Reference no: EM132412861

Taxation Law: Research Assignment

Facts:

Jane is a full-time interior design consultant employed by a large interior design firm CreativeCo Ltd. She is an Australian resident for tax purposes. Jane's main duties are to provide advice to clients, and to develop functional and aesthetically- enhancing designs for the interior of buildings. CreativeCo Ltd pays Jane a salary of $100,000 per year.

Jane lives in a rented apartment in North Sydney. Since CreativeCo Ltd has a branch office in Wollongong, Jane has to work 3 days per week (Monday to Wednesday) in the Sydney office, and the remaining 2 days per week (Thursday and Friday) in Wollongong. During the 2018/19 year of income, she incurs travel expenses of $2,000 in travelling from home to the Sydney office and back home again, and $5,000 in travelling from home to Wollongong and back home again.

Jane currently does most of the design work relating to the Wollongong branch from a spare room in her apartment because CreativeCo Ltd does not have suitable space at the Wollongong site. The room takes up about 10% of the floor area of the entire apartment. Jane uses the room exclusively for work-related purposes, including phone calls to clients, but does not use it to meet clients. Client meetings are always held at the Sydney office. Jane incurs expenses of $30,000 rent and $7,000 for lighting and electricity for the entire apartment for the 2018/19 income year. For the 2018/19 year of income, Jane pays $700 membership fees for her membership of the Interior Designers Association of Australia, and $500 for subscriptions to Interior Design journals.

CreativeCo Ltd also provides Jane with a laptop computer to use for her work as she is sometimes required to travel to client premises to provide on-site advice and inspect the interior of buildings. During the 2018/19 year of income, she incurs travel expenses of $4,000 in travelling from the office to client premises and back to the office again. She is required, by her employer, to wear "all black" clothing when meeting with clients. During the 2018/19 year of income, she spends $700 on "all black" skirts, trousers, and tops to wear to client meetings.

Jane is very hardworking and in addition to her full-time job, she also teaches art classes at a community college in Newtown during the week, on Thursday and Friday evenings. On these evenings, she travels from CreativeCo Ltd's Wollongong branch office to the college in Newtown to teach. During the 2018/19 year of income, she incurs travel expenses of $5,000 in travelling from CreativeCo Ltd's Wollongong branch office to the college in Newtown. She receives $10,000 from teaching at the college during the 2018/19 income year.

In July 2018, Jane also commenced a Master of Business Administration (MBA) degree at university, as she hopes to move into a management role (and away from an interior design role) in the future. During the 2018/19 year of income, she incurred $6,000 for course fees and $700 for textbooks in relation to the MBA course.

In her spare time, Jane enjoys sailing. In August 2018 she purchases a yacht (assume cost = $7,000). She goes on a sailing trip with her friends, along the east coast of Australia, however after drinking heavily on one occasion, Jane almost steers the yacht into a reef. A few of her friends nearly fall overboard into shark- infested waters. Jane is ashamed of her behaviour on the trip and she is determined to mend her ways. In December 2018 she sells the yacht for $12,000.

In January 2019, while exploring the new year sales, Jane came across a good bargain and purchased a 120-year old, antique bedroom furniture set (comprising a bed, 2 bedside tables and a chest of drawers) for $1,550 ($450 for the bed, $350 for each bedside table, and $400 for the chest of drawers). She negotiated with the vendor to buy each piece of the set separately. A few weeks later she received an offer of $4,400 for the set. She negotiated with the purchaser to sell each item separately ($2,000 for the bed, $700 for each bedside table, and $1,000 for the chest of drawers).

Required:

Advise Jane regarding the tax implications to her, arising from the above facts, in relation to the 2018/19 year of income. In your answer, make sure you consider the potential assessability for income tax purposes to Jane of any of the above events, and the availability of a tax deduction for any expenses incurred. Also make sure that you apply the HIRAC methodology and refer to any relevant cases, legislative provisions, tax rulings and principles of tax law.