Marissa Lewis is a hairdresser who is employed by Hair Simplicity at West End, and has her own business, manufacturing hairdressing equipment. Marissa is also a keen artist who over many years has produced a variety of work based on photographs. She initial began taking photos of children in vintage/antique stores wearing a variety of different clothing and accentuating the photos with flowers. Overtime her artwork has changed. For the last 3 years she has only used photos of people who are moving and does not show full facial features of her subjects. She prints the photos on canvas and stitches thread to parts of the picture to accentuate certain areas of the image. The colour to the thread is determined by the colour in the photo where the stitch is located. Marissa began creating this artwork as a hobby and only produced images of her own children to hang in her home. She began entering her art in competitions and won a variety of prices. At the completion of one competition, she was approached by an art gallery wanting to exhibit her art in an upcoming exhibition. This exhibition operated for 14 days in June 2018. Since that time she has exhibited her work each year for 14 days in June at the same gallery. Over the 4 year period she has sold 32 pieces of artwork during the exhibitions. Her sales per year from the gallery exhibitions are listed below;

Year of sale Number of items sold Total Value

June 2018 5 $12,000

June 2019 7 $15,000

June 2020 9 $22,000

June 2021 11 $30,000

In addition, Marissa was invited to exhibit her work in a gallery in America. She ships three pieces of artwork to America for the exhibition that starts on 10 January 2021. At the last minute, Marissa decides to fly to America to attend the exhibition. Kurt travels with her but they leave Lulu at home with Marissa’s family. They are absent from Australia for 10 days and stay in a hotel close to the art gallery. Marissa sells all three pieces that are exhibited plus she receives orders for another 5 items. The total value of the sales is AUD$21,000. Marissa has always viewed her artwork sales as a hobby and has not included her art sales receipts as part of her income in her tax return.

1. Would her artwork sales be assessed by the Australian Tax Office for tax purposes?
2. Considering that the art sales date back to June 2018, how this might be dealt with if the art sales are classified as income ie. how would the tax office deal with this as an outstanding debt?

Support your answer with relevant case law , legislation and tax ruling.