Assessment criteria

• The extent to which the essay identifies relevant income tax issues and sets out sound reasoning in support of the

• The extent to which the essay demonstrates research into relevant topics of the income tax law, and where relevant research beyond core course

• Whether the essay is easy to read and understand. (Ease of reading can be achieved, for example, by the use of relevant headings and sub-headings.)

• Where relevant, the extent to which the essay contains original thought and critical

Research Problem

Based on the following facts, you are required to:

• Advise Michelle Jordan as to whether or not she remained an Australia resident for the 2017 income year; and

• Assuming Michelle was an Australian resident, work out her total assessable income for the 2017 income year, giving reasons why amounts are or are not assessable income. (Ignore the effect of the “double tax” agreement with the United States of )

Michelle Jordan is a professional basketball player who, on 1 July 2017, returned to Adelaide

from the United States after playing basketball in the “Pro League” competition in that country.

Before leaving Adelaide for the United States on 15 July 2016, Michelle’s domicile was in Australia. She left after having received several approaches from “Pro League” teams in the United States. One of the clubs that approached her was the “L.A. Belles” that made an offer to her that included match payments of $4,000 per game played by her, a “sign on” fee to be negotiated, and a reimbursement of her travel costs to the United States. As an additional incentive for players to perform at their best, they were also eligible for “best on court” awards of $8,000.  One award was given to a team member for each game won.

Just before leaving Australia, Michelle sold all her household furniture to raise funds for her stay in the United States. Also just before leaving she entered into a contract to sell her apartment in Adelaide in which she had lived, and the sale contract was settled and completed on 30 September 2016. The only asset Michelle retained in Australia was some money in a bank account with the Commonwealth Bank of Australia Ltd.

Shortly after her arrival in the United States, Michelle negotiated her contract terms and entered into a one year contract to play with the “L.A. Belles”. The contract was entered on 1 August 2016 and contained an option for an extension for a further one year that could be exercised by the club. The playing season stipulated in the contract ran from 1 September 2016 until the following 31 May.

Michelle was accompanied to the United States by her fiancé, Fella MacPherson, a leading Australian male model. She and Fella moved into a rented furnished apartment in Downtown Los Angeles that they leased for a term of one year, with an option to renew for a further one year. However, despite renting this apartment it was only used by her more as a “base” when she was in Los Angeles as she spent very little time there because of the amount of travel required of her during the playing season.

Indeed, as events turned out, Michelle found that the “Pro League” competition was much more demanding than she anticipated and she also had trouble coping with the amount of travel required of her. As a result, she was only moderately successful in her performances. Meanwhile, Fella’s fortunes took an upturn early in the new year while they were both in New York for one of Michelle’s games. Fella was introduced to top model, Cindy Clawford, who took more than a professional interest in him. He promptly broke off the engagement to Michelle and stayed in New York with Cindy.

Michelle became extremely lonely and homesick and so she negotiated an early end to her contract with the “L.A. Bells” and to her lease of the Los Angeles apartment so she could return home to Australia. She then left the United States soon after and arrived back in Adelaide on 1 July 2017.

During the income year ended 30 June 2017, Michelle received and derived the following:

• Match payments from the “L.A. Belles” club totalling $100,000 for the 25 games played

by her.

• A “sign on” fee from the “L.A. Belles” of $30,000 on entering into the contract with the

club under which Michelle agreed to play exclusively for that team.

• A “best on court” award of $8,000 for being the best player in one of her games. This

amount was paid to her by the team’s leading sponsor and not the club.

• A reimbursement of air fare expenses totalling $2,000 that were incurred by Michelle in travelling to the United States. This fringe benefit was reimbursed by the “L.A. Belles” club.

• Sale proceeds of $300,000 from the sale of Michelle’s apartment in Adelaide that she had bought to live in. She had bought it on 2 January 2011 at a total cost of $150,000, and sold it under a contract of sale entered into on 14 July 2016. Throughout the period of her ownership, the apartment was used by Michelle as her

• Sale proceeds of $5,000 from the sale on 10 July 2016 of Michelle’s apartment household

furniture that she had all acquired for personal use in January 2011 at a total cost of

$20,000.  She had never previously bought and sold any furniture.

• Interest totalling $1,000 on money Michelle had deposited in a bank account held with the Commonwealth Bank of Australia Ltd (Commonwealth Bank), an Australian resident company.

• Franked dividends totalling $1,400 from shares Michelle owned in the Commonwealth Bank. A Dividend Statement received by her shows a franking credit of $600 on the dividends.

• Sale proceeds of $25,000 from the sale on 10 July 2016 of her shares in the Commonwealth Bank. These shares were sold by Michelle after they went ex-dividend. She acquired the shares on 1 September 2015 at a total cost of $15,000 as a “long-term investment”, but sold them when she did because of her move to the United States. She had never previously bought and sold any

• An amount of $20,000 that was unexpectedly received from her grandparents on the eve of Michelle’s departure. The amount was given to help her “set herself up” in the United States after her arrival

Cash amounts have been converted into Australian dollar amounts where relevant.

Research Topics

• “There are many … cases which explain why in law the form of a transaction is important and why it may be difficult to rely upon broader notions of substance to determine [taxation] ”

Discuss whether or not you agree with this statement, providing case law authorities in support of your discussion.

• “The decision of the High Court in FCT v Myer Emporium Ltd 87 ATC 4363 was a landmark in tax jurisprudence that required a reappraisal of the traditional distinction between income and capital, and had the effect of greatly enlarging the concept of ordinary ”

Discuss whether or not you agree with this statement, referring to case law authorities in support of your discussion.