Abbies 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. Abbies 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). Peters business owned the retail store premises, as well as the land it was located on. Two years ago, Peters store was struggling to make money. As a result, Abbies business lent Peters 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 Abbies business forgiving the debt, Abbies 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 Abbies and Peters 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.

Abbies Investment Property

Abbie purchased an apartment on 1 March 2005, for $300,000, and paid stamp duty of $15,000. She moved into it immediately. On 1 March 2015, Abbie bought herself a house. She immediately moved into it and, thereafter, treated it as her main residence. From this time (1 March 2015), Abbie rented out her original apartment to a tenant. Its market value at the time was $500,000. In March 2018, with regards the apartment, Abbie paid $2,000 for repairing recently broken windows and $30,000 for renovating the kitchen. Abbie sold the apartment on 1 March 2021 for $650,000.

Abbie had paid $15,000 in council rates for the period 1 March 2005 up till 1 March 2015, and $6,000 for the period 1 March 2015 to 1 March 2021.

Abbies Car and Jewellery

In March 2021, Abbies antique car, which she had bought 2 years ago for $50,000, was burnt out by an arsonist. The fire also destroyed her jewellery, which had been located in the glove box of the car. The jewellery had cost her $11,000 3 years ago. Insurance gave Abbie $60,000 for the car, but unfortunately they gave her nothing for the jewellery, as the insurance company said she should not have stored it in the car.

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

1. Discuss whether Abbies receipt of $80,000 is assessable as ordinary income (5 marks).
2. Discuss whether Abbies receipt of her share of the proceeds from the sale of the land constituted ordinary income (5 marks).
3. Discuss the CGT consequences of the sale of Abbies apartment (6 marks).
4. Assume for Abbies 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 Abbies apartment (4 marks)?
5. Discuss the CGT consequences regarding Abbies antique car and her jewellery (3 marks).

Support your answers with case and legislative authority. You can consider each of the 5 issues mentioned in isolation from each other.