Please read the ABC Everyday article written by Kellie Scott, entitled "Why country life can help grow your side hustle (Links to an external site.)", that details a number of examples of individuals starting up their own businesses. This assessment focuses on Sophie Kurylowicz' journey becoming a florist. The following is an extract from the article relevant to this assessment task: Academic Sophie Kurylowicz fell in love with gardening when she returned to Wagga Wagga in south-west NSW after studying in Sydney. The 33-year-old and her husband embraced their ... block, growing veggies, fruit and flowers in their spare time. Sophie started getting creative with the flowers she grew, often taking bouquets to friends' dinner parties. She decided to see if she could make some pocket money from her hobby. "I started the business really cautiously and slowly when I was pregnant with my son," she says. ... In the beginning, she sold to friends and family. Then she approached a popular local florist, offering to sell her flowers wholesale. ... Sophie says going regional was the catalyst for her success. "We could go to all the wedding venues in this area, introduce ourselves, take our business cards and they now promote us." Her advice for turning your side hustle into a business is to start small and slow. "By all means be ambitious, but take incremental steps rather than investing a whole lot of money into something before you know it's something you want as a job rather than a hobby." Imagine you are working as a graduate tax accountant at the local accounting practice in Wagga Wagga, New South Wales. Sophie has been allocated to you as your first client for the year ended 30 June 2021. After your first meeting with Sophie, you collate the following meeting notes: Sophie moved from her rented Sydney apartment to Wagga Wagga in July 2019. Sophie has continued to work part time as a university academic; primarily working from home teaching and coordinating an online undergraduate course. Sophie's gross wages for the 2020-2021 income year are $60,000 and you have confirmed Sophie has $1,700 in work-related deductions allowed by section 8-1 ITAA97. In July 2020, Sophie gave her friend Scott a 101-year-old mirror for his birthday. Sophie had purchased the mirror five years ago for $600. The current market value is $1,500. Sophie spent $100 on repairing a chip in April 2018 (non-capital cost). Sophie began to plant flowers approximately one month after moving to Wagga Wagga. In January 2020, Sophie began to take bouquets to her friends and family due to an excess of flowers blooming in her garden. During the period between January 2020 and June 2020, Sophie sold bouquets, mainly to her friends and family, earning approximately $1,000 in sales. In August 2020, Sophie set up an Instagram page dedicated to her creative bouquets, began researching techniques and methods, as well as subscribing to the Australian Florist Network. Not long after, Sophie invested in a website and business cards and approached her local florist and entered into an agreement to sell the florist flowers wholesale. Between August 2020 and June 2021, Sophie earned $40,000 in flower sales and her Instagram followers reached 25,000. Required: Advise Sophie as to the tax consequences of her activities for the year ending 30 June 2021 by responding to the following FOUR questions. You may assume Sophie is an Australian tax resident. Ensure you refer to relevant legislation, case law and tax rulings in your analysis for questions 1 and 2. You must show a

analysis and/or workings for ALL questions. (7 + 4 + 2 + 2 = 15 marks) Flag question: Question 1 Question 1 7 pts Analyse Sophie's fact situation and determine whether her activities amount to a business or a hobby (7 marks) Flag question: Question 2 Question 2 4 pts Calculate the net capital gain (loss) for Sophie ( 4 marks ) Flag question: Question 3 Question 3 2 pts Calculate Sophie's Taxable Income, ignoring any allowable deduction that may have been available to Sophie in relation to her flower sales (2 marks) Flag question: Question 4 Question 4 2 pts Calculate Sophie's basic tax payable and explain the impact of her floristry activities and gifting of the antique mirror on that liability (2 marks)