Item $1-$ Megan's Income

Megan earns a salary of $$650,000$ per annum from Starlight Films. In the $2023$ income year, Megan received an Academy Award $(\text{'}$Oscar$\text{'})$ from the American Film Academy for her work in producing a film. She started to receive a great deal of media attention. She entered into a restrictive covenant with her employer Starlight Films where she agreed not to do any media appearances without her employer's approval in return for a payment of $$30,000.$

Megan's investment portfolio comprises of the following:

Asset Acquisition Date Acquisition Price Notes

Alpaca farm $24$ June $2005$ $$200,000$ Property is a $20$ hectare $($ha$)$

farm with a house and farm

buildings near Lake George.

Shares in Rio Tinto $10$ June $2018$ $$1$m

She spends most weekends at her Alpaca farm near Lake George. She owns a home in Nicholls that is her main residence. The Alpaca farm has a house, several farm buildings, and the land where the alpacas graze. She is a member of the local farmers' association and attends lectures on keeping alpacas for their wool. She hires a shearer every year to shear the alpacas. At first, she kept the alpacas as pets and let the shearer dispose of the wool clippings from shearing the alpacas. After a few years, Megan realised that her alpacas were producing a significant amount of wool and that it is highly valued by clothing manufacturers. Megan started selling alpaca wool to the fashion houses in Melbourne. She keeps records of her income and expenses. Megan received $$250,000$ from selling alpaca wool in the $2023$ income year.

Recently, a property developer approached Megan. The developer advised her to redevelop the farm buildings into twenty$-$five townhouses. The farm buildings were located in a separate area to the farm and her house, so she decided to subdivide the property into two $10$ ha lots of equal size $($Lot A and Lot B$).$ Lot A had the house and farm, which she retained for her personal use and for keeping the alpacas. Lot B had the buildings that would be redeveloped into twenty$-$five townhouses. The cost of the subdivision was $$20,000$ for Lot A and $$50,000$ for Lot B$.$

She engaged a builder to build the twenty$-$five townhouses on Lot B and worked closely with him on the design of each townhouse. At the time the development commenced, the market value of Lot A was $$1,500,000$ and $$1,250,000$ for Lot B$.$ The construction costs for the townhouses built on Lot B was $$24$m$.$ Shortly after completion, Megan sold the twenty$-$five townhouses built on Lot B for $$32$m on $30$ June $2023.$

Megan also received the following income in the $2023$ income year:

$$ $$25,000$ in unfranked dividends from shares she owned in Rio Tinto. There was no franking credit attached to the dividends.

Required:

Explain to Megan Marvel how the gains in the above$-$mentioned transactions would or would not constitute assessable income under the income tax legislation. Use relevant legislation and case law to support your answer. Do not consider residence and source issues, although you can assume that Megan is an Australian resident. Include calculations if required. If you decide that an amount is a capital receipt assume it is not assessable income for the purposes of this Assignment $($ie$,$ there is no need to calculate the capital gain$)$