Assesable Income: Business or Hobby

PART A: Mr John White is a senior tax accountant working with H&S Tax Accountants since 2008. He also has a passion for home brewing (his lifelong dream was to be a professional brewmaster), and for many years he has been brewing his own beer at his garage. In many occasions he gifted his friends with the beer he produces.

In August 2013 he took long service leave from work and enrolled on a 3-month long Certified Brewmaster Course in Berlin, where he gained in-depth understanding of the many aspects of brewing. He also spent 1-month traveling in Germany researching the different beer flavours and experimenting techniques. The total cost of the trip (including course fees, accommodation and airfares) was $18,000. Back in Australia, he decided to upgrade his home brewery with larger kegs and new fermenters (total cost: $8,000), which allowed him to produce 4 different kinds of beer. He also designed labels that were applied on recycled bottles, allowing him to properly identify each type of beer.

In September 2015 one of his workmates from H&S organised a fundraising event and invited him to participate by providing his beer. Mr White provided 50 litres of each type of his beers, which were all sold quickly, and all the funds went to charity. On the following month he provided 100 litres of each of his beers to a different event, but this time he was paid a total of $7,200.

In November 2015 he signed a contract to supply beer for the local liquor store, and by 30 June 2016 he had earned $22,000 from sales. For quality control purposes, he kept a record of the dates when he produced and bottled each batch of beer, as well as all orders and payments through his iPad. Whilst he never gave up his job, in January 2016 he decided to reduce his workload at H&S from full time to 60% so he could dedicate more to his brewing activities.

Required: Advise Mr John White on the character of his activities and the tax consequences thereof for the year ending 30 June 2016.

Must use the appropriate case to backup.

 

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