Taxation Law: Dividing Rental Property Net Income and Loss Between Joint Owners

Running head: TAXATION LAW
Taxation Law
Name of the Student
Name of the University
Authors Note
Course ID

1TAXATION LAW
Answer to question 1:
Issues:
The issue is related to the classification of yearly payments as having the nature of
income.
Rule:
The ordinary income does not has any definition in the taxation acts. The meaning of
the ordinary income is derived from the case law and is reliant on the principles that emerges
from the decisions. The taxation legislation role is to take into the account the value of
ordinary income in the taxable income given the amount meets the criteria ascertained by the
principles of case laws (Roberts 2017). The sum would be included into the taxable income
under “s 6-5 ITAA”. An individual taxable income comprises of the receipts obtained on the
basis of ordinary meaning that is known as ordinary income.
In “Scott v C of T (NSW) (1935)” the taxation commissioner held that income does
not signifies a term of art as receipts are comprehended inside it (Desai 2013). The court in
“Scott v FCT” stated that whether or not the receipts constitutes income is reliant on the
quality in the recipient’s hands (Baldry 2017). One should denote that there are some
noteworthy standards that demands the taxpayer to consider the receipts as earnings within
the meaning of section 6-5.
Majority of the amounts are easily categorized as ordinary income particularly the
salary and wages as they display the characteristics of recurrence, regularity and periodicity.
Nevertheless, these income should be viewed as the only general characteristics of certain
flow of income. As a matter of fact that the amount received in regular instalments does not
necessarily categorize such receipts as the ordinary income (Kakwani 2017). A receipt is not
categorized as ordinary income unless the receipts is a cash or real gain for the taxpayer. The

2TAXATION LAW
taxpayer must assess any earnings that is received during the year depending upon the factors
relevant in the hands of those that receives it.
Given that both the prerequisites of the income are met, gains will be held as the
ordinary income if the payments holds the adequate characteristics of regular or periodical
receipt or possess the concept of regular flow (Mills, Newberry and Trautman 2015). A gain
that holds the necessary characteristics of regularity or periodicity is more likely regarded as
ordinary earnings than those payments that are paid as lump sum. The federal court in “Blake
v FCT (1984)” characterised regular receipts of payment as an income (Lambert 2015).
Likewise, in “Dixon v FCT (1952)” held that periodical type of payments paid at least
annually in question holds the character of income stream and are regarded as income.
Application:
The lotteries commissioner performs the instant lottery where commission provides
the winner with a payment of $50,000 each every year for 20 years’ time. The first $50,000
was paid soon the notification to the winner is sent while the later the amounts are paid every
year following the first instalment. Mentioning the decision in “Scott v C of T (NSW)
(1935)” it is necessary to determine the nature of annual payment received in the hands of
recipient (Burman, Geissler and Toder 2018). Citing the event of “Scott v FCT” the annual
payment of $50,000 can be easily categorized as ordinary income. This is because the annual
payment of $50,000 involves the characteristics of recurrence, regularity and periodicity. The
payment is made every year to the winner even on the conditions that the outstanding amount
can be paid to the deceased estate if the winner dies.
The annual payment of $50,000 can be categorized as income because the payment is
a real gain for the taxpayer. Denting the event of “Blake v FCT (1984)” the annual payment
of $50,000 meets both the prerequisites of the income as the payments holds the adequate

3TAXATION LAW
characteristics of regular, periodical receipt and owns the concept of regular flow (Allingham
and Sandmo 2013). Henceforth, quoting the event of “Dixon v FCT (1952)” the annual
payment of $50,000 is periodical type of payments which is paid at least annually in question.
The payment holds the character of income stream and should observed as income.
Conclusion:
Annual payment that is paid at each of the 12 months period to the taxpayer is holding
the feature of income. It is necessary to settle that the sum is an income in the hands of the
recipient.
Answer to question 2: