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Jane Bennett is 45 years old and is an Australian resident for tax purposes. Jane is an employee registered nurse working for Brisbane Paediatric Hospital. Jane has been working as an emergency department nurse

Jane Bennett is 45 years old and is an Australian resident for tax purposes. Jane is an employee registered nurse working for Brisbane Paediatric Hospital. Jane has been working as an emergency department nurse
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Income Tax Law

Income Tax Law

30 June 2018

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Income Tax Law

Tax Return Assignment

DUE DATE: By 11pm on Friday 21 September 2018

WEIGHTING: 20% of final grade

SUBMIT: Online via the Assignment submission point provided on the course Learning@Griffith website.

INSTRUCTIONS:

In groups of three or four students you are required to use the following client information to complete the provided Answer Template (available to download from Learning@Griffith), which uses the same item layout as the actual Income Tax Return for Individuals. You must also include an estimate of your client’s tax payable/refundable.

Each group’s submitted assignment will be graded on the group’s ability to correctly apply the law to the various issues, whilst citing the relevant law and showing their calculations where relevant. Please note that the issues are not weighted equally. Some issues will be minor and others major. The marks will be distributed across the various issues accordingly.

Please note that to ensure that all group members make a significant contribution to their group’s assignment, students will be asked to rate the performance and contribution of group members (including themselves). Note that due to the use of this tool, individual group members may be credited with an assignment mark lower than the actual mark gained by their group.

*** You should not discuss your assignment with anyone other than your group members and the Lecturer ***

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CLIENT INFORMATION:

General Facts:

Jane Bennett is 45 years old and is an Australian resident for tax purposes. Jane is an employee registered nurse working for Brisbane Paediatric Hospital. Jane has been working as an emergency department nurse since she completed her Bachelor of Nursing degree twenty years ago. She lives in a unit in Kangaroo Point with her partner Glen (47 years old) and their two dogs Lola and Fred, they don’t have any dependants. Jane and Glen have never been married, however they have been together for 10 years. The unit at Kangaroo Point is solely in Glen’s name, however there is a mortgage for the unit that is in both Jane and Glen’s names. The unit was purchased in 2005.

Jane is completing a Master of Advanced Nursing Practice at Griffith on a part time basis. She attends classes two nights a week during each Semester.

Jane has supplied you with the information below relating to her personal income tax affairs for the year ended 30 June 2018. However, she is not certain whether everything she has provided you with is assessable or deductible. Because of her uncertainty, she has asked you to carefully consider each item and determine whether it is assessable or deductible. Jane wishes to minimise her 2017/18 taxable income wherever legally possible and she will be lodging income tax returns in further years. Assume that the amounts detailed below are all of Jane’s receipts and expenditure for the 2017/18 income year, and that all of her expenses are correctly substantiated (unless stated otherwise).

1. Personal information

Client

Full Name:

Jane Bennett

Date of Birth:

21 April 1973

Occupation:

Nurse

Tax File Number:

111 888 999

Telephone Number:

(07) 1111 2222

Home Address:

20 Novo Street Kangaroo Point Q 4169

Information about Glen is

Full Name:

Glen Brown

Date of Birth:

22 May 1971

Occupation:

Physiotherapist

Tax File Number:

111 777 888

Telephone Number:

(07) 1111 2222

Home Address:

20 Novo Street Kangaroo Point Q 4169

Taxable Income 2018

$280,000

Reportable Super Contributions

$12,000

Reportable Fringe Benefits Amount

$17,300

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2. Prior income tax returns

Jane used the services of her sister (who is not a registered tax agent) to help her complete her 2016/17 tax return. Her sister sent her an invoice of $440 for the tax return preparation. Jane paid it on 20 July 2017.

Jane gave her friend, Jill, a Westfield voucher (worth $50) for some tax advice about selling some shares during the year.

Jane paid her 2016 income tax liability three months late, so the Australian Taxation Office (ATO) imposed $600 in general interest charges (GIC), which she paid on 2 March 2018.

3. Salary and Wages

During the 2017/18 income year, Jane worked as a nurse for Brisbane Paediatric Hospital.

Jane was provided with a PAYG Payment Summary from her employer for the period from 1 July 2017 to 30 June 2018, which included the following information:

Name of Payer: Brisbane Paediatric Hospital

ABN of Withholder: 00 111 222 555

Gross payments: $84,450

Allowances (see Note below): $800

PAYG tax withheld: $19,860

Reportable Fringe Benefit Amount (RFBA): $7,000

Reportable Super Contribution (RSC): $2400

Note that the gross payments of $84,450 includes an amount of $1,250 for annual leave that was paid to Jane on 1 July 2017, although she took the leave in the prior tax year of June 2017.

Note that the total allowances paid of $800 is made up of $300 for Uniform allowance and $500 for Meal allowance.

Note the RFBA relates to an amount of money that Jane has salary sacrificed from her wages to be provided with a car by Qld Health. The RSC relates to $2,400 that Jane has salary sacrificed into her superannuation. In addition, Queensland Health has paid in $7, 910 as superannuation guarantee on behalf of Jane.

Jane does not have a HELP debt or a Financial Supplementary debt, or any trust distributions.

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4. Inherited Australian Shares

Jane’s grandfather James bequeathed him a share portfolio, which Jane inherited on 22 September 1999 (the date of James’s death). The details of James’s share portfolio as at 22/9/99 are as follows:

Company Name Number of shares Date of purchase Total purchase price Market value at 22/9/99 Market value at 3 February 2000

BHP (#1)

300

31/7/84

$1,694

$7,146

$5,000

CBA

200

31/7/92

$1,440

$2,180

$1,500

Jane did not actually receive the shares until 3 February 2000, as the Executor of James’s estate had to make sure the correct procedure was followed. Jane was a bit disappointed as the value of the shares had fallen since the funeral.

On 1 December 2017, Jane decided to sell all her shares in BHP (#1) and CBA, to help with the purchase of a rental property. Her sale proceeds were: $16,200 from the sale of the CBA shares and $10,146 from the sale of the BHP shares.

Between 3 February 2000 to 30 June 2016, Jane received the following cash dividends:

• BHP (#1): $11,000 (plus franking credits of 4,714)

• CBA: $5,400 (no franking credits)

In addition, Jane had another parcel of BHP shares (#2) which she acquired on 3 March 2007 when she did a $600 dividend reinvestment acquiring 100 shares. She also sold these BHP shares (#2) on 3 March 2018 for $75 per share.

On the 6th of July 2017 Jane received a $10 dividend (fully franked) per share from the CBA shareholding.

5. Unexpected receipts

• Jane received $150 cash from her mother as a birthday present.

• She also received an end of year gift (a $80 Myer gift card) from the Head of Nursing at the Hospital. The Head of Nursing gives a similar type of End of Year gift to all her the employees that are assigned to her each year.

• Jane received a National Nursing Award of $3,000 for Outstanding Contribution to Paediatric Health in October 2017. Jane can use the money to further develop her nursing skills through further education and to attend workshops in paediatric health care.

• Jane received $450 tax refund on the 18th of November 2017 in respect of her 2017 income tax return.

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• Jane won $350 on a Keno ticket that she purchased at the local RSL Club where her and Glen attend each Sunday afternoon. She regularly plays Keno on the Sundays that they attend the RSL so she thought she might eventually win something.

6 Interest

Jane maintains several bank accounts. She provides you with the following information in relation to interest earned during the 2017/18 income year:

Bank West savings account (net interest) $191

(TFN withholding tax of $169 deducted by bank – refer to note (a)

Macquarie Bank term deposit (gross interest) – refer to note (b) $1,110

Jane also has approximately $25,000 in an Offset Account in relation to the apartment at Kangaroo Point. Because of this Offset Account the ANZ Bank advises that there has been a saving of $2,750 of interest that otherwise would have been charged on the home loan.

Notes:

(a) Jane opened her Bank West savings account on 23 July 2017 as they offered a higher interest rate than her previous bank. When opening the bank account, Jane was in a hurry and inadvertently forgot to provide the bank with her tax file number. Accordingly, for the 2017/18 income year Bank West has deducted 47% (or $169) TFN withholding tax in respect of the interest earned. The net amount of $191 was credited to her account.

(b) On 28 July 2017, Jane deposited $30,000 in a six month term deposit with Macquarie Bank paying 4% p.a. interest. Rather than receiving the interest on the maturity of the term deposit on 28 January 2018, Jane elected to rollover the interest of $600 together with the principal of $30,000 for a further six months to mature on 28 July 2018. Jane estimates that approximately $510 in interest would be accruing on this new term deposit from 28 January 2017 to 30 June 2018.

(c) Bank West charges Jane monthly account keeping fees at $5 per month (this is the bank account Jane has her salary paid directly into, and she uses it for her private spending).

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7 Expenses

During the 2017/18 income year, Jane incurred a number of expenses that she believes are related to her employment as a nurse. Jane informs you that she has receipts for all the following expenses.

Expenses Amount

Mobile phone expenses

Jane owns her own mobile phone. Her mobile phone call costs for the 2017/18 income year totalled $960. Jane reliably estimates that 30% of these calls related to her employment at the hospital (based on her mobile telephone account statements).

$960

A variety of takeaway meals that Jane consumed when working overtime at the hospital

$350

Queensland Nurses and Midwives’ Union membership for the year 2017/18

$1,400

Annual membership of the Australian Primary Health Care Nurses Association

$800

Annual subscription to the Primary Heath Care which Jane uses to keep up to date with nursing practices.

$170

Attendance at a Nursing Practitioners Conference

Jane attended an annual two-day nurse practitioners conference in Perth in April 2018. The reason that Jane attend is that she wanted to network with other nurses that were furthering their studies in nursing. Qld Health did not require Jane to attend the conference as part of her work commitments. Jane paid for the following expenses:

• Conference registration fee

• Airline tickets

• Accommodation for one night

• Taxi travel to and from the airport in Perth and Brisbane

Lunch was provided at the conference at no cost to Jane.

Jane paid for her other meals on each of the two days:

-Breakfast ($18 and $15)

-Dinner ($28 and $36)

$650 $800

$180

$140

$33

$64

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Note: The hospital reimbursed Jane for the cost of the taxi travel ($140) Jane used some of the money from her National Nursing Award to pay for this.

Home office expenses

As part of her job Jan often attends high schools to talk to students about the rewards of being a nurse and helping others in their time of need. Jane often prepares for the content of these presentations at home (an average of three hours a week for 40 weeks of the year). She set up a ‘home office’ in a separate area of the apartment; this takes up 10% of the entire floor space of the apartment.

A colleague at the hospital told her that she can claim deductions for a proportion of the following expenses:

Interest on mortgage loan

Council rates

Water rates

Home insurance

Electricity (15 cents per unit and there are an average of 3 units per hour used)

$2,000

$1,800

$600

$500

$1,600

Vehicle Information

Jane has a salary packaged a car with the hospital. The hospital leases the car from a finance company and then allows Jane to exclusive use to while she is employed by the hospital.

Jane uses this car when she has to travel between the hospital and the secondary schools that she attends. She attends at least one high school each over 40 weeks of the year. The vehicle is a 2.0 litre Mitsubishi Lancer (with an ordinary engine) which the Hospital started leasing on 1 July 2017 – it has a value of $26,000 (including GST). Jane has kept a logbook for the vehicle and according to her logbook, over a twelve-week period the car travelled 1,320 kilometres. This total was made up of:

• Travel from home to usual workplace and back home 620 km

• Travel from usual workplace to High Schools 230 km

• Travel from High Schools to home 80km

• Travel to visit friends and family 350 km

• Travel from work to Uni 22 km

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• Travel from Uni to home 18 km

The expenses that Jane incurred over the whole income year in relation to the vehicle were as follows:

• Fuel $2,960

• Car washes $ 180

The hospital paid for such things as registration and insurance for the car.

Non-slip Shoes

Jane’s employer requires all nurses to wear non-slip shoes to work. In order to comply with Queensland Heaths policy, Jane purchased two pairs of non-slip shoes during the year for a total cost of $280.

$280

Jane purchased support stockings to wear to work as part of the uniform requirements on at least 10 occasions during 2017/18, in each case she spent less than $8. She has misplaced all the receipts for these purchases.

$80

In 2017/18, Jane attended a wound care course that cost $250 to improve her skills when working in the emergency department.

$250

8 Gifts and Donations

During the 2017/18 income year, Jane made the following payments: Payment Amount

CanTeen a charity that supports children with cancer (cash donation). Jane has given a receipt but subsequently has lost her receipt.

$260

10 tickets in a raffle organised by the Australian Heart Institute; first prize was a Thermomix kitchen appliance

$200

Political donation to the Liberal Party as part of the 2018 Federal Election

$2,000

Jane gives money to her young nephew to help him with his expenses in studying to be a nurse.

$800

On the 4th of September 2017 Jane put a donation of money into his own superannuation fund

$7,000

To support the arts, Jane buys a season ticket for the Ballet Theatre of Qld. She loves the ballet as she once aspired to be a professional ballerina. She particularly loves this Ballet Company as all the dancers are children.

$500

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In addition to the above, Jane spent 8 hours handing out how to vote cards at the recent election for the Liberal Party. She estimates the value of her work to be $120, which she believes is deductible as a political donation. She also spent $8 in bus fares to get there.

9 Books

When Jane’s grandfather died, he also left her a rare first edition book – The Two Towers by J.R.R Tolkien (Volume 2 of The Lord of the Rings) that he had acquired in 1970 for $20. This volume was published in Boston in 1965; its market value at the time of Greg’s death was estimated at $120. After her grandfather’s death, Jane found the other two volumes from the same edition at a local bookshop and purchased them for $260 and $320 respectively on 22 January 2018.

Jane then sold the set of three volumes on eBay for $1,400 on 29 May 2018.

10 Jet ski

Jane sold her jet ski for $9,000 on 14 June 2018 to a private buyer. Jane did not use the jet ski for income producing purposes. She had bought the jet ski second-hand for $7, 000 on 7 May 2011. Jane had some repairs done to the jet ski in May 2015, at a cost of $900. Other costs of ownership include a total of $180 for the annual insurance premium that Jane has paid since she acquired the boat.

11 Rental Property – Unit at 10/950 Ocean View Blvd, Bilinga

Jane borrowed $450,000 from the Commonwealth Bank (CBA) on 1 July 2017, all of which she used to finance the rental property purchase. She incurred a $1,600 loan establishment fee. The term of the loan is 25 years.

On 7 July 2017, Jane purchased a two-bedroom unit (constructed in 1975) located at 10/950 Ocean View Blvd, Bilinga for $590,000. In acquiring the property, he incurred legal fees of $700 and transfer duty of $14,750. The house was listed with QLD Realty as ‘available for rent’ as of 11 July 2017.

On 29 July 2017, the real estate agent advised Jane that there had been no applications from tenants, even though many people had viewed the house. Jane was convinced that the previous owner’s decision to paint the walls of the house bright orange (two weeks before selling it to Jane) was the main reason there were no applications from prospective tenants. On 30 July 2017, Jane paid a total of $8,000 for the walls to be repainted white. Additionally, Jane and Glen spent a day pulling out the old carpet so that new carpet can be laid. Jane estimates that it would cost $960 to pay someone to do similar work. She also used two dump vouchers in taking the old carpet to the council dump. She received the dump vouchers when she paid the rates on the property. If not for the dump vouchers it would have cost $20 to drop the carpet at the dump. The cost of installing new carpet was $3, 000.

On 18 August 2017, tenants signed a one-year lease and moved in. In the 2017/18 income year, Jane derived gross rental income of $18,700. This figure includes $1,700 which represents the pre-payment of the rent due for July 2018, which was pre-paid on 29 June 2018.

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Expenses relating to the rental property for the 2017/18 income year are as follows:

• Council rates $ 1,680

• Cleaning $ 260

• Insurance $ 1,300

• Interest on CBA loan (paid in 2017/18) $ 7,000

• Pest control $ 540

• Pre-purchase building inspection $ 240

• Property management fees $ 4,200

Jane estimates that she spent $528 travelling to inspect the rental property during the year (based on 800 klm * 66c per kilometre).

Jane rents out the house partly furnished. On 28 July 2017, she purchased the following items for the house:

• Air conditioner (room unit) $1,280

• Washing machine $ 950

• Microwave oven $ 250

12 Apartment at New Farm

Jane purchased a residential apartment at New Farm (Qld) back on the 13th of May 1995 for $80,000 (with legal fees of $600 and stamp duty of $800). Jane had borrowed $70,000 to fund the purchase, with loan establishment fees of $280 and stamp duty on the loan of $360. From 13th of May 1995 Jane rented out the apartment for $220 per week until 30 June 2001. On 1 July 2001 Jane moved into the apartment and lived in it as her main residence. Jane renovated the apartment with the following expenditure:

• New Kitchen: November 2004: $12,000 (inc GST)

• New Bathroom: August 2005: $20,000 (inc GST)

• New floor tiles: May 2006: $5,000 (inc GST)

In March 2007 Jane started seeing Glen who had his own unit in Kangaroo Point (20 Novo Street). The market value of the apartment in March 2009 was $260,000. Both Jane and Glen continued to live in their own residences while they were dating. Then on 1 January 2016 Jane decided to move into Glen’s unit at Kangaroo Point, which they both called ‘home’. The market value of the apartment at New Farm on 1 January 2016 was $465,000. The New Farm apartment remained empty, except for the odd occasion that either Jane and/or Glen would use the apartment when they had to be in the city for a meeting or a weekend away. On 1 April 2018 Jane decided to sell the apartment and engaged a real estate agent who charged a commission of $9,900 (inc GST) and advertising fees of $2,000 (inc GST). The agent suggested to Jane that the apartment needed some minor repair work so it presented well – which cost $900. On 25 May 2018 Jane signed a contract to sell the apartment for $510,000 subject to building and finance approval by 9 June 2018, with settlement scheduled for 25 June 2018. Due to issues with the purchaser’s bank, Jane had to extend the subject to finance condition to 1 July 2018, with settlement finally occurring 4 July 2018. Jane incurred $2000 in legal fees with the sale. In relation to the apartment Jane had the following additional expenses:

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Item 1995 to June 2001 July 2001 to December 2016 January 2016 to settlement

Rates

$4,800

$13,000

$1,500

Contents Insurance

$nil

$3,900

$400

Body Corporate Fees

$3,600

$8,000

$1,000

Repairs

$22,000

$3,000

$nil

Interest

$20,000

$25,000

$3,000

Rental Management Fees

$6000

$nil

$nil

13 Additional information (for 2017/18)

Jane wants to use the diminishing value method to calculate any decline in value deduction claims and she does not wish to pool any low value assets

Jane does not have any health insurance.

Jane expects to lodge Australian income tax returns in future years.

Jane does not want to use electronic funds transfer (EFT) if she is entitled to a refund.

Jane does not have a HECS/HELP debt, nor does she have a financial supplement debt or any post-graduate FEE-HELP debt.

Jane did not receive any trust distributions.

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Part A (individual, 10 marks) DUE DATE 14 September

Required:

Jane has advised you that her employer Qld Health has discussed an opportunity with her where she could work in its Paediatric hospital in New Zealand for two years, commencing on 1 July 2019. Although Jane is interested in this opportunity to live and work overseas, she is concerned about the Australian Taxation Office (ATO) forming the view that she would retain her Australian residency during this time. In addition, as previously mentioned Jane is a ballet enthusiast and her employer has agreed to her taking annual leave from 1 November and 31 December 2020 to return to Australia and attend the various ballet performances in Australia over the Christmas season. Jane anticipates that she will spend the rest of her time catching up with family, friends and work colleagues while travelling throughout the east coast of Australia for the ballet performances.

Jane is confident that you will be able to provide her with some clear advice on this issue. She has indicated that she would only be interested in working in New Zealand if the ATO considered her to be a non-resident during the two years she would be absent from Australia. You are required to write a letter to Jane outlining the law on this residency issue and how the law would apply to her under the scenario in contemplation (the potential move from Australia to New Zealand for work for the period 1/7/2019 to 30/6/2021).

Your letter to Jane should refer to relevant sources of law (and any relevant ATO advice). Your letter should also refer to the implications of being a resident or a non-resident during the two years. Jane has some doubts about the implications of the visit to Australia in November and December 2020 in terms of residency. She has asked you for advice on this specific issue and stated that she may consider staying in New Zealand if the trip to Australia is likely to increase the chances of her being an Australian resident. As well as providing advice, your letter should set out any additional questions for Jane that are relevant to the residency issue. Finally, your letter should refer to the steps you will take to ensure certainty for Jane as to the ATO view on the residency issue.

END OF ASSIGNMENT

Jane Bennett is 45 years old and is an Australian resident for tax purposes. Jane is an employee registered nurse working for Brisbane Paediatric Hospital. Jane has been working as an emergency department nurse
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