1) Fiona Martin, an independent contractor for a pharmaceutical company “Health Products”, provides services as a medical distributor. On 15 June 2021, Health Products, in recognition of her outstanding achievements in the distribution department, provides Fiona a free non-transferrable package to visit Dubai and attend three cricket matches of T20 International World Cup 2021. The value of free package includes an air ticket, a two weeks’ stay in a hotel in Dubai, and three match tickets amounting to $8,000. In the same year, Fiona also receives $112,000 from Health Products for her work as a medical distributor.

Required: 

Using relevant legislation and case law, advise Fiona of the income tax consequences relating to the benefits she receives from Health Products. (4 marks)

2) Mines and Minerals Ltd. (“MML”), a company engaged in the extraction of minerals like bauxite, alumina and lithium, is incorporated in Cayman Islands. In its books of accounts, “MML” shows business in four countries including Australia. The company has 50% shareholders from Australia. For the year 2020-21, “MML” has worldwide income of $8.5 million (including Australian sourced income of $2.5 million). The Board of directors of the company meets annually in Cayman Islands. However, the minutes of the Board’s meetings do not include some of the key operational decisions relating to the financial year 2020-21.

Required: 

Using relevant legislation and case law, discuss whether MML is an Australian tax resident and what amounts (if any) would form part of its assessable income. (4 marks)

3) “Infection Shield Inc.” is a manufacturer of cleaning and disinfection products. One of its products “Microbe Guard” becomes popular during the Covid-19 spread. The product, registered with the drug regulatory authority, is considered to be 80% more efficient than the other surface disinfectants in the market. On 10 March 2021, “Aussie Pharma” a pharmaceutical company, enters into an agreement with the Infection Shield Inc. to have an exclusive right to use the formula of Microbe Guard for five years. Under the agreement, Aussie Pharma will pay 25% royalty to Infection Shield Inc. on the net revenue derived from the use of Microbe Guard formula. On 13 March 2021, Infection Shield Inc. sells the right to these royalties to a third party, “Andersons & Co.”, for $500,000.

Required: 

Citing relevant legislation and cases, advise Infection Shield Inc. of the income tax consequences on receipt of $500,000 from Andersons & Co. (4 marks)

Answer rating: 100% (QA)

Internal Revenue Code IRC 61 defines gross income as income from whatever source derived IRC 74 provides generally all prizes and awards are gross income unless its i a qualified scholarship or ii tra... View the full answer