Tax Implications of Given Transactions for Marissa Simpson

TAXATION
STUDENT ID:
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Question 2
The objective is to ascertain the tax implications of the given transactions particularly with
regards to assessable income generation for Marissa Simpson.
1) Salary of $120,000 per annum from University of Melbourne – It is known that Marissa is
a lecturer and was working with University of Sydney before taking up the contract with
University of Melbourne. Thus, this is employment income and categorised as ordinary
income under s.6(5) ITAA 1997 (Gilders et. al., 2016). Hence, this would contribute to
assessable income for Marissa.
2) Sign on fees of $ 15,000 – In accordance with tax ruling TR 1999/17, tax ruling IT 2307
and also case law Reuter v. FC of T (1993) 111 ALR 716 at 730, the sign on fees would
constitute as ordinary income only and thereby would contribute to assessable income under
s. 6-5 ITAA 1997 (Barkoczy, 2017).
3) $ 2000 per month as part of ‘software development contract’ – This sum of money was
paid to Merissa so that she should carry all sales activity and related payment of the
associated income. As a result, this income is being derived from personal exertion and hence
would be categorised under ordinary income s. 6-5 ITAA 1997 (Deutsch et. al., 2016).
Therefore, the income would be assessable for tax purposes.
4) $ 70,000 from Scott – It is imperative to determine whether the given receipt is revenue or
capital. It is noteworthy that Scott is paying Merissa $ 70,000 for giving up the right to draw
any future payments from Microtech. Hence, Merissa is selling her right to draw payment for
$ 70,000. Since her right is an asset which can bring future benefits, there $ 70,000 amount of
capital proceeds with regards to sale of an intangible asset. Thus, no assessable income would
be produced from the given transaction (Coleman, 2016).
5) Damages received from Scott to the tune of $ 50,000 – In accordance with tax ruling
TR95/35, the tax treatment of compensation receipts is dependent on the type of income
source that the compensation seeks to provide substitute for. Hence, if any compensation is
provided for any loss of asset, then the same would be treated as capital receipts and
considered non-taxable (Barkoczy, 2017). In the given case, $ 30,000 worth of damages was
paid for harm to Merissa’s reputation which is an intangible capital asset capable of future
benefits. Therefore, $ 30,000 would be capital receipts and would not amount to assessable