Reference no: EM132306088

Taxation Law - Research Assignment

Facts:

Sarah lives in Ryde and commutes daily to the accounting firm in Sydney CBD where she is employed full-time as an accountant. She receives a salary of $120,000 in the 2018/19 year of income, from her accounting job. Sarah's employer also provides her with a laptop computer to use for her work. During the 2018/19 year of income, Sarah also receives a $5,000 cash award for "Best Accountant in Sydney" from the Chartered Accountants Association. Sarah is an Australian resident for tax purposes.

Sarah is very hardworking and in addition to her full-time job, she also teaches art classes at a community college in Epping during the week, in the evenings. She travels from the accounting firm in Sydney CBD, to the college in Epping to teach. During the 2018/19 year of income, she incurs travel expenses of $2,000 in travelling from the accounting firm to the college in Epping. She receives $20,000 from teaching at the college during the 2018/19 income year.

In her spare time, Sarah participates in long-jump competitions. She is committed to the pursuit of excellence in this sport and over the last couple of years she has competed successfully in a number of competitions, and has won several prizes for long-jump. During the 2018/19 year of income, Sarah is invited back to participate in several prominent long-jump competitions, where she wins $40,000 in prize money, and a top-of-the-range coffee machine (valued at $3,000). Sarah is also invited to make an appearance at several major sports events and she is paid $40,000 for these appearances in the 2018/19 income year.

In January 2019, Sarah took a few weeks off work. While exploring the New Year sales, Sarah 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 and sold each item separately ($2,000 for the bed, $700 for each bedside table, and $1,000 for the chest of drawers).

A few years ago, Sarah purchased a holiday home in the Central Coast in September 2017 for $1 million. (She paid a 10% down payment and borrowed the balance of the purchase price from BigBank at market rates.) She incurred legal fees and transfer (stamp) duty in relation to the purchase of $7000. At the time of acquisition, the property was in serious need of repair. A number of roof tiles were broken and parts of the gutters had deteriorated and were falling apart. In October 2017, Sarah incurred $3,000 in repairing the broken roof tiles and parts of the guttering, to get the property ready for the summer season.

In March 2018, she commenced construction of a garage on the property. The construction is complete in October 2018 at a total cost of $50,000, paid on completion. In April 2019, Sarah is approached by a developer who wishes to build a multi-storey complex on the site of Sarah's holiday home. In May 2019, Sarah enters into a contract to sell the property to the developer for $1.2 million plus a unit in another holiday complex (market value of the unit is $300,000). Sarah incurs legal fees of $1000 in relation to the sale. The sale will be completed in July 2019, at which time Sarah will receive the cheque for $1.2 million and the title to her new unit. Assume that over the time Sarah owned the property, she paid interest totalling $100,000 in relation to the BigBank loan. Assume none of the expenses in relation to the Central Coast property are deductible.

Required:

Advise Sarah regarding any relevant tax implications arising from the above facts in relation to the 2018/19 income year. In your answer, make sure that you apply the HIRAC methodology and refer to any relevant cases, legislative provisions, tax rulings and principles of tax law, and include any relevant calculations.

Word limit: 1500 words maximum (excluding footnotes & bibliography)