred was transferred to his law firm's Abu Dhabi office for a period of two years and, for the next six months of the tax year ended 30 June 2021, received the equivalent of AUD100,000 from the law firm's Abu Dhabi Office. When he moved to Abu Dhabi, Fred opened a bank account with Abu Dhabi bank, into which his salary was deposited. Fred kept his bank accounts operating in Australia, and used these for all his Australian-sourced income and tax-deductible expenses. In addition to his salary, the law firm's Abu Dhabi office also paid Fred a very ‘belated Christmas' bonus of $2,500, deposited into his Abu Dhabi Bank account on 2 July 2021.

Fred's law firm owned a block of units in Abu Dhabi in which it allowed employees such as Fred to stay at market rents. These rents, being at the lower end of the market range, made it attractive for employees like Fred to rent, purely to avoid the inconvenience of having to look for their own accommodation in a foreign language.

As a result of the move to Abu Dhabi, Fred rented out his home unit unfurnished in Sydney, earning him $55,000 in rental income from 1 January 2021 to 30 June 2021. All of Fred's furniture was removed and stored in Sydney's western suburbs at his employer's cost. Fred had purchased this unit, which had been built in 1985, for $1.2 million on 1 July 2017. The purchase had been financed by a $1,000,000 interest-only loan from CBA Bank over 10 years at an all-up interest rate of 2.5% per annum. Since his purchase of the unit, Fred had spent no money at all on upgrading the plant or equipment in it. Fred's expenses while he rented out the unit during the 2021 tax year were:

(a) Local council rates (including water) $5,800;
(b) Strata fees $2,750 (including GST);
(c) Home and Contents Insurance $2,200 (including GST);
(d) Property managers' fees $1,560 (including GST);
(e) Repairs and maintenance $1,100 (including GST).

During his time in Abu Dhabi, Fred returned to Australia for one month in April 2021 during the tax year because of an illness in the family. During this month, Fred worked in the Sydney office of the firm, although his salary continued to be paid in and from Abu Dhabi, and he stayed with the family at no cost.

In addition to these activities, Fred also has a popular YouTube account and channel, in relation to which he has gained 20,000 followers, in which he regularly discusses relevant tax issues of significance to the small business community in Australia and reviews the latest tax decisions affecting small business from around the country. In order to make his YouTube videos which he posts online, Fred spent AUD 10,000 (plus GST) on cameras, audio equipment and graphic artwork during the tax year. As a result of the number of small business subscriber' views of his channel, Fred earned AUD 30,000 (plus GST) in sponsorship and advertising income from his YouTube channel during the 2021 financial year. Because his YouTube Channel is an online activity, Fred can film and upload his videos from anywhere in the world, meaning that his move to Abu Dhabi did not disrupt his YouTube activities or income in any way.

During the year, Fred realised the following gains or losses from his other Australian assets:

(a) On 1 October 2020, Fred sold 1,800 shares at a share price of $76 per share. He acquired these shares on 1 September 2017 for a total cost of $88,000;

(b) On 1 April 2021, Fred received $450,000 from the disposal of other shares that he purchased in June 2020 for $320,000;

(c) In May 2021, an Albert Namatjira painting owned by Fred was stolen. Unfortunately, Fred had not insured the painting, which he had bought from a GST-registered art dealer in 2015 for $13,000 (including GST). The market value of the painting at the time of the robbery was estimated by experts at $26,000 (including GST), and this remained unchanged at 30 June 2021.

(d) Fred had a net capital loss of $230,000 (plus GST) on an investment property (an industrial shed and factory) from prior years that he could carry forward to offset other capital gains.

QUESTIONS

Answer the following questions, justifying your answer (including calculations) with reference to case law, tax rulings, and sections (including sub-sections) of relevant legislation. Explicitly state any assumptions you make in your advice and calculations. Answer with reference to general principles, ignoring any COVID-related tax measures or payments such as JobKeeper.

(A) Advise on Fred's residence status for income tax purposes, as well as the source and derivation of his income.

(B) Itemise the dollar amounts of all of Fred's assessable income sources under Australian tax legislation for the year ended 30 June 2021, and calculate his total assessable income for the year.

(C) To what extent is Fred eligible to claim deductions for home office expenses? Specify the relevant tax deductions. What impact does the home office space have on Fred's main residence exemption for Capital Gains Tax purposes?

(D) Itemise the dollar amounts of all of Fred's allowable deductions under Australian tax legislation for the year ended 30 June 2021, and calculate his total allowable deductions for the year.

(E) Itemise the dollar amounts of each of the taxable gains or losses on Fred's Australian capital assets, and calculate Fred's net capital gain or loss.

Attachment:- Taxation Law assignment.rar