Taxation Law: Research Assignment (40%)
Word limit: 1500 words maximum (excluding references)
Due Date: The assignment must be submitted by 5pm on Wednesday 5 February 2020 (both in hard copy to Law Reception (Level 3, CB05B) and online via Turnitin on UTSOnline).
Meg is a full-time interior design consultant employed by a large interior design firm CreativeCo Ltd. She is an Australian resident for tax purposes. Meg’s main duties are toprovide advice to clients, and to develop functional and aesthetically-enhancing designs for the interior of buildings. CreativeCo Ltd pays Meg a salary of $90,000 per year.
CreativeCo Ltd provides Meg with a leather briefcase (valued at $500) and a set of professional design tools (valued at $200) to use for her work, however does not provide Meg with an office. She lives in Darlinghurst where she uses a spare room at home as her home office which is the base of her consulting operations, where she prepares advice and designs for clients. The home office takes up about 20% of the floor area of the house. She uses the home office exclusively for her design work.
During the 2018/19 year, Meg incurs expenses of $30,000 for interest on her home loan and $3,000 for insurance, in relation to her entire home in Darlinghurst. During the2018/19 income year, Meg’s additional heating, cooling andlighting expenses incurred as a result of working from home are $2,000. She also spends $1,000 on work-related phone and internet expenses.
For the 2018/19 year of income, Meg pays $700 membership fees for her membership of the Interior Designers Association of Australia, and $500 for subscriptions to Interior Design journals.
On 1 August 2018, Meg paid $12,000 for a new piece of design equipment for her home office. The equipment has an effective life of four (4) years and is used exclusively for her design work. On 1 August 2018, Meg also purchased a lamp for $300 for her home office.
In July 2018, Meg also commenced a Master of Business Administration (MBA) degree at university, as she hopes to move into a management role (and away from an interior
design role) in the future. During the 2018/19 year of income, she incurred $6,000 for course fees and $700 for textbooks.
Meg is occasionally required to travel to client premises to provide on-site advice andinspect the interior of buildings and afterwards she travels directly home from the client’soffices. During the 2018/19 year of income, she incurs travel expenses of $4,000 in travelling from home to client premises and back home again. She is required, by heremployer, to wear “all black” clothing when meeting with clients. During the 2018/19 yearof income, she spends $700 on “all black” skirts, trousers, and tops to wear to client meetings.
Meg also owns an investment property in Chippendale, which she purchased in 2015 for $200,000. The annual rent from the property is $25,000 and the annual expenses for the property have been fairly steady- around $2,000 for insurance, $3000 for agent’s fees,and $25,000 for various other expenses in relation to the property. In addition to these expenses, in December 2018, Meg discovers that the swimming pool on the Chippendale property is leaking. In January 2019, Meg arranges for her brother Sam, who is a builder, to fix the holes in the pool lining. Meg pays Sam $10,000 for the work (the market rate for the work is $3,000).
In February 2019, while exploring some local sales, Meg came across a good bargain and purchased a 120-year old, antique bedroom furniture set for $1,550 (comprising a bed (value $450), 2 bedside tables (value $350 each) and a chest of drawers(value $400). 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).
Advise Meg regarding the tax implications to her, arising from the above facts, in relation to the 2018/19 year of income. In your answer, make sure you consider the potential assessability for income tax purposes to Meg of any of the above events, and the availability of a tax deduction for any expenses incurred. Also make sure that you apply the HIRAC methodology and refer to any relevant cases, legislative provisions, tax rulings and principles of tax law.
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