Preparer: P. Slade (Partner)

Client: Carol McKendrick

Date / Time: 20 July 2019

Subject: Meeting with Client on 20 July 2019 at 10am

The purpose of this file note is to document details of discussions with Carol McKendrick in relation to her tax affairs for the year ended 30 June 2019.

1. Carol entered into a Contract of Sale in respect of her investment property located in Brighton, Victoria. An extract copy of the contract has been provided to us and is on file at Appendix C. Carol has advised us of the following information:

a. Property purchased on 1 October 2016 direct from the developer as new residential premises for $440,000 (incl GST).

b. Acquisition costs at the time included stamp duty of $21,470, legal costs of $990 and building inspections of $550.

c. Carol also undertook minor renovations in the 2018/19 financial year to upgrade the kitchen, which cost $6,600 after the tenant had damaged the appliances and cupboards.

2. Carol is no longer selling Widgets to Australian retailers as the parent company terminated this agreement. This agreement is attached, which provides for a settlement and restraint of trade.

3. Carol advised that despite the termination of the Widgets agreement, she has paid First Newspapers for advertising up to 30 September 2019, and paid a redundancy to her employee on 30 June 2019 in the amount of $7,500.00. Carol has $12,500 worth of Widgets in stock that she can no longer sell, and Widgets Inc. now refuses to allow her to return thestock.

4. Carol rented a small serviced office for her business at the Mascot Business Centre, where the lease commenced on 1 November 2018 for 12 months. The Mascot Business Centre provided a free fit out and two months rent free, valued at $12,000.

5. Carol provided us with an extract of her bank statement with annotations. In particular, Carol advised that she is studying at University of Aviation as she hopes to move into Flight Operational and Airport Planning Management within the airline where she currently works. Carol indicated that her HECS / HELP debt has already been exhausted from prior studies.

6. Carol borrowed $70,000 from the Victorian State Bank in early 2019 for her business at an interest rate of 7.35% per annum, as a revolving line of credit secured over her own personal home. Since drawing the loan proceeds, Carol has used $10,000.00 as a deposit for a BMW, which she intended to use for her business.

Other Notes

1. Carol is a sole trader and her accountancy fees for the 2018/19 financial year are$5,500.

2. Our firm organised Carols GST registration for her business on its commencement on 1 September 2017 and she accounts for GST on a cash basis.

Question: From the above, identify all relevant tax issues that will arise, critically analyse and apply the taxation treatment to the issuesi.e. this will need to argue and support the view presented and consider differing views (if applicable)and finally, indicate the recommended action based on your better viewi.e. the conclusion (IRAC principle).

The analysis used to determine the recommended action is fully supported with relevant authorityfor example, tax legislation and case law.