Ordinary Income and CGT Consequence - Tax Law Assignment Help

Assignment Task

Abbie’s Employment

Abbie works as a tax manager in the head office of a major supermarket retail chain, called Moolies Ltd. Her work contract entitles her, on top of her salary, to an annual bonus of up to $20,000, depending on her performance rating. Abbie has worked for Moolies for 7 years and has consistently received annual bonuses of $15,000 - $20,000. Abbie’s contract also entitles her to a paid day off every month.

Moolies offers Abbie (and other employees with similar contracts) a lump sum of $80 000 in exchange for Abbie modifying her contract, so that she no longer has the right to the bonus, and also no longer has a right to a paid day off every month. Abbie agrees to this.

Sale of Premises

As well as working as an employee, Abbie also owns a private business (as a sole trader) that offers tax consulting services for clients. She had a friend called Peter who ran a clothing store (as a sole trader). Peter’s business owned the retail store premises, as well as the land it was located on. Two years ago, Peter’s store was struggling to make money. As a result, Abbie’s business lent Peter’s business $200,000 at 5% annual interest.

However, a year after the loan was made, it became clear that the business could not repay the loan. As a result, Abbie and Peter came to an agreement: in exchange for Abbie’s business forgiving the debt, Abbie’s business would take a 40% interest in the land that the premises were located on. This agreement also made it clear that the land would be sold in the near future. Consequently, the shop was demolished. Also, council plans were obtained to build an 8-storey apartment. This involved Abbie’s and Peter’s businesses paying a collective total of $40,000 for architect, lawyer and local council fees. The land was then sold to a developer for $1 million through a real estate agent.

Required: For Abbie, consider the effect on her assessable income for all five (5) receipts as follows:

1) Discuss whether Abbie’s receipt of $80,000 is assessable as ordinary income.

2) Discuss whether Abbie’s receipt of her share of the proceeds from the sale of the land constituted ordinary income.

3) Discuss the CGT consequences of the sale of Abbie’s apartment.

4) Assume for Abbie’s apartment that the facts are different: she rented out the apartment from purchase (1 March 2005) till 1 March 2015, and then lived in it from 1 March 2015 until the time she sold it on 1 March 2021 (from the time she lived in it she treated it as her sole main residence for tax purposes). What difference would this make to the CGT consequences regarding Abbie’s apartment ?

5) Discuss the CGT consequences regarding Abbie’s antique car and her jewellery.

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