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Subject Code : 7106AFE
Country : Australia
Assignment Task

 

Claudia Cutloose is an occupational therapist (OT) who is employed by the Martha Private Hospital in Brisbane. Claudia also has her own ‘sideline business’, manufacturing hand and knee splints for rehabilitation purposes.
Claudia’s business making the splints has taken off since she first started it as a hobby in calendar year 2017, her first year in practice. She initially made basic splints for her uncle and mother, both of whom had experienced serious sporting injuries that limited their hand and knee mobility. Then, during that same calendar year, other people she knew also asked her for basic splints, and news of her splints spread on Facebook.
Since June 2018, Claudia’s splints have changed, both in terms of the materials used and the incorporation of hinges that enable controlled, limited movement. On 30 June 2020, Claudia won a contract to supply her splints to all 750 Perry Black Chemist outlets throughout Queensland and New South Wales, and she had to upscale production substantially. Her sales per year are listed below:
Sales Revenue for Year ended Number of items sold Total Value
30 June 2018 12 $ 100
30 June 2019 1,500 $ 15,000
30 June 2020 1,100 $ 22,000
30 June 2021 5,000 $100,000
During the 2021 financial year, Claudia was invited to exhibit her splints at an international medical supplies trade fair in New Zealand. If buyers at the trade fair showed interest, Claudia’s prospects of massive revenue increases through international online sales of her splints appeared very promising. Claudia shipped 20 samples of her splints to New Zealand for the trade fair, which was held 10-12 June 2021. At the last minute, Claudia decided to fly to New Zealand to attend the trade fair in person, rather than operate through an agent, largely because it was the ski season and she was sick of being in lockdown due to COVID outbreaks in Australia.
She was absent from Australia for 10 days and stayed in a hotel close to the trade fair site, but within easy driving distance to local ski fields. Claudia sold all 20 samples of her splints that were exhibited at the trade fair, and in addition received orders for another 110 splints from various overseas buyers. The total value of the sales is AUD$400.
Claudia has always viewed her splint sales as a ‘sideline hobby/business’ and has not included her sales revenues as part of her assessable income in her annual tax returns. She has recently been chatting to a friend who has suggested that she might be in trouble with the Australian Tax Office (ATO) for not declaring the splint sales revenues as income. Claudia is concerned about this and has come to you for advice.

Required:
Part 1: File Note - application of law to relevant facts
In a file note document, you should demonstrate your tax law research and the relevance of the law to Claudia’s situation. An easy way of achieving this is to structure your file note in ILAC format. You should ensure that justify your research and application by referencing relevant case law, legislation and tax rulings.
Part 2: Letter of Advice
Based on your application of Claudia’s circumstances in the File Note, you are required to write a letter of advice to Claudia, advising her whether her revenue from the splint sales would be assessable by the ATO for income tax purposes. This letter should be set out according to the example format of a ‘Client Letter of Advice’ that is provided.
Considering that the splint sales date back to the financial year ended 30 June 2018, you should also advise Claudia how the Tax Office would be likely to deal with any arrears of tax payable as an outstanding debt, in the event that it characterised the splint sales revenues as assessable income.

 

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  • Posted on : August 27th, 2019

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