Assignment on Taxation Law - sec 6-5 ITAA 1997

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

TAXATION LAW1
Table of Contents
Answer to question 1:.................................................................................................................2
Answer to question 2:.................................................................................................................5
References:...............................................................................................................................10

TAXATION LAW2
Answer to question 1:
Issues:
Will the income have earned from personal services and employment is included for
assessment under the “sec 6-5 ITAA 1997” as taxable ordinary receipts.
Rule:
For an amount to be held as ordinary earnings the receipts should satisfy the two
prerequisites. The sum is ought to be convertible in cash and it is required to be a real gain for
the taxpayer (Basu 2016). There are namely two step approach that is used in ascertaining
whether the amount will be held as ordinary income from personal exertion.
a. Recognizing whether the activity is undertaken by the taxpayer; and
b. Determining whether the receipts amounts to the reward of doing that specific
activity.
Tips are usually viewed as the gift given by third party and it is included in taxable
income of taxpayer for tax purpose since it is a voluntary payment. In “Penn v Spiers &
Pond Ltd (1908)” tips are usually made due to the extent of service rendered establishes a
link among the service given which makes it as the ordinary earnings under “sec 6-5” (Miller
and Oats 2016).
Receipts which a taxpayer earns from the personal service and employment takes into
account the income from both employment as well as service which may be considered
taxable as the ordinary earnings and statutory earnings (Dietsch and Rixen 2014). In
“Moorhouse v Dooland (1955)” income derived from the direct or indirect sources based on
the quality of taxpayer’s personal exertion it will be regarded as ordinary earnings under “sec
6-5”.

TAXATION LAW3
A receipt would not be treated as ordinary income given the receipts does not form
the part of taxpayer’s employment or product of service. When a taxpayer is given a gift that
is related to personal qualities it is not viewed as ordinary income and will not be viewed
chargeable under sec 6-5 for the receiver. At the time of differentiating amongst the non-
taxable personal gift and the chargeable voluntary payments for service, the federal court
have placed greater emphasis on the nature of receipts in the hand of recipient instead of the
emphasizing on the motive of the giver. In “FC of T v Scott (1966)” where a taxpayer
receives solicited gift it cannot be treated as ordinary income for the reason that it was
prompted by gratitude for certain service, since there is a need for other factors as well
(Kaldor 2014). This involves whether the gifts were anticipated since anticipated gifts is very
much an ordinary earnings under “sec 6-5 ITAA 1997”.
As a common rule, the FBT is levied on employer and not on the employee under
“sec 66 (1) FBTAA 1986”. The main reason is taxes are imposed based on the provision of
fringe benefit and not on those that are receiver of service. Accordingly, within “sec 136 (1)
FBTAA” fringe benefit is existent when a benefit is given to an employee all through the
taxation year by the employer or an associate that relates to the employment of the employee
(Mumford 2017). In “sec 136 (1) FBTAA” the benefit normally includes right, privilege,
service or facility given within the arrangement in relation to the work done. In
“Indooroopily Children’s Service v FC of T (2007)” a fringe benefit will only happen when
the benefit is related to employee. There should always be a sufficient material relation
among the employment and benefit given.
Commonly, money that is given to the taxpayer from the family member relating to
the personal reasons and gift does not relates to any income generating acts, is not viewed as
income. Such kind of gift is not usually included in the tax return of the taxpayer.