Income Tax Answer Question 2022

Running head: INCOME TAX
Income Tax
Name of the Student
Name of the University
Authors Note
Course ID

INCOME TAX1
Table of Contents
Part 1..........................................................................................................................................2
Answer to question 1 A-............................................................................................................2
Requirement A:......................................................................................................................2
Answer to B:..........................................................................................................................3
Answer to question 1 B:.............................................................................................................4
Part 2: Policy Based Questions..................................................................................................8
Introduction:...........................................................................................................................8
Discussion:.............................................................................................................................8
Conclusion:..........................................................................................................................13
References................................................................................................................................14

INCOME TAX2
Part 1
Answer to question 1 A-
Requirement A:
When a taxpayer receives a payment for restricting or relinquishing any rights then it
is not held as an income. For example, payments received for not doing something is not held
as income. It is regarded as the agreement that is entered into by a parson that imposes a
restriction on the income producing activities of the taxpayer or their rights. Where a
taxpayer receives payment for entering into the contracts agreement are held as capital in
nature. The court of law in “Dickenson v FCT (1958)” held that the taxpayer was the
proprietor of service station and entered in an agreement with the Shell Oil Co to limit the
sale of his products for a specified time1. The taxpayer here also agreed not to operate any
identical form of service station inside the five miles for his current business without entering
in any other identical agreements. The court considered the payment as capital in nature.
Likewise, in case of Deb who is presently employed as tax specialist for a
supermarket chain entered into an agreement of giving up her contractual right of having paid
day off each month in exchange of $20,000. Referring to the case of “Dickenson v FCT
(1958)” the lump sum amount received in exchange of giving up the right of paid day off will
be treated as capital in nature and will not be held assessable2. This is because the payment
amounts to a restrictive covenant that imposes a restriction on the income producing activities
of Debt and her rights as well.
1 Brauner, Yariv and Miranda Stewart, Tax, Law And Development
2 Deutsch, Robert Et Al, Australian Tax Handbook 2018 (Thomson Reuters Australia, 2018)

INCOME TAX3
Answer to B:
In another instance it is noted that Deb also entered into an agreement of not carrying
her own tax business on business as this would hamper her job performance during working
week. Consequently, she entered into an agreement of $10,000 to give up her present tax
business. The court in “Pritchard v Arundale (1972)” held that the inducement payment
given to accountant to leave the private practice and work for the company for the six
months’ time period was not held as income3. Similarly, citing the case of “Pritchard v
Arundale (1972)” the payment of $10,000 that is received by Deb for giving up her present
tax business will be considered as capital in nature and will not be held assessable.
3 Kenny, Paul, Australian Tax 2013 (LexisNexis Butterworths, 2013)