Case study Emily Baff is a 43 year-old marketing director employed by Rockwood Pty Ltd in Melbourne. Emily engages your services for the preparation of her 2017/18 tax return. On 04 August 2018 Emily sends you the email below. From: Emily Baff Sent: 4 August 2018, 9:00:43 AM To: Tax Accountant Subject: Tax return 2017/18 Emily Baff Attachments: Emily Baff Payment Summary 2017/18 Dear Tax Accounting Team, As discussed, please find attached my 2017/18 payment summary. Also, below is additional information which may be of assistance in the preparation of my tax return. ? My health insurance policy number is 123456-78 and I have top hospital cover. ? Since I was promoted to my current Marketing Director position, Rockwood provided me with a Toyota Corolla at no cost (although I know the car cost them $25,000) except for fuel, which costs me $80 per month. Ive been driving this car since 1 October 2017, to and from work and on the weekends, but not to visit clients (I prefer to take an Uber to visit clients so I can work during the trips). ? On 1 January 2017 I took a loan with Rockwood of $600,000 at an interest of 4% per annum. I used $400,000 to buy an investment property in Inverloch/VIC, and the rest I used to pay off my home mortgage. ? I signed the contract to purchase the Inverloch house on 10 August 2017 and it has been rented at $1,500 per month since 1 September 2017. On 1 October 2017 the tenants advised of a leak on the roof, so I had it fixed at a cost of $22,000. It was that expensive because 1/3 of the roof had to be replaced, and I paid this amount in full on 04 October 2017 when the service was completed. ? I also had a new air-conditioner installed at the master bedroom of the Inverloch property on 10 December 2017 at a cost of $4,000 (I have all the receipts for these expenses). As the tenants told me this air-conditioner was excellent, I actually bought a second one and had it installed in my own house in Richmond on 25 January 2018. ? On 15 May 2018 I sold 3,000 BHP shares for $10,000. I had bought those shares in 2014 for $6,000. Earlier this year (in February) I made a loss of $3,000 on the sale of all my ACACIA shares that I had purchased in December 2017. Luckily, in June this year the share marked recovered and I was able to sell my Orica shares (which I had bought in November last year for $4,000) at a capital gain of $5,000 on 30 June 2018. ? Last year I had a capital loss of $4,000. I am not sure what to do with it, could you please advise? ? Two years ago I bought an antique tea set with 4 teacups for $499. In March this year I sold each cup separately for $200. There is one more issue I need to discuss with you. In March this year I spent $25,000 in legal fees while suing my previous employer who, during my employment time, consistently paid me 25% less than a male colleague who held an equivalent position and performed exactly the same functions as me. We ended up settling the dispute out of Court and I agreed to receive a payment of $350,000 in arrears and moral damages, which were paid in a lump sum on 15 June this year. This is a significant amount and I don't want to have trouble with the ATO. Could you please provide me with a separate letter of advice explaining the income tax consequences related to the legal fees I incurred and the payment I received? I look forward to hearing back from you with my completed tax return and supporting schedules; as well as the aforementioned letter of advice. Kind regards, Emily Baff Marketing Director Rockwood Ltd e.baff@rockwood.com.au Required A) Prepare Emily Baffs statement of taxable income and calculate her total tax liability (including Medicare Levy) for the year ending 30 June 2018. State all calculations and include any necessary explanatory notes and supporting schedules, applying legislation and case law. (15 marks) B) Prepare a letter of advice outlining the tax consequences related to the legal fees incurred and the lump sum payment received by Emily in connection with the lawsuit for the year ending 30 June 2018, applying legislation and case law to support your letter.