Fully explain in relation to the circumstances in each part below, what is ordinary assessable income.

Total word length should be approximately 2000 words. It is in the discretion of students the word length for each answer. ALL questions should be answered.

Marking: Mark allocation is set out for students in the introductory work notes. Students must refer to appropriate sections of legislation where applicable. Reference to cases should be made where there is a case that is important to the answer.

Plagiarism A student who plagiarizes will have their assignment returned with a zero mark. Students should familiarize themselves with the university policy on plagiarism.

QUESTION 1

Fully explain in relation to the circumstances in each part below, what is ordinary assessable income.

(i) Michelle ran her own accountancy business. The lease she had on the premises from which she ran he business was to expire shortly. A new building not far from where she currently ran her business had been completed. The owners of this new building agreed to give to Michelle $45,000 over 12 months if she agreed to move to their premises when her current lease finished.. Michelle accepted this offer.

(ii) Roger was a tax adviser. He had a very wealthy client who asked Roger for some advice on how best to structure a new business the client was starting up. As a result of the advice given the client paid 15% less tax than had paid in the past. The client paid Roger the fee of $7,000 he had charged. Because he was very pleased with the advice he had been given he also gave Roger another $2,000 as well as the $7,000.

(iii) Some businesses earn income from leasing out equipment. At the end of the life of the leased equipment the business may seek to maximize profit by selling the equipment which had previously been leased out. Thus, a business may lease out motor vehicles. It may decide that motor vehicles older than 8 years cannot be leased out any longer. Accordingly, the business sells cars it leased out when those cars are 8 years old.

3 x 5 = 15 marks

QUESTION 2

Rosie Farmer was an accountant who was born in Australia and her parents lived in Australia. She was also an enthusiastic artist, but she only painted for pleasure, giving her paintings to friends. In late 2013 she decided to go overseas to pursue her painting and see if she could earn an income from her painting. Rosie therefore resigned her job as an accountant and sold her house in Australia to help fund her trip. She invested money in a number of ‘property ventures’ in New Zealand and America in January 2014. She is to receive $20,000 per annum in total from these investments, paid on a 6 monthly basis. In February 2014 she left Australia to travel overseas and paint. She did not have any definite plans on how long she intended to stay overseas. She first went to the Amalfi Coast in Italy. She spent 6 months moving around the Amalfi coast painting, staying in hotels and with friends she knew. She then went to England and spent 6 months in England, travelling around England painting. Her Uncle lived in England so she based herself at her Uncle’s house whilst in England. Next she moved to Greece and has been moving around the Greek Islands painting. By this time her painting technique has improved and she is now selling paintings on a regular basis to tourists. She sold her first painting in December 2014. In total she has sold $12,000 worth of paintings to date. She now has an excellent reputation as a scenery artist and plans to return to Australia in December 2015 in time for Christmas. She has arranged for an exhibition of her paintings in London for November 2015 where it is hoped many of her paintings will sell. It is estimated that these sales in total could be for as much as S100,000.

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