Case study: Brent Wilson Brent Wilson is one of your tax-accounting clients. He is a 45 year-old psychiatrist employed by Mindful Pty Ltd (a chain of mental health clinics in Melbourne) 3 days per week, and he also sees private patients in his own consulting room on his remaining time. Brent sends you the email below following up on a meeting where you discussed the potential tax consequences of the sale of his house, the tax treatment of legal fees incurred in relation to a lawsuit settled in May 2019 and the preparation of his 2018/19 tax return. From: Brent Wilson Sent: Tuesday, 7 August 2019, 9:00:43 AM To: La Trobe Tax Accounting Subject: Further info tax issues 2018/19 Attachments: Brent Wilson Payment Summary 2018/19 Dear Tax Accounting Team, Thanks for your time in looking into the matters discussed in our recent meeting. Following up, please find below information that may be of assistance in the preparation of my 2018/19 tax return (my 2018/19 payment summary is attached), as well as to address the tax consequences of the sale of my house and also in relation to the legal fees that I paid to my lawyers in May 2019. My income from Mindful is disclosed in my payment summary. I have also invoiced a total of $15,600 in private patient fees, however on 1 July 2019 my records indicated that $3,600 were not yet received. In relation to my private consultations, my only running expenses are my subscription to E-Admin (an electronic booking and payments system) which costs me $1,500 per year, and cleaning which costs me a total of $400 per year. As all my consultation room furniture as well as my computer have already been fully depreciated in previous years, I know I am not able to claim any further depreciation in relation to them. Here are the details in relation to the sale of my house: I bought it for $400,000 on 1 March 2000 and Ive lived in it ever since. At that time, I also paid $8,000 in conveyance fees and $20,000 stamp duty in relation to the purchase. Not sure if this would be relevant, however since 1 July 2015 Ive been running my private consultations at home (I converted one bedroom into a consultation room). The house has a total area of 200 square-meters, and the size of my consultation room is 10 square-meters. I signed the contract of sale on 15 June 2019, and the sale price was $1,000,000. I have sold my previous residences before and I was never taxed on the profits of the sale, however I am unsure if this would be the case here Anyway, I googled it and I found some info on this link: https://www.ato.gov.au/general/capital-gains-tax/your-home-and-other-real-estate/your-main-residence/using-your-home-to-produce-income/ - would this be applicable to my case? Finally, I would like your advice on whether I could claim a deduction for the cost of $25,000 that I paid in legal fees defending myself in a medical negligence lawsuit. The lawsuit was settled on 10 May 2019, and I have paid the fees above on that date. On a side note my private health insurance number is 123456789, Ive held this insurance during the entire year. I look forward to hearing back from you. Kind regards, Brent Wilson

Required 1) Applying the relevant legislation, identify and discuss the tax implications related to the sale of Brent Wilsons house, and calculate any net capital gain which may arise thereof. 2) Applying legislation and case law, advise Brent Wilson on whether he could claim a deduction in relation to the legal fees incurred in May 2019. 3) Considering the information provided by Brent Wilson as well as your answer to items 1 and 2 above, prepare Brent Wilsons statement of taxable income and calculate his final tax liability including Medicare Levy for the year ending 30 June 2019, stating the applicable legislation and case law (note: calculation of private health insurance rebate not required).

PAYG Payment Summary- Individual Non-Business Payment Summary for the year ending 30 June 2019 Payee Details NOTICE TO PAYEE If this payment summary shows an amount in the total tax withheld box you must lodge a tax return. If no tax was withheld, you may still have to lodge a tax return. For more information on whether you have to lodge or about this payment and how it is taxed, you can: Brent Wilson 00 Wisteria Lane Sane/VIC 1111 - Visit www.ato.gov.au -Refer to TaxPack 6:00pm (EST) Monday to Friday Day/Month/Year 30/06/2019 01/07/2018 Period of payment Payee's tax file number to TOTAL TAX WITHHELD 34,32 Type Lump sum payments Type Gross payments 120,000S Reportable fringe benefits amount No[x] Yes FBT year 1 April to 31 March Is the employer exempt from FBT under section 57A of the FBTAA 1986? Reportable employer superannuation contributions Total Allowances 3,0 Total allowances are not included in Gross Payments above This amount needs to be shown separately in your tax return. Payer details Payer's ABN or withholding payer number 11 111 111 111 Payer's name Mindful Pty Ltd Privacy-for information about your privacy, go to ato.gov.au/privacy Branch number 111 Signature of Authorised Person Jane Doe Date 12/07/2019 PAYG Payment Summary- Individual Non-Business Payment Summary for the year ending 30 June 2019 Payee Details NOTICE TO PAYEE If this payment summary shows an amount in the total tax withheld box you must lodge a tax return. If no tax was withheld, you may still have to lodge a tax return. For more information on whether you have to lodge or about this payment and how it is taxed, you can: Brent Wilson 00 Wisteria Lane Sane/VIC 1111 - Visit www.ato.gov.au -Refer to TaxPack 6:00pm (EST) Monday to Friday Day/Month/Year 30/06/2019 01/07/2018 Period of payment Payee's tax file number to TOTAL TAX WITHHELD 34,32 Type Lump sum payments Type Gross payments 120,000S Reportable fringe benefits amount No[x] Yes FBT year 1 April to 31 March Is the employer exempt from FBT under section 57A of the FBTAA 1986? Reportable employer superannuation contributions Total Allowances 3,0 Total allowances are not included in Gross Payments above This amount needs to be shown separately in your tax return. Payer details Payer's ABN or withholding payer number 11 111 111 111 Payer's name Mindful Pty Ltd Privacy-for information about your privacy, go to ato.gov.au/privacy Branch number 111 Signature of Authorised Person Jane Doe Date 12/07/2019