Taxation Law - Sec 6-5 ITA Act 97 : Answer

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
Answer A:..................................................................................................................................5
Answer B:...................................................................................................................................6
Answer C:...................................................................................................................................6
Answer D:..................................................................................................................................7
Answer E:...................................................................................................................................8
References:.................................................................................................................................9

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Answer to question 1:
Issues:
The case study will take into the consideration the issues arising from the receipt that
is derived by the taxpayer from employment amounts to income under the ordinary concepts
of “section 6-5 ITA Act 97”.
Rule:
Ordinary income is regarded as income in agreement with the ordinary concepts and it
is considered taxable under “sec 6-5 ITA Act 97”. Gains usually needs the characterization
by courts in order to be held as income (Bankman et al. 2017). On noticing that the taxpayer
gets the voluntary payment as the reward for service are held as ordinary income since it
constitute benefit from employment. The decision made in “Penn v Speirs & Pond Ltd
(1908)” tips is viewed as third party gift and it is a voluntary payment because it is earned
from the extent of service that is rendered by a taxpayer (Schenk 2017). It establishes a
required relation among the service rendered and making it as a taxable ordinary earnings.
When a person earns wages, salaries, commissions, bonuses, fees for the services and
other types of payment which is considered incidental to the employment are held as reward
for service and amounts ordinary income (Schmalbeck, Zelenak and Lawsky 2015). The
court in “British Columbia v Ostrum (1904)” explained that a receipt that is generated from
employment or the service given is regarded as income.
Personal gifts, opposite to other forms of voluntary payment that are viewed
incidental to service or employment rendered are not regarded as income. It is necessary that
a difference should be made among the gratuitous payment and voluntary payment given to
someone on personal groups and one that is incidental to a specific income producing activity

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(Elliott 2015). As eminent in the event of “Hayes v FCT (1947)” a gift on the basis of
personal qualities cannot be viewed as ordinary earnings and such gift is not commonly held
taxable to recipient.
Employer should denote under “sec 66 (1) FBTAA 1986”, that fringe benefit tax is
paid by the employer and not by the employees. This type of tax is normally implemented on
provision of fringe benefit and not on the receipt of benefit (Hildreth 2019). The word fringe
benefit is explained in “sec 136 (1) FBTAA 1986” says that it is a benefit that is given by the
employer to employee during the year of taxation in relation to employment of an employee.
While “sec 137 FBTAA 1986” makes sure that FBT legislation is applicable in those
situations where there is an evident relation of employment is noticed however the employee
is remunerated with cash benefits rather than paying the salary (Woellner et al. 2016). In
“FCT v Indooroopily Children’s Services (2007)” a fringe benefit only happens when the
benefit that is given is related to employee.
A taxpayer should denote that when they receive any cash birthday gift or any sort of
identical amounts that is received from their family members then such amount is not
included in to the taxable income (Ausness 2017). Amounts might be held as taxable if they
receive them as the portion of business activity or in regard to the income generating activity
as employee.
Application:
During the year it is noticed that Emmi being the student of accounting is found to be
working a Melbourne restaurant on a part-time basis. As the part of her employment Emmi
has received a tips of $335 from her customers. Referring to decision made in “Penn v Speirs
& Pond Ltd (1908)” tips got be Emmi should be viewed as third party gift and it is a
voluntary payment because it is earned from the extent of service that is rendered by her