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

TAXATION LAW
STUDENT ID:
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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).