Taxation Law: Determination of Income Tax Consequences and Deductions

Running head: TAXATION LAW
Taxation Law
Name of the Student
Name of the University
Authors Note
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1TAXATION LAW
Table of Contents
Answer to question 1:.................................................................................................................2
Answer to question 2:.................................................................................................................5
References:.................................................................................................................................9

2TAXATION LAW
Answer to question 1:
Heading:
This is the taxation law problem that is related to the determination of income tax
consequences including the assessable income.
Issue:
Is Bob taxable under “section 6-5 of the ITAA 1997” for carrying on the business of
professional athlete and such that the payments received would be included into the
assessable income of Bob?
Rule:
As per “section 6-1 of the ITAA 1936”, the receipt of salary, wages fees,
commissions etc. by the taxpayer are treated as income obtained from the personal exertion
which is included into the taxable income of the taxpayer1. The majority of income that
comes in to the taxpayer are held as ordinary income under “section 6-5 of the ITAA 1997”.
In “Scott v CT (1935)” the law court held that receipts should be held as income and must be
ascertained in compliance with ordinary concept.
The value of free overseas holiday that are non-transferable and non-convertible to
cash is not held as income. Similarly, in “FC of T v Cooke & Sherden (1980)” value of free
overseas holiday that are non-transferable was not an income because it is non-convertible to
cash2.
1 Grange, Janet, Geralyn A Jover-Ledesma and Gary L Maydew, 2014 Principles Of Business
Taxation
2 Jover-Ledesma, Geralyn, Principles Of Business Taxation 2015 (Cch Incorporated, 2014)

3TAXATION LAW
As per “taxation ruling of TR 97/11” characterising receipts in the form of ordinary
income consists of two steps namely ascertaining whether the taxpayer is performing
business or whether the consideration received constitute normal proceeds of the business. As
held in “Stone v FC of T (2005)” the taxpayer was the policewomen and javelin thrower that
made money from salary plus endorsement and prize money. The taxpayer was assessable for
the receipts on the grounds that she was carrying on the business of professional athlete.
The court in “Moore v Griffiths (1972)” held that mere prize is not an income.
However, in “FC of T v Kelly (1985)” held that prize received may be treated as income if
the receipts holds appropriate connection with income earning activities of taxpayer.
Accordingly, under “section 6-5” payments received as a reward for services that
were rendered for receiving payment is assessable. As held in “Brent v FC of T (1971)” the
wife of the train robber was assessable for granting the media company with an exclusive
right to publish the life story3.
Payments received for relinquishing or restricting rights is not an income however it
results in “CGT event D1 under section 104-35 (1)” since the taxpayer creates a contractual
or other legal right in another entity4. Similarly, in “Higgs v Olivier (1951)” lump sum paid
to actor for not acting or producing another film for 18 months was not an income5.
3 Kenny, Paul, Australian Tax 2013 (LexisNexis Butterworths, 2013)
4 Krever, Richard E, Australian Taxation Law Cases 2014
5 Morgan, Annette, Colleen Mortimer and Dale Pinto, A Practical Introduction To Australian
Taxation Law (CCH Australia, 2013)