Hi There,
I was just wondering whether anybody would be able to help me with the question posted below, I don't expect anybody to answer fully but even if somebody could point me in the right direction that would be great!
Question One
Charles Watson is a doctor who had worked for a small surgery which operated on a cash
basis, in the northern suburbs of Melbourne since the early 1990s. Watson is well known
internationally for his experience and expertise in neurological disease.
A colleague of Watsons, Mike Frazer, made him an offer to come and join his large medical
practice ‘Frazer and Associates’ in inner city Melbourne on a salary of $350,000 p.a. along
with an annual gratuity of $20,000 performance based. The lucrative job offer also provided
for a $60,000 payment, for Charles promising to stay with the medical practice for the next
three years. After careful consideration and discussion with his family, Charles decided to take
up the new position on 1 July 2013.
Charles was enjoying the new challenge of both an increase in the volume and variety of
patients as well as the prestigious location and reputation of the practice. However, the first
year of practice came with some mixed results. In October 2013, a patient who was
particularly upset at the outcome of her surgery conducted by Charles sued him for
malpractice. Charles was unable to work for 5 weeks while the matter was being heard and
he was concerned his good reputation would be damaged. It was later discovered that the
patient’s claims were unfounded and Charles was awarded $200,000 in compensation.
Despite this initial set back, Charles had become widely accepted and acknowledged by all of
his patients and by the end of the financial year had received many gifts from them amounting
to $1,000.
Charles owned two rental properties in Brighton and Doncaster, both million dollar suburbs
in Melbourne. Both properties were negatively geared and the excess loan interest resulted
in an overall loss of $9,000 on the Brighton residence and an overall loss of $6,000 on the
Doncaster residence for the year ended 30 June 2014. The rental proceeds from the
properties in the amount of $27,000 per annum was paid directly to Charles’ daughter,
Kathryn. On 5 July 2014, $2,000 of rental income for the month of June 2014 was deposited
into Kathryn’s bank account.
Charles’s other interest in life was being involved in farming. On 1 July 2011 Charles had
acquired 4 hectares of farming land for $220,000 in Gippsland, Victoria and over the last 3
years he had grown flowers and raised some sheep. He had sold some of the flowers at the
local market on an occasional Saturday morning but never made much money from it. For the
year ended 30 June 2014, Charles indicated that he had made losses of $11,000 from his
flower growing and sheep raising activities.
In February 2014 a real estate agent approached Charles regarding the potential subdivision
of the farming land into residential blocks which had a current market value of $1,300,000.
The agent indicated that the subdivision and sale of the land into 8 individual blocks could
yield him a price of $250,000 per block. Having lost his desire and motivation to continue his
flower growing and sheep raising activities, in March 2014 Charles decided to go ahead with
the subdivision at a cost of $500,000 and sell the blocks individually. At 30 June 2014, five
blocks had been sold for $300,000 each with the other three remaining unsold.
Required:
Advise Charles Watson of whether the above transactions will constitute assessable income
for income tax purposes. Cite relevant legislation and case law to support your answer.
I was just wondering whether anybody would be able to help me with the question posted below, I don't expect anybody to answer fully but even if somebody could point me in the right direction that would be great!
Question One
Charles Watson is a doctor who had worked for a small surgery which operated on a cash
basis, in the northern suburbs of Melbourne since the early 1990s. Watson is well known
internationally for his experience and expertise in neurological disease.
A colleague of Watsons, Mike Frazer, made him an offer to come and join his large medical
practice ‘Frazer and Associates’ in inner city Melbourne on a salary of $350,000 p.a. along
with an annual gratuity of $20,000 performance based. The lucrative job offer also provided
for a $60,000 payment, for Charles promising to stay with the medical practice for the next
three years. After careful consideration and discussion with his family, Charles decided to take
up the new position on 1 July 2013.
Charles was enjoying the new challenge of both an increase in the volume and variety of
patients as well as the prestigious location and reputation of the practice. However, the first
year of practice came with some mixed results. In October 2013, a patient who was
particularly upset at the outcome of her surgery conducted by Charles sued him for
malpractice. Charles was unable to work for 5 weeks while the matter was being heard and
he was concerned his good reputation would be damaged. It was later discovered that the
patient’s claims were unfounded and Charles was awarded $200,000 in compensation.
Despite this initial set back, Charles had become widely accepted and acknowledged by all of
his patients and by the end of the financial year had received many gifts from them amounting
to $1,000.
Charles owned two rental properties in Brighton and Doncaster, both million dollar suburbs
in Melbourne. Both properties were negatively geared and the excess loan interest resulted
in an overall loss of $9,000 on the Brighton residence and an overall loss of $6,000 on the
Doncaster residence for the year ended 30 June 2014. The rental proceeds from the
properties in the amount of $27,000 per annum was paid directly to Charles’ daughter,
Kathryn. On 5 July 2014, $2,000 of rental income for the month of June 2014 was deposited
into Kathryn’s bank account.
Charles’s other interest in life was being involved in farming. On 1 July 2011 Charles had
acquired 4 hectares of farming land for $220,000 in Gippsland, Victoria and over the last 3
years he had grown flowers and raised some sheep. He had sold some of the flowers at the
local market on an occasional Saturday morning but never made much money from it. For the
year ended 30 June 2014, Charles indicated that he had made losses of $11,000 from his
flower growing and sheep raising activities.
In February 2014 a real estate agent approached Charles regarding the potential subdivision
of the farming land into residential blocks which had a current market value of $1,300,000.
The agent indicated that the subdivision and sale of the land into 8 individual blocks could
yield him a price of $250,000 per block. Having lost his desire and motivation to continue his
flower growing and sheep raising activities, in March 2014 Charles decided to go ahead with
the subdivision at a cost of $500,000 and sell the blocks individually. At 30 June 2014, five
blocks had been sold for $300,000 each with the other three remaining unsold.
Required:
Advise Charles Watson of whether the above transactions will constitute assessable income
for income tax purposes. Cite relevant legislation and case law to support your answer.
