James is a computer programmer, who was born and lived in the UK. On 1 July 2019, He arrived in Australia on an unrestricted work permit to take up a job with a large software company called Zero Pty Ltd (Zero) for a period of two years. His remuneration includes a salary of $250,000 plus $50,000 bonus per year.

James obtained Australian permanent residence on 1 May 2021, he hired a consultant to help him decide whether he should quit Zero and start his own software business instead. After receiving the advice that the business choice would be a better outcome, James quit Zero on 30 June 2021 and runs his business under the name “Clicks” as a sole trader.

On 15 July 2021, James sold the following assets to fund the setting up of Clicks:

Overseas assets:

• - 20,000 shares in a UK company: acquired on 1 July 1980 at a cost of $5,000 and was sold for $100,000. The market value was $150,000 as at 1 July 2019.

• - An investment flat in UK: acquired on 15 September 2015 at a cost of $250,000 and was sold for $300,000. The market value was $310,000 as at 1 July 2019.

  Australian assets:

• - A vintage motor vehicle built in 1941: acquired on 15 November 2019 at a cost of $220,000 and sold for $250,000.

• - 2,000 shares in CBA: acquired on 1 December 2019 at a cost of $160,000 and sold for $180,000.

• - A sculpture: acquired on 1 December 2020 at a cost of $10,000 and sold for $8,000.

• - A painting: acquired on 15 March 2021 at a cost of $14,000 and sold $25,000.

  To help further fund the business, James borrowed $50,000 from the bank on 31 December 2021. The repayment period of the loan principal is 5 years while the interest of 1.5% per annum on the loan is payable at the end of every twelve-month period. Using those funds, James generated $280,000 of income during the 2021/22 year and also paid the following business expenses:

  • $1,500 in accounting and start up fees

  • $500 in borrowing costs

  • $60,000 in rent

  • $1,000 fine for late payment of rent

  • $8,000 for Clicks’ internet domain

  • $5,000 for business lunch

  • $2,000 fees for preparing the tax return

On 1 September 2021, James purchased a new Ferrari 488GTB for $190,000. He uses the vehicle when visiting clients. The car has an estimated effective life of seven years and has been depreciated using the prime cost method. He maintained a logbook for a 12-week period which recorded total 30,000 kilometers and 16,000 business kilometers travelled and that all receipts have been kept. The total car expenses are as follows:

Interest on car loan $5,600 Registration and insurance $1,360 Petrol $3,440 Repairs and maintenance $750 Car washes $360 Parking fines (while visiting clients) $700

Business at Clicks is going so well and on 25 June 2022, James signed a high value contract with a large client. Under the terms of the contract, the client will pay $100,000 including 10% paid upfront on 30 June 2022 and the remainder to be paid when the services are performed. In order to fulfil his obligations under that contract, James needs to employ one (1) part-time contractor during 2022/23 tax year.

REQUIRED

1. Advise James on what amounts may be included in his taxable income for the 2021/2022 tax year in Australia (Assuming Clicks is not a small business).  

2. Calculate the taxable income which James need to declare in his income tax return for the 2021/2022 tax year.