Comprehensive Taxation Advice for Stella and Mia: Income and Gifts

This report provides detailed taxation advice for Stella and Mia, focusing on their various income sources and financial activities within the Australian tax system. For Stella, the advice addresses the taxability of her sports event participation income, categorizing it as recurring earnings subject to taxation, while a gift received is deemed non-taxable. The report outlines the basic taxation requirements for Australian residents, including declaring worldwide income and understanding tax-free thresholds. For Mia, the advice covers income from sports participation, which is considered non-taxable due to its ad-hoc nature, and potential income from organic gardening, which may fall under hobby income taxation. The report also discusses capital gains tax implications from selling a house, emphasizing the exclusion of maintenance costs in calculating the reduced cost base. A home warming gift received by Mia is also considered non-taxable. This document is available on Desklib, a platform offering a wide array of study tools and solved assignments for students.

Taxation Advice

Table of Contents
Taxation Advice for Stella:..............................................................................................................3
Stella received AUS$ 85300 from sports event participation:.....................................................3
Stella received a gift from Mia:...................................................................................................4
The basic taxation requirement that an Australian resident has to follow:..................................4
Taxation Advice for Mia:................................................................................................................5
Mia received $ 5000 from sports participation:...........................................................................5
Mia is expecting to earn from organic gardening:.......................................................................6
Taxation in case of capital gains made by Mia from sale of house property:..............................7
Mia received a gift from Stella:...................................................................................................7
References........................................................................................................................................8

Taxation Advice for Stella:
Stella received AUS$ 85300 from sports event participation:
Stella is an accountant by profession. So any income she is earning should be considered as
salary. Any income she is earning from any other sources other than income should be
considered as income earned from other sources.
As an Australian resident a person is liable to declare all income earned anywhere in the world
that has been earned from any sources.
Therefore as per this requirement Stella must reveal the money she has received partly as a price
money for jointing in an athletic meet and partly as sponsorship (Ato, 2018).
Generally price money earned by a person on an ad hock basis from a game show is not taxable
in Australia.
But here Stella is a professional athlete and participating in the different sports events since the
age of 12 years. Moreover she has received an amount of AUS$ 85300 partly as price money and
partly from the sponsors for appearing g in the different games as she is recognized as a star
running athlete with in the country. Thus the earnings of STELLA should be categorized as a
recurring earnings from sport and therefore will not be considered for exemption from tax(Ato,
2018).
Therefore it can be suggested that with respect to the earnings of AUS$ 85300 that this amount
should be revealed by Stella along with the salary income earned by him from her accounting
profession while filling the return and tax will be charged on the total amount as per the latest
tax slab depicted below in pictorial format.

(taxsummaries.pwc, 2018)
Stella received a gift from Mia:
Stella received a gift of an artefact whose market value is $1,500 from Mia. Mia purchased the
artefact for an amount of $600.Then it can be argued that Stella has made a profit of $900.But as
the amount of $1,500 is received as gift but the amount is so small, therefore the amount will not
come under the tax net and revelation of this item in return filing is not required.
The tax principles of the Australian taxation policy that are being applied for providing the above
discussed taxation advice are as follows:
The basic taxation requirement that an Australian resident has to follow:
The Australian resident must declare all income earned by him anywhere in the world while
filing Australian tax return
An Australian resident is entitled to the tax-free threshold, that is there is no tax on income of a
individual up to a certain amount
An Australian resident may have to pay the Medicare levy
If an Australian resident received amounts that aren't subject to tax, then these income will not be
included as part of the assessable income. But this income may not be used in other calculations
on your tax return.

The major categories in which the individual income that are being classified for providing
Tax treatment is as follows:
 Exempt income
 Non-assessable non-exempt income
 Other amounts that is not taxable
 Exempt income
The income that are being categorised as “Other Amounts that are not taxable” generally do not
needed to be declared by an individual resident Australia
 Rewards or small gifts such as cash birthday presents that are being received by the
individual residents of Australia (however, gifts may be taxable if they are large amounts
or you receive them as part of a business-like activity or in relation to your income-
earning activities as an employee or contractor)
 Prizes an individual has won in ordinary lotteries, such as lotto draws and raffles
 Prizes an individual won in game shows, unless the resident regularly receive appearance
fees or game-show winnings
 Child support and spouse maintenance payments received by an individual
Here in the present case scenario the earnings of AUS$ 85300 by Stella from sports participation
is taxable under the category of regular receipt of appearance fees in the sports events.
On the other hand the gift receipt in the form of an antique gift worth AUS$ 1500 is not taxable
as it can be categorized as “Other Amounts that are not taxable” and therefore need not to be
declared for the purpose of taxation while filling the tax return.

Taxation Advice for Mia:
Mia received $ 5000 from sports participation:
Mia is a teacher by profession and she is also a sports enthusiast and she is not a regular sports
event participant. In that case if she had earned as AUS$ 5000 as price money from participation
in a sports event then this income should be categorised as the income that an individual has
earned as a price money from the participation in a sports event on an ad hock basis. Thus such
earnings are not a regular event and therefore should be categorised as “Other Amounts that are
not taxable”. Therefore the earnings of AUS$ 5000 do not needed to be taxed or disclosed while
filling the return.
Mia is expecting to earn from organic gardening:
Mia is a keen gardener and out of this hobby she is holding organic farming g in her 7-acre piece
of land where she has planted and nurturing avocado, fig and walnut trees. The trees are yet to
produce the return. But Mia is already seeing a possible profit making opportunity from the sales
of products generated from organic farming .That is why she is currently looking into potential
stalls at Sunday markets and also looking for environmental friendly options for packaging. She
has also set up a face book page labelled as “Mia’s Hobby Farm Organics”
Now if Mia manages to generate some income from her organic farming hobby in near future
then the income will probably come under the tax net as per the hobby income taxation
requirement of the ATO (Australian Taxation Office) which are as follows:
1. The individual has registered a business name
2. The individual has an Australian Business Number
3. The main purpose of an individual is to make a profit

4. The individual is continuing the activity and is making repeated sales
5. The individual is expecting an increase in the activity so that the activity can be
converted in to a fulltime commitment
6. The individual is having a separate bank account
7. The online presence of an individual looks like a shop with a brand name, paid set up,
well developed business plan and with ongoing systems and processes in place.
Among the above mentioned conditions MIA has already fulfilled the requirements of 3,4,5,7.
As Mia is looking for a potential market for the growing of the organic framings then it indicates
that her main purpose is to make profit and therefore requirement-3 is fulfilled.
As Mia is all set to continue the activity therefore and to make repeat sales of her organic
products therefore requirement-4 is fulfilled
Mia is also thinking of increasing the farming activity, which also fulfils the requirement of 5
Finally she had opened a face book page with a label that tantamount to a online presence with a
brand name and therefore fulfils the requirement-7
In such a situation, if Mia started to earn substantial income then ATO may ask MIA to fulfil the
entire requirement so that the hobby income can be identified as business income and to pay
taxes.
Taxation in case of capital gains made by Mia from sale of house property:
Mia sold her house for $360,000 in 2017 which she purchased in 1 July 2007 for an amount of
$145,000 and she gained as amount of AUS$ 215000 while signing the selling contract on
June,2017.Thsu she is liable to pay the capital gain tax as per the following requirements of ATO
(Australian Taxation Office)
If an individual sell a capital asset, such as real estate or shares, he or she usually makes a capital
gain or a capital loss and the difference between selling and acquiring cost of the asset is taxable

An individual should report any kind of capital gains or losses in their income tax return and
should pay tax on capital gains. Although the tax is referred to as the capital gains tax (CGT), but
in reality this is not an income tax or better to say not a separate tax.
Any kind of capital gain attained by an individual is added to the assessable income of that
person and this addition may significantly increase the tax amount payable by that individual.
In case of capital loss the individual can’t claim it against the other income but however an
individual can use it to reduce a capital gain.
All assets you’ve acquired or sold are being subject to CGT unless specifically excluded from on
20 September 1985(Ato, 2018).
Here in the present case scenario it has been mentioned that Mia has spent $45000 for the
renovation of the house which she had sold and it is worthy to mention that while calculating the
reduced cost base any kind of maintenance cost cannot be included. Moreover Mia cannot even
ask for a deductions on capital gain tax on the basis of the maintenance cost or renovation
expense of AUS$45000.
According to ATO(Australian office of taxation) Costs of owning should not include rates ,
insurance, land tax, maintenance costs, interest on money borrowed to buy or improve the
property while working out the reduced cost base for real estate property to be sold or for
claiming exemption on the amount of capital gains tax payable.
Mia received a gift from Stella:
Mia received a home warming gift from Stella which worth of $550 which Stella originally
acquired at a cost of $300.This acquisition of gif t by Mia from Stella should not be considered
as an income $ 250. Because this is a gift of very small amount and therefore it should be
identified as a “Other Amounts that are not taxable” and therefore there is no need of disclosing
this receipt of gift for the purpose of taxation.

References
Ato (2018). Amounts not included as income. [online] Ato.gov.au. Available at:
https://www.ato.gov.au/Individuals/Income-and-deductions/Income-you-must-declare/Amounts-
not-included-as-income/ [Accessed 24 Sep. 2018].
Ato (2018). Capital gains tax. [online] Ato.gov.au. Available at:
https://www.ato.gov.au/General/Capital-gains-tax/ [Accessed 24 Sep. 2018].
Ato (2018). What income you pay tax on. [online] Ato.gov.au. Available at:
https://www.ato.gov.au/Individuals/International-tax-for-individuals/Coming-to-Australia/
Paying-tax-and-lodging-a-tax-return/What-income-you-pay-tax-on/#Australianresidents
[Accessed 24 Sep. 2018].
Barrett, A. (2018). When do you have to start paying tax on your hobby?. [online] The Sydney
Morning Herald. Available at: https://www.smh.com.au/business/banking-and-finance/when-do-
you-have-to-start-paying-tax-on-your-hobby-20180420-p4zaph.html [Accessed 24 Sep. 2018].
taxsummaries.pwc (2018). Australia Individual - Taxes on personal income. [online] Available
at: http://taxsummaries.pwc.com/ID/Australia-Individual-Taxes-on-personal-income [Accessed
24 Sep. 2018].