1

Ronald Knight is an Australian resident taxpayer, is single and aged 34 years old. Ronald is employed full-time as a high school History teacher with the NSW Department of Education and has also recently purchased a rental property that he intends to rent to tenants in the near future. In relation to his 2021 income tax return, Ronald is unsure of the income tax implication for a number of receipts and payments throughout the year and is seeking your professional advice.

In the form of a letter of advice(directed to Ronald as your client) advise him of the income tax implications for the following receipts and payments relating to the year ended 30 June 2021. Calculation of taxable income is NOT required.

Receipts

1. $10,000 as his share of his deceased Aunty' s estate.

2. $5,500 compensation for an injury to his leg caused by slipping on a dangerous surface at his school. Ronald was also absent from work for two weeks due to the injury and received $1,000 per week in workers compensation payments. He paid $520 in medical expenses in relation to his injury that was reimbursed by the Department of Education.

3. Ronald was voted "Most Innovative Teacher 2021" by the Department of Education and was awarded a cash prize of $3,000.

4. Ronald's 2021 Payment Summary issued by his employer showed an amount of $3200 as a Reportable Fringe Benefit

5. $1800 (AUD equivalent) net interest received from a New Zealand bank deposit. $200 (AUD equivalent) tax was deducted by the NZ bank and forwarded to the NZ tax authorities

Payments

1. Purchase of a business suit $950 and annual dry-cleaning of the suit amounting to $270. While his employer does not require Ronald to wear a business suit while teaching he believes it is important to set an appropriate standard for his students.

2. Ronald recorded the following work-related travel in his private car:

4520Km - travelling from his home to school to attend daily classes

298Km - travelling from his home to his school to attend after school parent/teacher meetings and student social events.

1250Km - travelling from the school direct to the local University where is employed as a part-time tutor by the University's School of Education.

3. $2,000 payment to a research firm to prepare a report regarding the demand for private tutoring in the local area. Ronald has not previously earned income from private tutoring but is contemplating commencing a private tutoring business in 2022.

4. Self-Education expenses - Ronald recently enrolled in a Bachelor of Commerce degree at the University of Newcastle and incurred the following costs:

- $4,710 Higher Education Loan Payments (HELP/HECS)

- $1,130 Text Books and Stationery

On completion of his degree Ronald intends to switch to teaching Business Studies as he has identified that opportunities for promotion are greater for Business Studies teachers compared to History teachers.

5. Rental Property expenses.

On 1 May 2021 Ronald purchased a residential property that he intends to rent to tenants in August 2021. In June 2021 he incurred $7,000 replacing the property's rusting roof with a new roof of identical material. Up until 30 June 2021 he also incurred $1550 in interest relating to the bank loan he took out to purchase the property.

2

Section 8-1 of the 1997 Income Tax Assessment Act provides, inter alia, that:

"all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income are allowable deductions except to the extent they are losses or outgoings of a private or domestic nature."

Required:

1. Discuss the judicial tests applied to the evaluation of the term "private and domestic" in reference to s8-1.
2. Prepare a report outlining the recent precedent in Frisch v FCT (2008 ATC) and its potential impact on the judicial evaluation of what is "private and domestic" in terms of s8-1.