Sally Tompkins is a senior executive in the Canberra office of a large company called TopCo Ltd (TopCo). Sally needs to do her income tax return for the 2022 income year and she has come to you for advice.

She provides the following information about her income and expenditure.

Item 1 Sallys Income

She receives $300,000 per annum in salary from the TopCo. In addition to her salary, Sally received an annual performance bonus of $100,000 on 15 June 2022 as she had met certain billing targets. Sally's investment portfolio comprises of the following:

Asset	Acquisition Date	Acquisition Price	Notes
Batemans Bay property	24 June 2018	$600,000	Property is a house on a block of land near the beach (5ha).
Shares in Wesfarmers	3 March 2015	$50,000	Shares pay dividends

Sally loves cooking (particularly French cuisine) and dreamed of having her own catering business or restaurant down the South Coast. She loves watching TV shows like MasterCook. She bought all of the latest appliances for her home kitchen. Her friends invited her to their parties because they knew Sally would make fantastic canapes to have with drinks. Sally was busy most weekends cooking for the parties she would attend in the evenings. Sometimes her friends would offer to pay for the ingredients she used in making the party food. She charged prices for her food that only covered the cost of the ingredients. She paid for everything using cash and threw the receipts into the kitchen drawer.

The owner of a stylish caf in Manuka, Rita, contacted Sally after eating her food at a party in Red Hill. Sally agreed to supply prepared food (cakes and cooked meals) for Ritas cafe. In early July 2020 Sally placed cards on the sales counter in Ritas caf with her photo and contact details. Ritas sales in the caf increased and Sallys phone rang off the hook. People were keen to buy Sallys prepared food and eat it in their home.

Sally employed an accountant to keep her books of account and develop plans to grow the revenue from her cooking. The accountant told her to set up a website so people could read about Sally and her food. Sally was very busy and employed two apprentice chefs to help her with cooking the food. Very soon Sally was supplying her food to cafs and restaurants around Canberra and also sold her food online through her website. In the 2021 income year, Sally earned $80,000 from the catering activity, and $125,000 in the 2022 income year.

After many years of watching MasterCook Sally was invited on to the show as a competitor. After a gruelling few weeks of competition with the other cooks Sally was crowned 2021 MasterCook of the year (in Dec 2021). Her prize was a complete new kitchen worth $50,000 to be installed by the best kitchen design company in Australia. The prize was non-transferrable.

Sally wanted to move her catering activity to somewhere bigger so that she could increase the range of prepared food she sells. She decided to renovate the house that she owned near the beach in Batemans Bay. She bought the property back in 2018 as a friend told her that the Batemans Bay area, being a holiday destination close to Canberra, was becoming popular and the land would increase in value in the next 10 years. Sally engaged an architect to help her renovate the house in Batemans Bay. The architect advised Sally to find another place for her catering kitchen and turn the house and land in Batemans Bay into a 50-unit apartment block and sell the apartments. Sally thought this was a better idea. Sally built the apartment block using a builder who charged her $14.5million to do the construction. The value of the land at the time the construction commenced was

$1.1million. She sold all of the units in the apartment block in January 2022 for $50 million.

Sally has a small investment portfolio comprised of Wesfarmers shares. Sally received fully franked dividends of $4,000 in the 2022 income year.

Required:

1) Explain to Sally 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.

2) Include calculations if required. If you decide that an amount is a capital receipt assume it is not assessable income for the purposes of the Assignment (ie, there is no need to calculate the capital gain).