Case study: Sue Lin was made redundant from her employment on 15 March 2009. She is motor car enthusiast, and so decided to take this opportunity to spoil her hobby. On 1 July 2008 Sue took out a bank loan of Rs750, 000 at the annual interest rate of 10%, rented a workshop for 12 months at a rent of Rs4, 000 month, and bought high precision equipment at a cost of Rs235, 000. On 10 July 2008 Sue bought four dilapidated motor cars for Rs80, 000 each. The restoration of the four motor cars was completed on 10 June 2009 at a cost Rs120, 000 each motor car. Sue immediately sold all of the motor cars for a total of Rs2, 000,000 - Sue was then offered employment elsewhere in the country beginning on 1 July 2009. She therefore sold the equipment for Rs150, 000 on 20 June 2009, repaid bank loan on 30 June 2009.
As she has just been indulging her hobby, Sue thinks that the disposal of the motorcars throughout the tax year 2008/9 should be exempt from tax. Sue has done some research on the Internet and has discovered that whether or not she is treated as carrying on a trade will be determined according to the 'badges of trade':
Sue had no other income throughout the tax year 2008/9 except as indicated above and was entitled to deductions in respect of 3 dependents.
(a) List out the nine badges of trade and briefly describe the meaning of each of the ‘badges of trade' listed. You are not anticipated to quote from decided cases.
(b) Briefly describe why Sue is likely to be treated as carrying on a trade in respect of her motor car activities.
(c) Evaluate Sue's income tax liability for tax year 2008/9, if she is treated as carrying on a trade in respect of her motor car activities.