Megan Marvel is a film producer working for Starlight Films, an international film production company. Megan needs

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Question:

Megan Marvel is a film producer working for Starlight Films, an international film production company. Megan needs to do her income tax return for the 2023 income year and she has come to you for advice.

Item 1 - Megan's Income Megan earns a salary of $650,000 per annum from Starlight Films. In the 2023 income year, Megan received an Academy Award ('Oscar') from the American Film Academy for her work in producing a film. She received a gold statue worth $20,000. She had to sign a contract agreeing not to sell the statue.

Megan's investment portfolio comprises of the following: Asset Acquisition Date Acquisition Price Notes Alpaca farm 24 June 2005 $200,000 Property is a 20 hectare (ha) farm with a house and farm buildings near Lake George. Shares in Rio Tinto 10 June 2018 $1m

She spends a lot of time at her Alpaca farm near Lake George, mainly on the weekends. She owns a home in Nicholls that is her main residence. The farm has a house, several farm buildings, and the land where the alpacas graze. She is a member of the local farmers' association and attends lectures on keeping alpacas for their wool. She employs two students on a part-time basis to help her look after the alpacas. She hires a shearer every year to shear the alpacas. At first, she kept the alpacas as pets and let the shearer dispose of the wool clippings from shearing the alpacas. After a few years, Megan realised that her alpacas were producing a significant amount of wool and that it is highly valued by clothing manufacturers. Megan started selling alpaca wool to the fashion houses in Melbourne. She keeps records of her income and expenses. Megan received $250,000 from selling alpaca wool in the 2023 income year.

Recently, a property developer approached Megan. The developer advised her to redevelop the farm buildings into twenty-five townhouses. The farm buildings were located in a separate area to the farm and her house, so she decided to subdivide the property into two 10 ha lots of equal size (Lot A and Lot B). Lot A had the house and farm, which she retained for her personal use and for keeping the alpacas. Lot B had the buildings that would be redeveloped into twenty-five townhouses. The cost of the subdivision was $20,000 for Lot A and $50,000 for Lot B.

She engaged a builder to build the twenty-five townhouses on Lot B and worked closely with. him on the design of each townhouse. At the time the development commenced, the market value of Lot A was $1,500,000 and $1,250,000 for Lot B. The construction costs for the townhouses built on Lot B was $24m.

Shortly after completion, Megan sold the twenty-five townhouses built on Lot B for $32m on 30 June 2023.

Megan also received the following income in the 2023 income year: $25,000 in franked dividends from shares she owned in Rio Tinto.

Required: Explain to Megan Marvel how the gains in the above-mentioned transactions would or would not constitute assessable income under the income tax legislation Use relevant legislation and case law to support your answer. Do not consider residence and source issues, although you can assume that Megan is an Australian resident. Include calculations if required. If you decide that an amount is a capital receipt assume it is not assessable income for the purposes of this Assignment (ie, there is no need to calculate the capital gain).

Item 2 - Megan's Expenses Megan incurs the following expenditure during the 2023 income year:

She pays $30,000 for alpaca food.
She pays for the alpaca food using her credit card. She pays $1,500 in interest to the credit card company for the purchase.
She receives an $800 speeding fine on the way to Melbourne to attend a fashion show where the models were wearing clothing made from the wool of Megan's alpacas. Megan has a stall at the fashion show where she displayed the alpaca wool from her farm.
On 1 May 2023, she buys a laptop, costing $3,000. The Commissioner states that the laptop has an effective life of three years. She uses the laptop 75% for her job and the rest of the time for streaming Netflix.
She travels from her home at Nicholls to the farm at Lake George on Friday afternoons, returning on the following Sunday night, by taxi, at an annual cost of $2,000.
Megan employs two students to work in the farm, paying a total of $45,000 in wages per year.
She pays the shearer $24,000 each year to shear the alpacas. He is not an employee.
Megan pays $500 per year to attend lectures at the local farmers association.

Required: Using relevant legislation and case law, explain to Megan whether the amounts in the above-mentioned transactions would or would not be allowable deductions for income tax purposes in the 2023 income year. Show calculations where appropriate. Do not consider the trading stock rules.

Item 3 - GST liability Required: Using legislation and case law, explain the GST implications of the transactions relating to the alpaca keeping activity to Megan arising in the 2023 financial year, and whether a GST liability or an input tax credit will arise (including the amount). Assume that all entities are registered for GST. All amounts are GST-inclusive (where applicable). Do not calculate the net amount for the purpose of the section 17-5 of the GST Act. Do not consider the GST consequences of Megan's building activity or the dividends.

Item 4 - Taxable Income and Income Tax Payable Required: Calculate Megan's taxable income and income tax payable for the 2023 income year. Use legislation to explain your calculation. If you need to make certain assumptions in performing the calculation, state them in your answer