Reference no: EM131573219

Question 1 -

Simon is 59 years old and is planning to retire in the next twelve months. To this end he sold the following assets in the 2015/16 income year to accumulate sufficient funds in superannuation:

(a) his house which he purchased 30 years ago and in which he had lived all that time. It had cost $70,000 and he received $850,000 on 27 June this year after paying the agent's commission of $15,000. The house had originally been sold 6 months earlier and the buyer had paid an $85,000 deposit but unfortunately, he had been unable to complete the purchase and in accordance with the contract had forfeited the deposit.

(b) a painting which he had purchased on 20 September 1985 for $15,000 was sold on 1 June 2016 for $125,000 net of commission;

(c) his yacht which he had purchased on 16 November 2004 for $110,000 was sold on 6 June 2016 for $60,000 net of commission; and

(d) shares which he had purchased on 10 January 2013 for $75,000 plus stamp duty of $250 were sold on 5 June 2016 for $80,000 but brokerage had cost him $750. He had borrowed $70,000 to purchase the shares and had incurred interest on the loan of $5,000. He had been advised however that as the shares had not generated any assessable income he would be unable to deduct this interest.

Simon has advised that his taxation return for the previous income year showed a net capital loss of $10,000 from the sale of shares that year. They were the only shares he sold that year.

(1) Based on this information, determine Simon's net capital gain or net capital loss for the year ended 30 June 2016;

(2) If Simon has a net capital gain, how should he treat this amount for tax purposes?  

(3) If Simon has a net capital loss, how should he treat this amount for tax purposes?

Question 2 -

Part A - Jennifer is a singer who enters a talent contest on the television show Red Faces. With her remarkable undiscovered talent she won both the heat and the final. As prizes, she received an ocean cruise (market value $10,000) for winning the heat and a trip to the USA (market value) $20,000) plus $5,000 cash for winning the final.

Prior to appearing on Red Faces Jennifer had only performed at children's parties and nursing homes but had never made more than $1,000 in any one year. She now finds that winning the Red Faces contest she has sufficient work for a full-time career in singing.

What amounts, if any, are assessable?

Part B - Consider the following situations and discuss whether or not they are income in ordinary concepts:

• A cash prize of $1,000 for being the best student in income tax law received by a student either as a lump sum $1,000
• Instead of a lump sum the cash prize can be taken as 12 monthly payments of $100 each.
• A gratuity (not being superannuation) received by a widow from her husband's former employer in recognition of her husband's services.
• An honorarium received by a student for acting as honorary secretary of a small country town football club.
• A bonus received by an employee for a suggestion adopted by the management.