Taxable Income Calculation for Jenny in 2017/2018 - Taxation Law

This article explains the calculation of taxable income for Jenny in 2017/2018 under Taxation Law. It covers topics like cash or accrual basis, taxation of prize money, assessable income from gym and more.

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The key objective in the given case is to highlight the taxable income for Jenny for the year
2017/2018 considering the given facts.
The key questions to be addressed in the given case are outlined below.
1) Taxable income should be indicated using cash receipt basis or accrual basis
2) Would the money earned during preparing for bodybuilding competition and prize money
be taxable?
3) Whether the payment of fees towards treadmill be considered as assessable income for
Jenny?
4) Whether the $ 1000 receipt from Doreen is assessable income or gift?
Cash or Accrual Basis
As reflected in TR 98/1, the taxpayer is given choice with regards to choosing either the cash
basis or accrual basis for reporting income based on the consideration that the appropriate
choice would be the method which provides a more accurate description (CCH, 2013).
As a thumb rule, for businesses where the revenue is dependent on services provided on
account of the skills and knowledge of the taxpayer, the receipts method is preferable. The
earnings method is preferred. Earnings method is more preferable for income derived on
account of manufacturing or trading business (Barkoczy, 2015). However, as per the Dixon J
in the The Commissioner of Taxes (South Australia) v. The Executor Trustee and Agency
Company of South Australia Limited (1938) 63 CLR 108, the underlying circumstance tends
to drive the decision (Sadiq et. al., 2016). In the given case, earnings method would be
preferred since if the clients fail to attend sessions, they can get refund. As a result, the cash
paid in advance should not be reflected in the income since it is prone to refunds.
Hence, assessable income from business as personal trainer = 28800 + 6000 + 1/3*7800 =
$37,400
Local Gym & Body Building Competition
The first noteworthy aspect is that the prize money derived from body building competition
would be considered as ordinary income under s.6(5) ITAA 1997 since it would be
categorised as income derived from personal exertion. This is because it is sufficiently
closely related to the profession to the taxpayer (Deutsch et. al., 2016).

Further, while preparing in the local gym, Jenny works as physical trainer and is able to
derive an income of $ 8,000. Clearly, this would be recognised as assessable income since
this is the salary from working as an employee and would be considered as ordinary income
under s.6(5) (Woellner, 2014).
Also, it is imperative to note that the amount of fees diverted towards the damaged treadmill
would be considered as income under s. 6(5). This is because economic benefit has been
extracted from the clients. However, the same has been diverted towards loss on account of
damage to treadmill (Gilders et. al., 2016).
Receipt of $ 1000 from Dareen
As per TR2005/13, a gift has the following characteristics (Coleman, 2011).
 There is actual transfer of interest in property in favour of transferee.
 This transfer should be voluntary in nature.
 Benefaction should lead to the transfer
 In wake of the transfer, the transferor should not have any expectations of receiving
any favours or property.
In the given case, all the conditions cited above are fulfilled as explained below.
 Doreen has given $ 1000 to Jenny, hence transfer has taken place.
 Jenny did not ask for the payment, hence voluntary
 The transfer is prompted by gratitude towards Jenny.
 By giving $ 1000, Doreen has no expectations for any favours from Jenny
Thus $ 1000 is gift and hence non-taxable amount.
Total Assessable income
Income from business as PT = $37,400
Income from local gym = 8000 + 500 = $ 8,500
Income from prize money = $ 5,000
Total assessable income for the year 2017/2018= 37400 + 8500 + 5000 = $ 50,900

References
Barkoczy, S. (2015) Foundation of Taxation Law 2017. 9th ed. Sydney: Oxford University
Press.
CCH (2013), Australian Master Tax Guide 2013, 51st ed., Sydney: Wolters Kluwer.
Coleman, C. (2011) Australian Tax Analysis. 4th ed. Sydney: Thomson Reuters (Professional)
Australia.
Deutsch, R., Freizer, M., Fullerton, I., Hanley, P., & Snape, T. (2016) Australian tax
handbook. 8th ed. Pymont: Thomson Reuters.
Gilders, F., Taylor, J., Walpole, M., Burton, M. & Ciro, T. (2016) Understanding taxation
law 2016. 9th ed. Sydney: LexisNexis/Butterworths.
Sadiq, K, Coleman, C, Hanegbi, R, Jogarajan, S, Krever, R, Obst, W, & Ting, A
(2016) , Principles of Taxation Law 2016, 8th ed., Pymont: Thomson Reuters
Woellner, R (2014), Australian taxation law 2014 7th ed. North Ryde: CCH Australia