Taxation Law: Income Tax Liability 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
References:...............................................................................................................................10

2TAXATION LAW
Answer to question 1:
The ordinary income represents the income under the ordinary concepts and hence it
is considered taxable under “section 6-5 of the ITAA 1997”. The taxation official in “Scott v
CT (1935)” held that income should be ascertained in compliance with the normal
perceptions and use of mankind (Woellner et al. 2016). “Section 6-5” states that gains
originating from performing of business activities is held as ordinary income. The present
case study is based on determining the income tax liability for Bruce and determining
allowable deductions to lower the income tax liability. To characterize receipts as the
ordinary income from the commercial action consist of determining whether the taxpayers is
carrying on the activities of business or whether the considerations of earnings are treated as
ordinary incomes from that commercial activity.
As per “section 6-1 of the ITAA 1997” deriving proceeds from the personal effort
represents revenue comprising of salaries, pays and wages (Braithwaite 2017). “Section 6-1
of the ITAA 1997” also includes proceeds that a taxpayer obtains from the business that is
conducted alone or as partners. The case facts reveal the transaction reported by Bruce
originating from the receipt of professional legal fees. The professional legal fees constitute
receipts from the normal proceeds of the business activity. The professional receipts would be
characterized as ordinary income from the business carried on.
Agreeing to the “section 6-5 of the ITAA 1997” any revenues originating from the
person service of the taxpayer does not represents ordinary income (Blakelock and King
2017). As held in “FCT v Brent (1971)” receipt of lump-sum or the one-off receipts for the
performance of specific tax is held as normal revenue. Quoting the reference of “section 6-5
of the ITAA 1997” receipts from the property is held as income (Edmonds 2018). The receipt

3TAXATION LAW
of $25,000 from the 10-year lease constitute a one-off receipt. Therefore, the one-off lease
receipts would be treated as ordinary proceeds and forms the part of taxable proceeds.
According to the Australian Taxation Office irrespective of a person has a single or
more employment or working as full time or part-time, the individual taxpayer is obligatorily
required to declare such income from employment while filing tax return. As held in “FCT v
Dean (1997)” receipts from employment is held as chargeable wages (Neil et al. 2015).
Receipts of salary by Bruce from the part time lecture in university constitute income from
employment. The receipts would be held taxable under ordinary concepts of “section 6-5”.
According to “section 44 (1) of the ITAA 1997” taxpayers are required to declare
dividend income in their tax return. Dividends are usually received from the investment in
listed entities, trust that trades publicly and corporate unit trust (McLaren and Cormick 2018).
Certain dividends have franking credits enclosed in it and a taxpayer can claim set-off from
their tax return. Dividends received by Bruce from the Australian sourced investment forms
the part of chargeable earnings and the franking credit can be set-off to reduce the tax
liability.
The federal court in “Dixon v FCT (1952)” held that periodic receipts represents an
income stream i.e., amount paid periodically (Davies and Wheelahan 2018). Any form of
gain which is period is probably held as ordinary income. In “Blake v FCT (1984)” regular
receipt is categorized as earnings in nature. Rental income from investment property received
by Bruce would be held as assessable income because it carries adequate nexus with the
income making activity.
An Australian resident that receives interest from the financial bank account or term
deposits would be considered as income. Receipts of interest from the bank account or term
deposits is held as taxable earnings (Swan 2018). The tax liability originates when a taxpayer