This question is broken into 2 parts. Each part must be answered.
i Judy is a judge. This was a stressful occupation, so for relaxation she had a keen interest in gardening. She has an extensive garden and has undertaken a number of courses in landscape design and flower arranging. Judy often sold flower arrangements to friends, friends of friends etc for weddings, funerals, birthdays, anniversaries and other special occasions. She is paid $150,000 per year as a judge. Is the amount she receives from the sale of the flowers assessable? Why?
ii Albert Einstein was a very successful salesperson. He had worked for Excelsior Pty Ltd for the past 10 years. He had an extensive knowledge of the client base of Excelsior. The company was afraid that if Albert left he would be able to utilise this information to the disadvantage of Excelsior. Accordingly, an arrangement was entered into whereby Excelsior paid Albert $70,000 not to set up his own business in competition with Excelsior, or work for a competitor of Excelsior, for a 5 year period after leaving Excelsior. Is this amount assessable, and if so how will it be assessed?
[2 x 5 marks = 10 Marks]
QUESTION 2
Michael was born in Australia. Both his parents are Australian citizens. Michael is a computer programmer who specialises in web design. He worked for “Graphic Displays Pty Ltd” in Melbourne. However, in 2009 he resigned from his job and set up his own business with his wife, Joan. The business they set up commenced on 1 July 2009 and was largely involved in web design. Michael and his wife ran the business as a partnership. Joan was not particularly computer literate so she handled all the financial matters while Michael did all the web design activity. The partnership between Michael and Joan specified that they would share profits and losses equally.
In 2011 Michael and Joan won a large contract to design and maintain the web site for the Commonwealth Games in Glasgow. In order to do this they decided to move to Glasgow, for an indefinite period and at least until at least the end of the Commonwealth games. Accordingly, on January 31, 2012 they left Australia for Glasgow. Before leaving they took a 1 year lease over a flat in Glasgow with the option of a further 1 year. They leased out their house in Melbourne for $15,600 a year. The value of the contract with the Commonwealth Games Committee was $475,000, spread over equal monthly payments for an 24 month period commencing 1 September 2011. Payments were to be paid to the partnership.
Whilst in Glasgow Michael continued to undertake web design for Australian clients. Michael and Joan established a bank account in both their names, and a partnership account, in Glasgow. However, they kept a partnership account in Melbourne and payments from Australian clients were paid into the Melbourne account. From 1 July 2011 until they left for Glasgow the partnership had earned $60,000, and from the time they left Australia until 30 June 2012 they earned 12,000 from work for people or organizations in Australia. From 1 July 2012 until 30 June 2013 they earned 25,000 from work for people or organizations in Australia.
Soon after arriving in Glasgow Joan became pregnant. Whilst they have no definite plans to return to Australia immediately after the contract with the Commonwealth Games Committee finishes, they do plan to return to Australia for the education of their child..
Advise Michael and Joan of their Australian assessable income in the years 2011/2012 and 2012/2013.
NOTE: Partnerships do not pay tax, a partnership must distribute all income to the partners.
If you feel you need further information to be able to answer the question, indicate what information you need and why you need it. Do not concern yourself with any applicable double tax agreement.
[20 Marks]
ASSESSMENT CRITERIA
The following are the matters that will be taken into account when allocating a grade to students:
English expression and spelling 10%
layout and continuity of answer 10%
correct citation methods 10%
synthesis and analysis of correct legal principles 35%
application of legal principle(s) to the given
circumstances (where applicable) and ability to
communicate these concepts to the reader 35%*
explanation, criticism, evaluation of the
legal principles being discussed (where appropriate) and
ability to communicate these concepts to the reader 35%*
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