Tax Deductions and Assessable Income

This assignment analyzes Bridget's financial situation under Australian tax law. It examines her various income sources, including salary, rental income, cash awards, and payments for considerations, to determine their assessability. The assignment also investigates the deductibility of her expenses, such as those related to self-education and rental property. Applying relevant sections of the ITAA 1997 and case law, the analysis clarifies Bridget's tax obligations and potential deductions.

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

1TAXATION LAW
Table of Contents
Issue:..........................................................................................................................................2
Rule:...........................................................................................................................................2
Application:................................................................................................................................4
Conclusion:................................................................................................................................7
Reference List:...........................................................................................................................8

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Heading:
The income tax problems are related to taxable income and tax consequences relating
to the transactions occurred in the income year of 2016/17.
Issue:
The current issue is based on the determination of the income tax implications for
Bridget relating to the incomes and expenses reported by her during the income year of
2016/17. Additional issues such as rental income, winning from prizes, cash award surrounds
the issue. Furthermore, deductibility of expenses relating to self-education, legal expense and
travel expense surrounds the study.
Rule:
As held in the “section 6 of the ITAA 1936” income from personal exertion includes
the income that is generated from the personal exertion1. This represents the income that
originates from the earnings, salaries and wages, fees, bonus etc. that is received in capacity
to the employee in respect of the services rendered. An amount that is generated from the
personal exertion might be included in the assessable income in the form of statutory income
or ordinary income. An instance of remuneration has been provided in the case of “Dean v
FCT (1997)” where retention payment made in considerations of the employees will be
considered as assessable income2.
Rent refers to the price that is paid to make use of the another person’s property such
as the land, building, equipment would be held assessable. As held in “Adelaide Fruit and
Produce Exchange Co Ltd (1932) 2 ATD 1” rent money that is received would be
1 Robinson, L., Savor, P. and Sikes, S., Value Relevance of Income Tax Expense Post FIN 48 2017.
2 Brasington, D.M., Passing school building tax levies may increase teacher salary. Economics Letters 2017..

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considered as the assessable income. Spending that is occurred in letting out the property
would be considered as allowable expenditure.
According to the interpretative decision of “ATO ID 2002/644” the prize is not
regarded as the ordinary or statutory revenue and hence it would not be considered as the
reckonable earnings under either of the “section 6-5 or section 6-10 of the ITAA 1997”3.
Instead, it is measured as the non-taxable bonus gain. The court has considered that the prize
or gift will be considered as the ordinary income in capacity of the decision held in
“Squatting Investment Co Ltd v FCT (1953)”. Usually, a gift or reward is considered as the
individual bonus and it is not regarded as the ordinary revenue given the taxpayer has
received the reward or gift in respect of the revenue generating making activity of the
taxpayer.
Mere prizes are not an income however it may be a income if there is an adequate
connection with the taxpayer’s income generating activities. As held in “Kelly v FCT” the
amount received by professional footballer for best player is an income since it is incidental
to his work.
The character of an article will be regarded as the revenue and must be arbitrated
under the conditions of its origin by the taxpayer and devoid of such character it may been
derived by alternative individual4. As held in the case of “Federal Coke Co Pty Ltd v FCT
3 May, M., Briefing Paper SMART (Save Money and Reduce Tax) Pensions in the UK: Salary Sacrifice and
Auto-Enrolment Margaret May January 2015..
4 Palazuelos, D. and Dhillon, R., Addressing the “global health tax” and “wild cards”: practical challenges to
building academic careers in global health. Academic Medicine, 91(1), p.30 2016.

4TAXATION LAW
(1977)” the character of the proceeds must be arbitrated under the conditions of the
derivation by the taxpayer.
Payments that are received for relinquishing or restricting rights cannot be considered
as income. For example, a payment received by taxpayer for agreeing not do something does
not constitute an assessable income. Similarly, the judgement held in the case of “Higgs v
Olivier (1951)”, states that the payment received by the actor for not producing, directing or
acting in another film for a period of 18 months cannot be regarded as income5.
According to the “taxation ruling of TR 98/9”, self-education expenditure is
generally considered to be deductible expenditure where it is occurred to maintain or increase
the taxpayers skills in the occupation in which the taxpayer is presently employed6.
According to the judgement stated in the case of “FCT v Highfield (1982)” the judgement of
the court stated that the expenditure incurred by the taxpayer was for carrying on his business
and the objective of undergoing the degree was to make use of the knowledge obtained by the
taxpayer in advancing his practice.
According to section, “8-1 of the ITAA 1997” cost that is incurred by the taxpayer in
acquiring the ordinary items of the clothing such as suit is not considered allowable
deduction. As held in the case of “Mansfield v FCT (1996)” the judgment of the court
allowed the flight attendant to claim an allowable deduction for the cost of shoes since it was
a compulsory uniform.
5 Prabhu-Verlekar, P. and Reddy, Y.V. Section 5A of Income Tax Act 1961 with reference to Goan salaried tax
payers 2018.
6 Gideon, M. Do Individuals Perceive Income Tax Rates Correctly?. Public Finance Review, 45(1), pp.97-117
2017.

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According to the legislative response of “section 25-100 of the ITAA 1997”
deductions is allowable for the cost of travel between workplace. Travel should be related
directly between the place of work and income generating place and none of the place should
be taxpayer’s home 7. The court of law in “FCT v Payne (2001) ATC 4027” denied the
taxpayer allowable deductions for the cost incurred from the place of home and place of
employment. Travelling between two unconnected places of work cannot be considered
allowable under “section 8-1”.
Application:
As evident from the case study, Bridget received income from her employment with
both part-time and full time employments. Therefore, these income forms the part of personal
exertion income since it is generated in respected of services rendered by Bridget. Citing the
reference of “Dean v FCT (1997)” Bridget income from personal exertion would be
assessable in respect of “section 6 of the ITAA 1936” 8.
The evidences from the case study suggest that the rental income of $30,000 received
in the income year of 2016/17 will be considered as the assessable and would be included in
the assessable income. However, Bridget also reported that she had incurred an allowable
deductions relating to the rental property. This is because under “section 8-1” the expenses
on rental property was related in deriving her assessable income and would be considered
allowable deductions.
Bridget received a cash prize of $3000 that is regarded as the ordinary or statutory pay
and therefore it is not considered as taxable income under “section 6-5 or Section 6-10 of the
7 Shakow, D.J. A Wealth Tax: Taxing the Estates of the Living. BCL Rev., 57, p.947 2016.
8 Braithwaite, V. ed., Taxing democracy: Understanding tax avoidance and evasion. Routledge 2017.

6TAXATION LAW
act” 9. This is because the cash prize is observed as the bonus gain and cannot be regarded as
ordinary gain since it is not related to the revenue making activity of Bridget.
In the present case of Bridget, it is noticed that she received a payment consideration
of $30,000 from the TV station for appearing in the cooking show and had additionally
received a new cake-mixing equipment having valued $10,000. Therefore, the amount of
payment considerations that is received by Bridget will be included in the chargeable pay in
respect of the “section 6-5 of the act”10.
In the later instances of the case study, it is found that Bridget received a sum of
$20,000 with the TV station for agreeing not to appear on any similar TV cooking shows for
two years’ period would not be regarded as income. Similarly, in reference to the judgement
stated in the case of “Higgs v Olivier (1951)” the payments that is received by Bridget is for
relinquishing the right of not appearing in any identical cooking shows. Additionally, the
legal expenses will not allowable since it is not related to Bridget income producing activity.
Bridget incurred a self-education expenditure with the hope of obtaining promotion in
the division of accounting firm. The self-education expenditure that is incurred by Bridget
was entirely deductible. The expenses were occurred for increasing the skills with the
prospect of gaining promotion where she is presently working. Citing the case of “FCT v
Highfield (1982), Bridget will be able to entitlement for a permissible deductions under
“section 8-1 of the act”.
9 Rogers, J. and Philippe, C., The tax burden of typical workers in the EU 27. Brussels: New Direction.[online]
Retrieved, 17, p.2014.
10 Feng, J., The effect of superannuation tax incentives on salary sacrifice participation. Economic
Record, 90(s1), pp.59-73 2014.

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Bridget reported that she received a cash award for being the best accountant in
Sydney. With reference to “Kelly v FCT”, the award is an income for Bridget since it is
related to her work and related to her exercise of skill 11.
Bridget reported an expenditure on contemporary suits and it can be said the she will
not be allowed to claim deductions on the ordinary articles of apparel nevertheless that such
expenses was necessary in ensuring a appropriate appearance in a job or profession.
According to the decision in the case of “Morris v FCT 2002”, deductions can be allowable
if the taxpayer occupations compulsorily requires using occupation specific clothing12.
Bridget incurred expenditure on airfares and accommodations for attending a job
interview in Melbourne accounting firm. Agreeing with section 25-100 the expenses incurred
by Bridget is not directly related to the place of work. Referring to “FCT v Payne (2001)”
Bridget will be denied deductions for the cost incurred between two unconnected places of
work “section 8-1 of the ITAA 1997”.
11 Xynas, L., Blissenden, M., Villios, S. and Kenny, P., Allowable deductions, cost base of CGT assets and the
GAAR: a minefiled for taxpayers and their advisers. Australian Tax Law Bulletin, 1(5), pp.94-98 2014.
12 Nossaman, W.L. and Wyatt Jr, J.L., Income Taxation of Estates and Trusts: Deductions Which Must be
Allocated between Fiduciary and Beneficiary. TRUST ADMINISTRATION AND TAXATION, 2 2016..

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Conclusion:
Conclusively Bridget income from salaries, rental income, cash award and payment
considerations would be considered assessable under “section 6-5” whereas she will be
entitled to deductions relating to self-education and rental property expenses under “section
8-1” for education expenses.

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Reference List:
Robinson, L., Savor, P. and Sikes, S., Value Relevance of Income Tax Expense Post FIN 48
2017.
Brasington, D.M., Passing school building tax levies may increase teacher salary. Economics
Letters 2017..
May, M., Briefing Paper SMART (Save Money and Reduce Tax) Pensions in the UK: Salary
Sacrifice and Auto-Enrolment Margaret May January 2015..
Palazuelos, D. and Dhillon, R., Addressing the “global health tax” and “wild cards”: practical
challenges to building academic careers in global health. Academic Medicine, 91(1), p.30
2016.
Prabhu-Verlekar, P. and Reddy, Y.V. Section 5A of Income Tax Act 1961 with reference to
Goan salaried tax payers 2018.
Gideon, M. Do Individuals Perceive Income Tax Rates Correctly?. Public Finance
Review, 45(1), pp.97-117 2017.
Shakow, D.J. A Wealth Tax: Taxing the Estates of the Living. BCL Rev., 57, p.947 2016.
Braithwaite, V. ed., Taxing democracy: Understanding tax avoidance and evasion. Routledge
2017.
Rogers, J. and Philippe, C., The tax burden of typical workers in the EU 27. Brussels: New
Direction.[online] Retrieved, 17, p.2014.
Feng, J., The effect of superannuation tax incentives on salary sacrifice
participation. Economic Record, 90(s1), pp.59-73 2014.

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Xynas, L., Blissenden, M., Villios, S. and Kenny, P., Allowable deductions, cost base of CGT
assets and the GAAR: a minefiled for taxpayers and their advisers. Australian Tax Law
Bulletin, 1(5), pp.94-98 2014.
Nossaman, W.L. and Wyatt Jr, J.L., Income Taxation of Estates and Trusts: Deductions
Which Must be Allocated between Fiduciary and Beneficiary. TRUST ADMINISTRATION
AND TAXATION, 2 2016..