Taxation Law Applications - PDF

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

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Table of Contents
Issues:.........................................................................................................................................2
Laws:..........................................................................................................................................2
Applications:..............................................................................................................................2
Conclusions:...............................................................................................................................8
References................................................................................................................................10

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Issues:
The issue that the case has presented before us is in respect of the ABC Sports Pty.
Ltd and John. For the evolvement of the issue, assessment of the liability then the treatment
of the expenditure incurred during the course of business will be undertaken. The issues are
provided below:
 The first issue is to determine whether the compensation received for the
termination of contract is in the nature of capital.
 The second issue is to determine the general deductions available to ABC
sports and John.
 The determination of the taxable of each fringe benefit is the third issue.
 The forth issue is to determine the capital gain arising under section 108 of the
Income Tax Assessment Act 1997.
Laws:
 Rule 1: The compensation that is received for the breach of contract is an income as it
is a compensation for the loss of assets of the business.
 Rule 2: The general provision and specific deduction under section 8-1 of the act.
 Rule 3: The salary and remuneration is excluded from the computation of the fringe
benefit under section 136(1) FBTAA. The external expenses payment Fringe Benefit
under section 23 FBTAA.
 Rule 4: The capital gain or loss on sale of assets under section 108 of the ITAA 97.
Legislations
a. “Californian Oil Products Ltd v Federal Commissioner of Taxation (1934)”

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b. “Federal Commissioner of Taxation v Wiener (1978)”
c. “Sun Newspaper Ltd v Federal Commissioner of Taxation (1938)”
d. “Scott v Commissioner of Taxation (1935)”
e. “J & G Knowles v Federal Commissioner of Taxation (2000)”
f. “Higgs v Oliver”
g. “Toyama Pty Ltd v Landmark Building Developments Pty Ltd”
h. “Marana Holdings Pty Ltd v Commissioner of Taxation (2004)”
Applications:
As per the provisions of the section 6-5(2) of the IOTA 1997 any amount that is
received by a resident tax payer for the tax year whether directly and indirectly and from any
sources is termed as ordinary income. If an amount is received by taxpayer due to the
changes made in, the agreement previously entered into by the taxpayer or due to the
cancellation of the agreement all together, will be held as an income that has accrued in his
respect (Burkhauseret al. 2015). The reason for this is that it is assumed that had the
agreement been carried out successfully the taxpayer would have been able to receive a
certain sum of money. However if the cancellation of the agreement or the modification made
to the agreement leads to substantial loss of a portion of the business or impacts the very
framework of the business, then the amount that is received by the taxpayer will be
considered as capital in nature.
Hence, if the provisions of the tax laws are to be followed then the compensation that
is to be received from the distributor because of the cancellation of the contract and amounts
to around 40% of the sporting goods held by ABC Sports Pty. Ltd. is to be held as an income.
As per the given circumstances, it is seen that the firm was able to find another supplier and
the cancellation of the contract did not harm the profitability of the firm to a substantial