Fact Scenario 1 - Income from Personal Services and Employment Consider the following scenarios: a) Albert is a student who lives in a rented house in Melbourne with several other students. He receives a weekly living allowance of $300 from his parents, and in return he is expected to help with occasional lawn-mowing and general maintenance jobs at his parent's home. b) Bernadette receives $200 per week working as a full time nanny (child minder). The family she works for also provide her with a bedroom and food each week, and recently took her on a family ski holiday to Colorado (with all expenses paid by the family). c) Casper is a teenager who is obsessed with multi-player on-line role-playing computer games. After years of just playing for fun, he recently entered a competition and won a trip to visit a gaming software laboratory in the USA for one week (covering all travel expenses up to $10,000). d) Diana owns a floristry business in Carlton. She also owns the shop from which she runs the business. She currently receives about $2,000 a week from flower sales, whilst her expenses are about $800 per week. A chain-store has offered to buy her flower business for $10,000 and also pay her $1,000 per week for use of the shop. e) Robert receives $100,000 as the proceeds from selling the copyright to a book. Robert is an employee accountant who wrote a novel in his spare time over a number of years. f) Karen receives $1,000,000 as the proceeds from selling the copyright to a book. Karen is a well-known romantic novelist and is in the business of writing books and selling her copyright. g) Warren realised a $5m profit from the sale of shares that he held for a number of years, primarily for their capital growth. h) Nellie works as a senior manager at an accounting form. She receives a Rolex watch from one of her favourite clients worth $15,000. She promises not to sell the watch. Questions: What are the prerequisites that a gain has to meet to be ordinary income? What are the characteristics of ordinary income? Discuss whether the above receipts are likely to be "ordinary income" under general concepts and assessable under section 6-5. Also consider section 15-2 of the ITAA 1997. Fact Scenario 2 - Income from Personal Services and Employment Jane and Sally are employed school teachers who have a very wide general knowledge. Both decide to enter a television quiz program called Lease of the Decade. Under the rules, contestants receive $100 for each appearance, but if questions are answered correctly, they receive substantial cash prizes and other prizes, such as household items and holiday packages. The holiday packages cannot be transferred or redeemed, but the organisers of the program allow them to be converted into alternative venues and accommodation. Jane and Sally go on the show but Jane is eliminated in the first contest and receives her $100. Sally, however, makes 10 appearances. She wins cash prizes of $50,000, household appliances worth $20,000 and a trip to Europe with her family valued at $30,000 (the trip is non-transferrable). Required: Discuss the assessability of these prizes under section 6-5 and section 15-2 of the ITAA 1997. Fact Scenario 3 - Income from Personal Services and Employment George is a manager at Wollongong Steel Ltd. His employment contract is for 10 years. In the third year George's position at the company is made redundant, and his employment terminated. George enters into a restrictive covenant with Wollongong Steel Ltd which provides that: (a) in return for a payment of $40,000 he agrees not to disclose any trade secrets of his employer to any other person; and (b) in return for a payment of $200,000 he agrees that he will not work for a competitor for a period of 18 months after his employment with the company ends. Required: Are the payments received under the restrictive covenant ordinary income in George's hands? Fact Scenario 4 - Income from Personal Services and Employment Greg Merrett and his wife moved to Melbourne after he signed a three year contract to play with Richmond Football Club (RFC). He was given a base salary package of $400,000 a year, half of which he requested be deposited into his wife's bank account. The RFC also agreed to pay Greg $100,000 for him agreeing not to undertake any promotional or marketing activities during the life of his contract, other than those approved by RFC. Greg was hit by a car crossing the road after taking his children to school. He was not able to work for six weeks. He received $40,000 in compensation for loss of wages. Required: Discuss whether the above receipts are likely to be Greg's "ordinary income" under general concepts. Fact Scenario 5-Income from Property Freya owns 1000 shares in PacWest. She receives a dividend of 70c per share. She also receives a franking credit of $30c per share. Required: Explain the tax treatment of the dividend and the franking credit. Fact Scenario 6 - Income from Property Robert, an Australia resident taxpayer, has three investments: a $25,000 term deposit with the Commonwealth Bank, paying 3% interest per year; an investment property in Belconnen the apartment is rented out for $420 per week; and he assigned the copyright in a book he wrote about rare plants of the ACT to a publisher who agreed him to pay him 10% of the proceeds from the sale of each book. He received $10,000 in royalties. Required: Discuss whether the amounts received are assessable income under section 6-5 of the ITAA 1997. Fact Scenario 1 - Income from Personal Services and Employment Consider the following scenarios: a) Albert is a student who lives in a rented house in Melbourne with several other students. He receives a weekly living allowance of $300 from his parents, and in return he is expected to help with occasional lawn-mowing and general maintenance jobs at his parent's home. b) Bernadette receives $200 per week working as a full time nanny (child minder). The family she works for also provide her with a bedroom and food each week, and recently took her on a family ski holiday to Colorado (with all expenses paid by the family). c) Casper is a teenager who is obsessed with multi-player on-line role-playing computer games. After years of just playing for fun, he recently entered a competition and won a trip to visit a gaming software laboratory in the USA for one week (covering all travel expenses up to $10,000). d) Diana owns a floristry business in Carlton. She also owns the shop from which she runs the business. She currently receives about $2,000 a week from flower sales, whilst her expenses are about $800 per week. A chain-store has offered to buy her flower business for $10,000 and also pay her $1,000 per week for use of the shop. e) Robert receives $100,000 as the proceeds from selling the copyright to a book. Robert is an employee accountant who wrote a novel in his spare time over a number of years. f) Karen receives $1,000,000 as the proceeds from selling the copyright to a book. Karen is a well-known romantic novelist and is in the business of writing books and selling her copyright. g) Warren realised a $5m profit from the sale of shares that he held for a number of years, primarily for their capital growth. h) Nellie works as a senior manager at an accounting form. She receives a Rolex watch from one of her favourite clients worth $15,000. She promises not to sell the watch. Questions: What are the prerequisites that a gain has to meet to be ordinary income? What are the characteristics of ordinary income? Discuss whether the above receipts are likely to be "ordinary income" under general concepts and assessable under section 6-5. Also consider section 15-2 of the ITAA 1997. Fact Scenario 2 - Income from Personal Services and Employment Jane and Sally are employed school teachers who have a very wide general knowledge. Both decide to enter a television quiz program called Lease of the Decade. Under the rules, contestants receive $100 for each appearance, but if questions are answered correctly, they receive substantial cash prizes and other prizes, such as household items and holiday packages. The holiday packages cannot be transferred or redeemed, but the organisers of the program allow them to be converted into alternative venues and accommodation. Jane and Sally go on the show but Jane is eliminated in the first contest and receives her $100. Sally, however, makes 10 appearances. She wins cash prizes of $50,000, household appliances worth $20,000 and a trip to Europe with her family valued at $30,000 (the trip is non-transferrable). Required: Discuss the assessability of these prizes under section 6-5 and section 15-2 of the ITAA 1997. Fact Scenario 3 - Income from Personal Services and Employment George is a manager at Wollongong Steel Ltd. His employment contract is for 10 years. In the third year George's position at the company is made redundant, and his employment terminated. George enters into a restrictive covenant with Wollongong Steel Ltd which provides that: (a) in return for a payment of $40,000 he agrees not to disclose any trade secrets of his employer to any other person; and (b) in return for a payment of $200,000 he agrees that he will not work for a competitor for a period of 18 months after his employment with the company ends. Required: Are the payments received under the restrictive covenant ordinary income in George's hands? Fact Scenario 4 - Income from Personal Services and Employment Greg Merrett and his wife moved to Melbourne after he signed a three year contract to play with Richmond Football Club (RFC). He was given a base salary package of $400,000 a year, half of which he requested be deposited into his wife's bank account. The RFC also agreed to pay Greg $100,000 for him agreeing not to undertake any promotional or marketing activities during the life of his contract, other than those approved by RFC. Greg was hit by a car crossing the road after taking his children to school. He was not able to work for six weeks. He received $40,000 in compensation for loss of wages. Required: Discuss whether the above receipts are likely to be Greg's "ordinary income" under general concepts. Fact Scenario 5-Income from Property Freya owns 1000 shares in PacWest. She receives a dividend of 70c per share. She also receives a franking credit of $30c per share. Required: Explain the tax treatment of the dividend and the franking credit. Fact Scenario 6 - Income from Property Robert, an Australia resident taxpayer, has three investments: a $25,000 term deposit with the Commonwealth Bank, paying 3% interest per year; an investment property in Belconnen the apartment is rented out for $420 per week; and he assigned the copyright in a book he wrote about rare plants of the ACT to a publisher who agreed him to pay him 10% of the proceeds from the sale of each book. He received $10,000 in royalties. Required: Discuss whether the amounts received are assessable income under section 6-5 of the ITAA 1997