Taxation Law: Understanding Taxable Income and Capital Gains Tax

Running head: TAXATION LAW
Taxation Law
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1TAXATION LAW
Table of Contents
Answer to question 1:.................................................................................................................2
Answer to question 2:.................................................................................................................5
Answer to question 3:.................................................................................................................5
Answer to question 4:.................................................................................................................7
References:...............................................................................................................................11

2TAXATION LAW
Answer to question 1:
Issue:
Is the receipt of money by the taxpayer for the reward of service constitute a taxable
income based on “section 6-5 of the ITAA 1997”?
Laws: “S-6-5 of the ITA Act 1997” “Ostrum v British Columbia (1904)” “F.C of T v Kelly” “S-995 of the ITA Act 1997” “F.C of T v Brent (1971)” “Marshall v Housden (Inspector of Taxation)”
 “Hobbs v Hussey (1942)”
Applications:
In order to consider the ordinary income as the portion of the taxpayer’s chargeable
earnings for a year in “S-6-5 of the ITA Act 1997” the income should be earned during the
relevant year by an individual (Clarke 2017). The receipts would only be considered as the
private exertion income given those receipts are produced from the personal services or
employment holds appropriate association with the activities. The judgement in “Ostrum v
British Columbia (1904)” provided an explanation that proceeds earned from employment or
services provided is considered as income (Stewart 2017).
In the further explanation provided by the taxation commissioner in “F.C of T v
Kelly” explained that there must be an adequate association among the earnings that is
derived through both the indirect and direct sources (Peiros and Smyth 2017). Generally

3TAXATION LAW
association between the services rendered and employment are regarded as the significant
element in classifying the income as the ordinary income (Buchanan and Consett 2016).
Income such as earnings from wages, salaries, compensation, fees, benefits, gratuities or
business proceeds are regarded as the personal exertion income.
An instance of Hilary states that she is a well-known mountain climber. Later events
explains that she agreed to write a book when she was offered with the amount of $10,000 by
the newspaper publication company regarding the narration of the story of her life. The
agreement contained that she is write the book and assign the title or interest of the book to
the newspaper publication company.
Signifying the elucidation of “S-6-5 of the ITA Act 1997” is it understood that on the
event of receiving money from the media publication regarding the narration of life story is
regarded as the chargeable income (Burton 2017). It is worth mentioning that prior to media
interview the agreements which is signed by the taxpayer and the money obtained from such
media interview are regarded as assessable income for the recipients. All the rights or the
interest of the life story of taxpayers exclusively remains vested in the hands of the media
channel. Under “section 995-1 (1) of the ITAA 1997” the meaning of the word derivation is
explained that is in accordance with the meaning stated in “S-6-5 of the ITA Act 1997”.
Where a taxpayer renders any personal services and derives money from the same is
considered as taxable income (Jones 2017). Citing the case of “F.C of T v Brent (1971)”
usually personal services receipts are classified as the income from personal exertion and
taxable under ordinary meaning of “S-6-5 of the ITA Act 1997”.
Preceding from the above stated case example the circumstantial evidences gathered
from Hilary’s case suggest that the receipt of $10,000 is held as the personal exertion income.
In order to receive the sum of $10,000 the taxpayer was required to perform the service by