General Facts:
Zane Brown is employed as a lawyer at Copland Lawyers (a large law firm) in Brisbane; he is an Australian resident for tax purposes. Zane has been working for Copland Lawyers since he graduated from university. Zane is currently single, and has no dependants.
Last year, Zane utilised the services of a local registered tax agent ‘Tax King’ in Albion to complete his 2016/17 income tax return. However, he was quite dissatisfied with their service and has approached you to assist him in preparing his 2017/18 income tax return.
Zane has supplied you with the following information relating to his personal income tax affairs for the year ended 30 June 2018. However, he is not certain as to which items are assessable or deductible. Accordingly, he asks you to carefully go through each item to determine whether it is assessable or deductible. Zane advises you that he wishes to minimise his 2017/18 taxable income wherever legally possible, and that he does not wish to create a low value pool.
| 1. | Personal information | |
| Full Name: | Zane Brown | |
| Date of Birth: | 26 September 1986 | |
| Main occupation: | Lawyer | |
| Tax File Number: | 188 388 295 | |
| Telephone Number: | (07) 3242 5432 | |
| Postal Address: | 35 Prince Street Newmarket QLD 4051 |
|
| Home Address: | As above |
2. 2016/17 income tax return
On 10 May 2018, Zane received an invoice (dated 5 May 2018) for $550 from ‘Tax King’ for their work in completing his 2016/17 income tax return. Zane paid this on 12 May 2018.
Zane’s 2016/17 notice of assessment showed he had additional income tax payable of $2,455. As Zane paid this amount late (on 23 June 2018), the Australian Taxation Office imposed a total of $178 in general interest charges (GIC), which Zane also paid on 23 June 2018.
3. Salary and Wages
For the entire 2017/18 income year, Zane worked as a lawyer for Copland Lawyers (as an employee).
Zane was provided with a PAYG Payment Summary from Copland Lawyers in relation to the period 1 July 2017 to 30 June 2018, which revealed the following information:
| Name of Payer: ABN of Withholder: |
Copland Lawyers 52 470 422 737 |
|
| Gross payments: | $140,000 | |
| Allowances: – refer to note (a) | $5,000 | |
| PAYG tax withheld: | $44,200 | |
| Reportable employer superannuation contribution: | $10,000 | |
| Note: |
| (a) | The allowance (of $5,000) is made of up of the following: | |
| · a clothing allowance of $1,500, | ||
| · a phone allowance of $1,000, | ||
| · a professional development allowance of $2,500 (to attend conferences, seminars and workshops, etc). | legal |
4. Interest
Zane maintains several bank accounts. He provides you with the following information in relation to interest earned during the 2017/18 income year:
- NAB transaction account (gross interest) – refer to note (a) $3
- ING Direct savings account (net interest) – refer to note (b) $408
- Suncorp Bank term deposit (gross interest) – refer to note (c) $1,660
Notes:
- The NAB bank account is Zane’s ordinary transaction account and is where his fortnightly pay from Copland Lawyers is deposited
- Zane opened his ING Direct savings account on 8 July 2017 as they offered a higher interest rate than his previous When opening the bank account, Zane was in a hurry and inadvertently forgot to provide the bank with his tax file number. Accordingly, for the 2017/18 income year, the bank deducted 49% TFN withholding tax ($392) in respect of the interest earned. The net amount of $408 was credited to his account during the 2017/18 income year.
- On 28 July 2017, Zane deposited $60,000 in a six-month term deposit with Suncorp Bank paying 3% a. interest. Rather than receiving the interest on the maturity of the term deposit on 28 January 2018, Zane elected to rollover the interest of $900 together with the principal of $60,000 for a further six months to mature on 28 July 2018. Zane estimates that approximately $760 in interest would be accruing on this new term deposit from 28 January 2018 to 30 June 2018.
5. Share Investments – Australian
Zane owns shares in several Australian listed public companies. During the 2017/18 income year, he received the following dividend income:
| Company Name | Date paid | Cash received (franking percentage) |
| Wesfarmers | 28 October 2017 | $480 (fully franked) |
| Tabcorp | 30 October 2017 | $700 (60% franked) |
| Computershare | 24 April 2018 | $540 (unfranked) |
In the case of all dividends received, the company tax rate was 30%.
In terms of the Wesfarmers dividend, Zane elected to take part in the company’s dividend reinvestment scheme. So instead of receiving the cash dividend of $480, on 28 October 2017, Zane was issued with 12 additional shares in Wesfarmers valued at
$40 each.
6. Unexpected receipts
During the 2017/18 income year, Zane also received the following:
- $500 Myer gift voucher from one of his clients at Copland This was in recognition of Zane’s long hours he had put in for a client’s urgent job.
- Zane flies a lot for work as some of the clients are based in regional areas and/or While Copland Lawyers pays for the flights, Zane is personally a member of the Qantas Frequent Flyer club – which means even though he is flying for business purposes, he earns frequent flyer points. For the 2017/18 year, Zane has accumulated 90,000 frequent flyer points, which gives him about
$1,900 worth of free flights.
- Zane won $250 on an instant Scratch-It Every payday, Zane buys a single
$5 ticket, but this was his only win for the income year.
7. Royalty Income
Recently, Zane wrote a cricket book entitled “The 2017-18 Ashes Series”. The book has a recommended retail price of $19.95 and for each book sold, Zane receives a royalty of $2 from the book publisher.
On 30 June 2018, Zane received an email from the publisher stating that based on sales of 2,358 books in the 2017/18 financial year, he is entitled to royalty income of $4,716. The publisher deposited this amount directly into Zane’s bank account on 5 July 2018.
8. Expenses
During the 2017/18 income year Zane incurred a number of expenses that he believes are related to his employment as an engineer with Copland Lawyers. Zane informs you that he has receipts for all of the following expenses:
| Expenses | Amount |
| Professional membership fee Annual membership fee of the Queensland Law Society (the professional body that Zane must be a member of in order to practise law). |
$990 |
| Annual subscription to the Queensland Law Journal | $550 |
| Telephone expenses Zane owns his own mobile phone. His mobile phone call costs for the 2017/18 income year totalled $1,200. Zane reliably estimates that 75% of these calls related to his employment at Copland Lawyers (based on his mobile telephone account statements). |
$1,200 |
| Work from home As Zane becomes more senior at Copland Lawyers, he finds that he is taking more work home with him to keep up with his workload. Like in his previous home at Kedron, Zane has set up the second bedroom in his Newmarket home as an office where he works for his convenience. Zane advises that he works approximately 8 hours a week from home for 48 weeks of the year (a total of 384 hours during the 2017/18 income year). Zane bought a new filing cabinet for his home office on 25 September 2017, at a cost of $250. |
? $250 |
| New Laptop During the 2017/18 income year Zane purchased (and first used) a new laptop on 1 September 2016 for $2,400 that he reliably estimates he uses 75% for work purposes. He also incurs internet charges of $90 per month ($1,080 in the 2017/18 income year) and he estimates that 75% of the time he uses the internet for work purposes. |
$2,400 $1,080 |
| Expenses | Amount |
| Legal Seminars (for Continuing Professional Development purposes) During the 2017/18 income year, Zane paid for and attended three professional development seminars held by the Qld Law Society. It is a requirement of his professional membership that he attend such seminars (and his employer assists with the expense by paying him an annual professional development allowance). Each seminar cost $1,000 to attend. |
$3,000 |
| Taxi fares As the Qld Law Society seminars are held in South Brisbane, Zane took a taxi from his office at the Copland Lawyers premises in the Brisbane CBD to the seminar location, and back again on all three occasions. The total cost of taxi fares was $90. Also, on five other occasions, Zane took a taxi home from the office as he ended up working back so late that there was no public transport. The taxi fares were $310 in total. |
$90 $310 |
| Public transport During the 2017/18 income year, Zane took the bus or train to work from his home. He kept a record of his fares for the year and they were $1,440 in total. |
$1,440 |
| Qantas Club Because Zane travels a lot, he purchased a membership of the Qantas Club, which allows him to access Qantas airport lounges before flights. This membership cost Zane $500 for the 2017/18 income year. In any given year, 90% of Zane’s flights relate to work. |
$500 |
| Briefcase As the lock mechanism on his old briefcase was broken and not repairable, Zane bought a new leather briefcase for work on 31 October 2017. As he had just celebrated 10 years with Copland Lawyers, his employer decided to reimburse him for this expense. |
$8005 |
| Expenses | Amount |
| Australian Legal Conference Zane attended an annual three-day law conference in Melbourne on 20-22 January 2018. Zane believes that this conference is very useful for keeping up-to-date with recent legal developments, and to network with professional colleagues. Zane paid for all of the following expenses relating to the conference: • Conference registration fee • Airline tickets • Three nights’ accommodation at a Melbourne Hotel • Taxi travel to and from the airports in Brisbane and Melbourne • Meals and sustenance Note: (a) Zane paid the ‘early bird’ price for the conference registration, as he booked on 27 August 2017 (before 31 August 2017). If Zane had booked after this date he would have had to pay $2,000. |
$1,750 $640 $660 $260 $140 |
| Business attire Zane is required to dress in suitable business attire when working (and his employer pays him a clothing allowance to help out with the expense). During the 2017/18 income year, Zane bought the following clothing for work purposes: 3 business shirts @ $250 each 1 suit @ $2,000 3 silk ties @ $150 each 5 pairs of fine wool socks @ $40 a pair 1 pair of shoes @ $450 |
$750 $2,000 $450 $200 $450 |
9. Gifts and Donations
During the 2017/18 income year, Zane made the following donations:
| Payment | Amount |
| QLD Cancer Fund (cash donation) | $90 |
| Red Cross (cash donation) | $1 |
| RSL Art Union (raffle tickets to win a prize home) | $360 |
| Purchased a box of lamington cakes to help raise funds for the Cancer Council. | $6 |
| Sponsorship of a colleague at Copland Lawyers who grew a moustache for “Movember” to raise money for the Prostate Cancer Foundation of Australia. | $50 |
Zane also volunteers his time one day a month for a social housing project funded by a charity. He conservatively estimates the value of his time and expertise to be worth
$5,000.
Assume that all the organisations discussed above are registered charities (Deductible Gift Recipients) and that Zane has valid receipts where applicable.
10. Disposal of family home
Zane was given a house located in the Brisbane suburb of Kedron by a generous uncle who had won a ‘Division 1’ lottery prize and had no further use for his old family home. The property was built in 1970 and had a market value of $550,000 on 18 March 2010 (the date that the title was transferred to Zane).
At the time of being given this property, Zane was renting an apartment in the CBD with his girlfriend, so he decided to rent out the Brisbane house to tenants (with the tenants signing the lease and moving in on 31 March 2010). Zane continued to rent out the house for four years, after which time he broke up with his girlfriend, and decided to move into the house himself. He stopped renting out the property and moved into it on 1 April 2014. Zane continued to live there by himself until he placed the property on the market and sold it for $750,000 under a contract dated 3 July 2017, with the ownership transferring on 18 August 2017. [During the settlement period, Zane bought the property that he currently lives in at Newmarket, so on 18 August 2017 he moved from the Kedron house to the Newmarket house].
Zane incurred the following costs in relation to the sale of the property (all costs include GST):
- $5,000 in advertising costs
- $8,500 in sales commission (paid to the real estate agent)
- $1,500 in legal fees
During Zane’s total ownership period, he incurred the following expenses in relation to the Kedron house (note that all expenses include GST):
| Expense | Amount incurred while renting out the property | Amount incurred while Zane was living in the property himself | Total Amount |
| Insurance premiums | $7,500 | $4,125 | $11,625 |
| Council rates | $22,500 | $12,375 | $34,875 |
| Repairs and maintenance | $2,500 | $0 | $2,500 |
| Capital improvements | $0 | $17,500 | $17,500 |
11. Inherited property at 25 Seaview Way, Tewantin
Unfortunately, Zane’s grandfather, Jeremy, died on 26 November 2013, and left Zane his house at 25 Seaview Way in Tewantin. Jeremy bought the Tewantin house on 23 March 1992 for $152,000 and lived in it as his main residence until his death. Jeremy did not use the property for any income producing purposes during this time. At the date of Jeremy’s death, the house was valued at $692,000.
When Zane inherited the property, he originally decided to keep the property as a holiday home. However, he found that he wasn’t using the property very often, so he decided to sell it.
Zane sold the property under a contract dated 10 June 2018 for $830,000, with the date of transfer being 12 July 2018. Zane incurred the following costs in selling the property:
Legal costs $1,640
Real estate agent’s fees $8,760
During Zane’s period of ownership of the property, he also incurred the following expenses (for his whole ownership period):
| Rates | $9,200 |
| Insurance | $6,150 |
| Property maintenance | $4,250 |
Zane also advises you that he has a carried forward capital loss of $2,800 from the previous sale of some shares.
12. Rental Property – Apartment at 320 Alderley Road, Greenslopes
On 30 September 2017, Zane signed a contract to purchase a two-bedroom apartment located at 320 Alderley Road, Greenslopes. The ownership transferred to him on 1 November 2017.
The apartment cost Zane $480,000 and he also paid $1,690 in legal fees and $14,440 in transfer duty to purchase the property on 1 November 2017.
His apartment (Unit 5) has been permanently rented out since he bought it (as the existing tenants stayed on). For the 2017/18 income year, Zane derived gross rental income of $14,280. Expenses relating to the rental property for the 2016/17 income year were as follows:
$
| · | Building and pest inspection – refer to note (a) | 650 |
| · | Body corporate fees | 2,720 |
| · | Council rates | 1,260 |
| · | Insurance | 1,200 |
| · | Property manager fees | 1,700 |
| · | Interest on ANZ loan – refer to note (b) | 13,930 |
| · Notes: |
Repairs and maintenance – refer to note (c) | 4,000 |
- The building and pest inspection was carried out on 30 September 2017 which Zane paid for the same
- To finance the purchase of his unit, on 1 November 2017, Zane borrowed
$300,000 from ANZ Bank. He incurred borrowing costs totalling $1,600 in relation to the loan on this date. The term of the loan is 25 years.
- On 5 December 2017, Zane paid $4,000 for all the blinds in the apartment to be replaced as a number of the slats in each blind were broken or badly bent, which Zane had noticed when he inspected the
Additional information:
On 2 November 2017, Zane engaged Toreador Quantity Surveyors who advised that the apartment was constructed in August 1999 and the cost specifically attributable to his apartment (Unit 5) was $150,000. Zane paid the invoice (for $700) for this work on 5 November 2017.
13. Additional information
- For any capital allowance entitlements, Zane wishes to use the diminishing value
- Assume that all expenses include GST where
- Zane does not have any health
- Zane expects to lodge Australian income tax returns in future
- Zane does not want to use electronic funds transfer (EFT) if he is entitled to a
- Zane does not have a HECS/HELP debt, nor does he have a financial supplement debt or any post-graduate FEE-HELP debt
- Zane did not receive any trust
- You should assume that the details given are all of Zane’s receipts and expenditure for the 2017/18 income year, and that all of his expenses are properly
Part A (individual, 10 marks) DUE DATE 4 May
Required:
Zane has advised you that his employer has discussed an opportunity with him where he could work in its Singapore office for two years, commencing on 1 July 2019.
Although Zane is interested in this opportunity to live and work overseas, he is concerned about the Australian Taxation Office (ATO) forming the view that he would retain his Australian residency during this time. In addition, Zane is a cricket enthusiast and his employer has agreed to him taking annual leave from 1 October and 30 November 2020 to return to Australia and attend the ‘World T20’ cricket tournament (held from 18 October to 15 November). Zane anticipates that he will spend the time before and after this event visiting relatives and travelling within Australia.
Zane is confident that you will be able to provide him with some clear advice on this issue. He has indicated that he would only be interested in working in Singapore if the ATO considered him to be a non-resident during the two years he would be absent from Australia.
You are required to write a letter to Zane outlining the law on this residency issue and how the law would apply to him under the scenario in contemplation (the potential move from Australia to Singapore for work for the period 1/7/2019 to 30/6/2021). Your letter to Zane 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. Zane has some doubts about the implications of the visit to Australia in October and November 2020 in terms of residency. He has asked you for advice on this specific issue and stated that he may consider staying in Singapore if the trip to Australia is likely to increase the chances of him being an Australian resident.
As well as providing advice, your letter should set out any additional questions for Zane that are relevant to the residency issue.
Finally, your letter should refer to the steps you will take to ensure certainty for Zane as to the ATO view on the residency issue.