PART A (10 marks)
Anna Wanderlust is a tax lawyer who regularly travelled overseas for work. After having a baby in late 2015 she took unpaid leave from work to travel around the world. Traveling with an infant required much preparation and a reasonable amount of equipment. Anna enjoyed researching and testing travel gear, and as a consequence she developed a reasonable knowledge about traveling with young kids.
In March 2016 Anna had an idea to start a travel blog to share her experiences with other parents and keep memories of her trips. She registered her blog’s domain ‘www.babywanderlust.com’ with a paid host server at a cost of $20 per year and frequently posted tips about airlines, kid-friendly hotels and product reviews of the travel gear she used. She also regularly shared her blog photos and the links to her posts on her Instagram account and Facebook page, which generated thousands of ‘likes’ and substantially increased the number of visitors to her website.
In July 2016 a baby pram manufacturer invited Anna to test and write a review on their latest ultra-lightweight travel pram. She would not receive any money for the review however she could keep the pram, which was retailed for $600. In January 2017 a resort in Fiji offered her 1-week free accommodation (valued at $2,000) in exchange for a blog post about her stay.
Offers of that kind became frequent, and in the current income year she estimates having received a total of $22,000 in benefits, $18,000 in advertising fees, and her travel expenses amounted to $14,000.
Required: Advise Anna Wanderlust on the tax consequences of the above for the income year ending 30 June 2018, applying legislation, case law and tax rulings to support your answer.
PART B (10 marks)
In July 2017 Anna Wanderlust secured a 3-year advertising agreement with ‘La Leche’, a manufacturer of baby formula. The agreement granted La Leche the right to advertise its brand and its products on Anna’s website in exchange for a monthly fee of $600. In March 2018, La Leche was taken to Court under allegations that its products contained prohibited substances, which led to the immediate cancellation of all its advertising contracts. As a result, La Leche and Anna negotiated the termination of their contract upon La Leche paying Anna a termination fee corresponding to the expected loss of profits for the next 12 months. The amount of $7,200 was paid to Anna on 1 August 2018.
Required: Advise Anna Wanderlust on the tax consequences of the above for the income year ending 30 June 2018, applying legislation, case law and tax rulings to support your answer.