Question

Genovieve MacIntyre is an Australian resident taxpayer. Genovieve was studying nursing at Curtin University and had one year left of her degree. However, in 2018, she decided to discontinue her studies and pursue a career as a beautician. She began working as a beautician in a high-end salon in Nedlands called “Polish.”

The following information relates to the tax year ending 30 June 2020. Please discuss the income tax implications of each of the below.

1. In addition to working at the salon, on the weekends, Genovieve provides beauty services to her oldest friend Aurora. Aurora has a busy social life and Genovieve estimates that she provides her with beauty services such as makeup and nail application every two weeks. In January 2020, Aurora gifted Genovieve two amounts. One was $2,000 in respect of Genevieve’s beauty services for many years and another amount of $1,000 which Aurora begged Genovieve to accept as a gift for being such a wonderful friend. Genovieve did not want to accept the money but eventually took the $2000 and told Aurora to give the $1,000 to a worthy charity. Aurora chose Greenpeace, as that was a charity she knew Genovieve had supported in the past.

2. As a result of her work for Aurora, Genovieve finds she has a number of friends who want beauty services performed on the weekends. She doesn’t keep detailed books and records. However, Genovieve thinks she has around 20 friends for which she regularly performs these services. She tells them to leave a small token of their appreciation and leaves a price list of “suggested prices” for various services on her coffee table that they might like to donate. Genovieve has received $10,000 in the current income year from these friends.

3. As a result of the increase in beauty procedures she is performing for her friends on the weekend Genovieve purchases an EVO 2 Deluxe Spa Table for $7,500 on 1 January 2020. This will have an effective life of 7 years.

Answer 1

Solution

Assumption : The fiscal year for Tax purposes is from July to June

3.Genovieve purchases an EVO 2 Deluxe Spa Table for $7,500 on 1 January 2020.The depreciation expense per year for 7 years is (7500/ 7) i.e., $1071.43.The depreciaiton expense is shown starting from the fiscal year 2019-2020 uptil the year 2026-2027 i.e. 7 years

1.Since Genovieve only accepts only $2000 in January 2020,she will have to pay the corresponding tax on the same when she files her IT for the fiscal year 2019-2020.Since Genovieve asks her friend to donate the remaining amount of $1000 to a charity on her behalf,her friend will be able to claim the corresponding IT deduction (if any) for the same but not Genovieve

2.Since Genovieve received $10,000 during  the current fiscal year ending June 2020,she has to pay the tax on the entire amount.

So in total her total taxable income = Total income - Total Expenses.

Since details of expenses like rent,etc., are not given I am considering only depreciation as an expense.

= $2,000+$10,000 - $1071.43 => $10,928.57

Note : This aove income is in addition to the income that she earns from working as a beautician in a high-end salon in Nedlands called “Polish.”

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