Australian Taxation Law: Analysis of Stone vs. FCT Case

This essay analyzes the Stone vs. FCT case in Australian taxation law, exploring the concepts of income, business, and hobby. The ruling and its application in designing taxation programs for athletes are discussed.

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AUSTRALIAN TAXATION LAW
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Australian Taxation Law
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Australian Taxation Law
Introduction
A tax refers to any amount of money that is charged by the government on the income of
a corporation, individual or the value of a gift or trust. Taxes are divided into different types.
Typical examples include the real estate taxes, consumer sales taxes, and use taxes
(Findlaw.com, 2018). Usually, tax fee is not a voluntary giving but an enforced contribution
following the legislative authority of the relevant country (Findlaw.com, 2018). Therefore, tax
law refers to all the legal rules and regulations governing the tax imposition operation. Following
the Australian constitution, the Commonwealth parliament is responsible for ensuring specificity
among the tax laws. Some of the typical subjects entailed in the tax law include luxury car tax,
customer duties, wine equalization taxes, excise duties, benefits taxes and income taxes
(University of Melbourne, 2018). Therefore, this essay is set to analyze the Australian taxation
law case (FC of T Vs. Stone) to explore the concepts circumnavigating around the issue,
application, rule, and conclusion.
Issue
The fundamental issue within the case between Stone and FCT is the determination of the
meaning of income. In the case provided, the Australian Federal Court is undergoing problems to
determine whether the grant payments made to an athlete fall under the income category. Stone
vs. FCT case involves Ms. Stone who disclosed $39,832 as assessable income from Queensland
Police Force and $136,448 from javelin throwing activities (Clark, 2004, P.3). A Commissioner
then claimed that the total amount was assessable income hence Ms. Stone is liable for paying
tax under Income Tax Assessment Act 1997 thus rendering the case into a court hearing. The
first hearing was done by Hill J who identifies four fundamental legal issues. Firstly, the

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meaning of income following the ordinary concepts was to be brought into account (Kluwer,
2005). Secondly, it’s to be determined if Ms. Stone is carrying out a business or pursuing a
hobby. Thirdly, payments made to Ms. Stone were to be examined if made for personal service.
Finally, the court had to find out if the grants received by Ms. Stone compensated an income
item. Therefore, the Australian Courts were to determine if Ms. Joanna Stone's operation was
worth being taxed under the Australian laws and regulations. As earlier mentioned, taxation law
is a regulatory operation and therefore its fundamental to ensure that an activity is a source of
income to an individual before tax imposition. In this case, the court had a hard time to point out
if the event was a business operation that generates income or an operation aimed at pursuing an
individual hobby.
Rule
The judgment made by Hill J followed the different attributed of income as presented in
the Australian constitution. Ordinarily, income attributes included the gains obtained from
business, rewards on any service rendered and finally any compensation that would generate an
income item when derived. The ruling kept more emphasis on determining if Ms. Stone’s Juvelin
career activities went beyond the level of becoming a hobby to a level of being regarded a
business of a professional athlete. The ruling over the case came in two turns whereby Hill J
argued that Stone had changed his hobby into a business operation for money while the Full
Court of the Federal Court held the opposite. Hill J considers the fact that assessable income
constitutes all the capital gains as presented in the 1997 Income Tax Assessment Act. According
to section five of division six of the Australian Tax Assessment Act, assessable income entails
income under ordinary concept (Australian Government, 2017). However, the application of
ordinary concept is minimized by section 10-5 of the 1997 Income Tax Assessment Act as it puts

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into consideration other provisions of income such as statutory income (Australian Government,
2017). Section 6-15 of the 1997 Income Tax Assessment Act emphasizes on the provisions in
section 10-5 by stating that any income which is not categorized as statutory or ordinary is not
worth being taxed (Australian Government, 2017). Therefore, the ruling by Hill J follows the
fact that athlete javelin activity earnings are categorized as ordinary income. On the other hand,
the Federal Court focus on the 1999/17 ATO Tax Ruling statements regarding the taxation of
sportsmen whose originality is stressed back to the 1936 Federal Tax Assessment Act. The
federal court considers the fact that even the ordinary income is recognized as an exempt income
under section 6-20 of the 1997 Income Tax Assessment Act (Australian Government, 2017).
Even though any capital generated from sports is income under the ordinary concept, the rest of
the court was constrained by the constitutional distinction of a hobby and income.
Application
The case above is applicable when designing taxation programs for athletes in Australia.
Even though the meaning of income is straightforward, the ideology is entirely complex in
Australia and required great evaluation. The traditional concept of business operations as per the
1936 Income Tax Assessment Act still apply today. Sporting activities should follow the
statements made in the 1999/17 ruling by the ATO. The 1999/17 ruling was set aside to decide if
the benefits gained by athletes were taxable or not (ATO, 2002). The ruling did not differentiate
amateur athlete from professional ones (ATO, 2002). Therefore, whether an athlete is an amateur
or professional has no implication in determining whether the benefits are taxable or not (ATO,
2002). The ruling finally stands that benefits from athlete activities are not assessable under the
1936 and 1997 Australian Tax Assessment Act (ATO, 2002). In case the meaning of tax under
ordinary concept is to be brought forth, then there is a need to seize the application of the 1936

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Income Tax Assessment Act and strictly rely on the 1997 ITAA. Therefore, it’s important to
consider the facts brought out in this case in order to differentiate athletes who have turned their
talents into commercial businesses from those carry out the operations as a hobby to avoid
discrepancies during the taxation process.
Conclusion
Although the ideology of differentiating commercial athletes from the rest during
taxation sounds perfect and logical, its application has been limited by the meaning of income
under the ordinary concepts. Such an issue is fundamental for it presents contradictory
conclusions during the case ruling. Therefore, it's fundamental to bring the two thoughts on the
forefront for further evaluation, so us to determine the soundest and applicable cause of action is
imposing taxes.

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Reference
ATO (2002). Taxation Ruling TR 1999/17 [online]. Retrieved from:
http://law.ato.gov.au/atolaw/view.htm?docid=TXR/TR199917/NAT/ATO/00001 [Accessed on
21, October 2018].
Australian Government (2017). Income Tax Assessment Act 1997 [online]. Retrieved from:
https://www.legislation.gov.au/Details/C2017C00282 [Accessed on 21, October 2018].
Clark, B.D., 2004. The Meaning of Income: The Implications of Stone v FCT. Revenue Law
Journal, 14(1), p.9.
Findlaw.com, (2018). What is Taxation Law [online]? Retrieved from:
https://hirealawyer.findlaw.com/choosing-the-right-lawyer/taxation-law.html [Accessed on 20,
October 2018].
Kluwer, W. (2005). FC of T v STONE, High Court of Australia, 26 April 2005. Retrieved from:
https://iknow.cch.com.au/document/atagUio482498sl14409817/fc-of-t-v-stone [Accessed on 20,
October 2018].

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University of Melbourne (2018). Australian Taxation Law: Legislation [online]. Retrieved from:
http://unimelb.libguides.com/australian_taxation_law/legislation [Accessed on 20, October
2018].