Lan has been dabbling in the blockchain space. Sinclair sees it as critical as the next generation of tax practitioner that you have a solid understanding of the tax implications arising from this space.

The following working papers are available to you in Lan's client file following a meeting Sinclair had.

Client Number: 0023781

Client's Preferred Name: Lan

Client Meeting: 12 July 2022

Item 1: Meeting notes prepared by Sinclair (tax practitioner) and Lan (client) on blockchain-related activities

In January 2022, Lan acquired $500 worth of Ether, the cryptocurrency used on the Ethereum blockchain. Lan immediately used half the Ether to purchase a non-fungible token (NFT), costing $255. The NFT represents a digital piece of artwork she has acquired for investment purposes as she has heard that they could become extremely valuable (or equally flop or even be a scam). The remaining Ether is kept for investment also.

By early February, the NFT rose to $15,000 in value and Lan sold it for this amount. In doing so, Lan received $15,000 value in Ether, for which she then immediately converted back to Australian dollars. By the time she did so, the Ether value had increased slightly and she received $15,450 in Australian dollars into her bank account the same day.

Her friend, Levi, was interested in Blockchain as well. At the beginning of March, Lan airdropped Levi a fifth of her remaining Ether. The value at the time of the transfer was $120.

In April, her wallet was hacked and she lost her remaining Ether, which was valued at $450. The police were not able to help her.

Lan has carried forward losses from a painting she had sold last year of $8,000. The painting had been hanging in her bedroom until she decided to upgrade her dcor.

Required:

Determine Lans net capital gains for the year ended 30 June 2022 by answering the following questions. Ensure you refer to appropriate legislation and show all workings and explanations. You must show a complete analysis to be awarded full marks.

Hint: you may find the ATO guidance on cryptocurrencies (Links to an external site.) useful. Importantly, crypto-assets are seen as CGT assets not money.

1. Analyse each CGT event that occurs in respect to Lans crypto-related activities. In doing so, ensure you detail all aspects of the event before coming to a determination of each respective taxable gain (loss) (15 marks).

2. Determine the net capital gains (loss) for Lan (3 marks).

3. Outline how your response in the prior question impacts Lans taxable income (2 marks).

In addition to the crypto-activities outlined above, Lan has the following activities relating to her 2022 tax return.

• Gross Salary of $89,000 relating to her employment as a Technology consultant with J&I Consultants, ABN 12 345 678 910. PAYG of $33,000 was withheld.
• Travel allowance of $10,000 relating to the expectations of her work to meet clients.
• Interest income of $200 relating to her Australian bank account.
• Lottery winnings of $12,000.
• $800 in work related phone bills that her employer has reimbursed.
• Employer provided laptop valued at $3,000 that she uses for work purposes.
• Private health insurance for the full 2022 income year.

PART B

Required:

1 Salary or wages

PAYERs Australian Business Number	Tax Withheld $	Income C $
[input]	[input]	[input]

2 Allowances, earnings tips, directors fees etc

Tax Withheld $	Income K $
[input]	[input]

5 Australian Government allowances and payments like Newstart, Youth Allowance, JobSeeker and Austudy payments

Tax Withheld $	Income A $
[input]	[input]

TOTAL TAX WITHHELD

$[input]

10 Gross interest

Tax file number amounts withheld from gross interest M $	Income L $
[input]	[input]

18 Capital gains

Did you have a capital gains tax event during the year?

G

No

[input]

Yes

[input]

Total current year capital gains

H

$[input]

Net capital losses carried forward to later income years

V

$[input]

Net capital gain

A

$[input]

TAXABLE INCOME OR LOSS

$[input]

Determine Lans taxable income, basic tax payable, and liability to both the Medicare Levy and Medicare Levy surcharge by completing the following question set.

1. Complete Lans tax return using the following tax return extract (6 marks).

Hint: Copy and paste the following extract into the response text box and then complete the sections. If you are confused over the extract from the tax return, you can find information here (Links to an external site.).

2. Calculate Lans basic tax payable (1 mark).

3. Determine Lans liability for both the Medicare Levy and Medicare Levy surcharge (2 marks).

4. Reflect on the impact of the crypto-related activities on Lans tax payable (1 mark).