Cyril is a legal academic who teaches at Orange NSW. Because of his ability as a teacher, in recent years he has been able to supplement his income from his Australian university by fees paid to him for writing and teaching short courses at several institutions in Asia. He has an interest in environmental issues and for many years has dreamt of buying some acreage where he can install environmentally friendly technology and eventually retire and watch the trees grow. He finds the ideal property near Mudgee NSW and purchases it for $300,000. He borrows $280,000 at 7% interest from Big Bank to fund the purchase. Prior to completing the purchase Cyril approaches Enviro-energy Pty Ltd, a provider of environmentally friendly energy, and enters into an agreement with them under which the company will erect 10 electricity-generating windmills on Cyril’s Mudgee property. Enviro-energy Pty Ltd agrees to pay Cyril $5,000 per annum for the right to locate windmills on his property.

The fee is payable whether or not the windmills are operating through the year. The agreement is for a period of 10 years. After completion of the purchase, Cyril then borrows another $100,000 from Big Bank at 7% and constructs an environmentally friendly cottage on the Mudgee property. Cyril equips the cottage with computers and high-speed internet access. Cyril then moves into the cottage. He commutes from the cottage to Orange to teach.

Cyril incorporates a company “Cyril Academic Consultant Pty Ltd” of which he is sole shareholder and director. Thereafter, while based at his Mudgee property, Cyril devotes all his time to writing and teaching courses for Asian universities as an employee of Cyril Academic Consultant. Cyril Academic Consultant Pty Ltd takes out a professional indemnity insurance policy in respect of Cyril’s activities. All communications with the Asian universities are conducted through Cyril’s Mudgee property. In the current year, Cyril received a salary of $100,000 from the Orange university. Cyril Academic Consulting Pty Ltd received consulting fees of $800,000 in consulting fees from Asian universities and paid Cyril a salary of $120,000. Later in the same year, Enviro-energy Pty Ltd is placed into receivership and the receiver, with a view to reducing costs, cancels Cyril’s contract and offers to pay Cyril $15,000as compensation for the loss of the agreement. Cyril accepts the offer and requests that payment be made to Cyril Academic Consulting Pty Ltd. The receiver of Enviroenergy duly makes the payment as per Cyril’s request.

1. Advise Cyril as to whether any of his receipts are income to him and, if so, on what basis.

2. Advise Cyril Academic Consulting Pty Ltd as to whether any of the receipts are income to it.

(Do not consider the possible operation of either the general anti-avoidance provision or of the CGT provisions. Do not consider the deductibility of any of Cyril’s expenses at this point).

Answer rating: 100% (QA)

Answer Explanation Calculation of amount earned by Cyril Salary from UCL 100000 1 Salary from Cyril ... View the full answer