Taxation Law: Determination of Ordinary Income and Allowable Deductions

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

1TAXATION LAW
Table of Contents
Answer to question 1..................................................................................................................2
Heading:.....................................................................................................................................2
Issues:.........................................................................................................................................2
Rule:...........................................................................................................................................2
Application:................................................................................................................................5
Conclusion:................................................................................................................................8
Answer to question 2:.................................................................................................................8
Heading:.....................................................................................................................................8
Issues:.........................................................................................................................................8
Rule:...........................................................................................................................................8
Application:..............................................................................................................................10
Conclusion:..............................................................................................................................13
Reference List:.........................................................................................................................14

2TAXATION LAW
Answer to question 1
Heading:
The problem here is based on the determination of the ordinary income under the
provision stated under the “section 6-5 of the ITAA 1997”. The problem statement also deals
with the expenses that are allowable as deductions under “section 8-1 of the ITAA 1997”1.
Issues:
The issue to the case study of Kate revolves around the ascertainment of taxable
income derived from personal exertion and allowable deductions that can be claimed for
expenses occurred during the income year under “section 8-1”.
Rule:
“Section 6-5 of the ITAA 1997” is concerned with the income that derived by an
individual taxpayer from the personal exertion or in other words income that is obtained from
personal exertion2. The earnings include of salaries, wages and receipt of gratuity relating to
the services provided in the capacity of employee denotes income from personal exertion
under ordinary or statutory conceptsAs held in the case of “Dean v FCT (1997)” the
retention payment that is made to the employee to continue the employment services for a
period of 12 months after takeover will be held as income.
A person that receives money from prize for participating in an activity will not be
considered as income under the statutory and ordinary concepts. However, winning from
1 Woellner, Robin, et al. "Australian Taxation Law 2016." OUP Catalogue (2016).
2 Annette Morgan, Colleen Mortimer and Dale Pinto, A Practical Introduction To Australian
Taxation Law (CCH Australia, 2013).

3TAXATION LAW
prize money will be held as taxable income given that the money received from prize money
forms the part of taxpayer’s income earning activity. According to the judgement of the court
in the case of “Stone v Federal Commissioner of Taxation (2005)” where the taxpayer was
policeman and javelin thrower. The taxpayer made derived income from salary and also
received sum from endorsement and prize money3. The court held the taxpayer to be carrying
on the business of the professional athlete and the earnings derived was held as taxable
income.
There should be an appropriate association between the receipt and the provision of
services rendered which is the ordinary incident of the provision of services. According to the
judgement of the court in the case of “FCT v Brent (1971)” where the wife of the train
robber was granted an exclusive right by the media company to publish her life story. The
court held that payment received by wife of train robber was the reward for service and will
be regarded as income from personal exertion.
A mere windfall gain could not be characterised as the income. For instance, an
individual receiving money from gambling winnings cannot be held as income except for the
circumstances where the person is carrying on the business of gambling. The court of law in
the case of “Harris v FCT (1980)” has distinguished windfall amount that are received
unexpectedly or infrequently.
A mere prize is not characterized as income. The court of law referring to the
legislation passed in the circumstance of “Moore v Griffiths (1972)” held that mere winning
from prizes was not held as taxable income.
3 Blakelock, Sarah, and Peter King. "Taxation law: The advance of ATO data
matching." Proctor, The 37.6 (2017): 18.