Question

Isabella is 19 years old and a full-time student at Holmes Institute studying the Bachelor of Fashion and Business. She is saving for an overseas holiday to Poland and works part-time at a major department store in Melbourne. Two months before her planned trip to Poland she finds that she still needs $5,000. Her father employs her for four weeks as an office assistant in Harrolds Melbourne, a busy fashion department store. He pays Isabella $5,000 for this work. The other office assistant receives $500 a week.

With reference to relevant cases and legislation, advise as to the assessability of the $5,000 in the hands of Isabella and the deductibility of the amount for her father.

Answer 1

Answer:

Provisions According to Federal Tax system:

The federal government has several taxes on gratuitous transfers – meaning transfers where no consideration was given, or the consideration given was less than the fair market value (FMV) of the property transferred – and includes inter vivos gifts and transfers of property from the decedent's estate. The value of most gifts is the FMV when the gift is given minus the consideration given.The Gift given from specified relative is exempt from Taxes.

The gift tax is assessed only on individuals, not business entities, such as corporations. However, in certain cases, some transfers to corporations may be treated as indirect gifts by shareholders. A gift to a corporation is a gift to other shareholders in proportion to their interests; likewise, gifts to trusts are considered gifts to beneficiaries in proportion to their interests in the trust.

There are two levels of exemption from the gift tax. First, gifts of up to the annual exclusion ($14,000 per recipient for the years 2013 thru 2017 and $15,000 for 2018 thru 2020)[7] incur no tax or filing requirement. By splitting their gifts, married couples can give up to twice this amount tax-free.

Analysis in this case:

Isabella is a 19 year major girl. she receives the salary income from father as office assistent . The salary given to Isabella is $5,000 for 4 weeks where it is given to other similar offiice assistent is $500 per week.

Salary to Isabella Per week = 5000/4 = 1250 $

Salary to other employee = 500 $

So the amount given to Isabella is more the market value, so consideration is less than fair value.

Hence is considered as a gift given by her father. It is not taxable in the hands of Isabella. But it is taxable in the hands of this father.