Taxation Law: Understanding Taxation Rulings and ITAA 1997

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
Answer to A...............................................................................................................................2
Answer to B:..............................................................................................................................3
Answer to C:..............................................................................................................................4
Answer to D:..............................................................................................................................4
Answer to E:...............................................................................................................................5
Answer to question 2:.................................................................................................................6
Answer to question 3:.................................................................................................................8
Answer to question 4:...............................................................................................................10
Reference List:.........................................................................................................................13

2TAXATION LAW
Answer to question 1:
Answer to A
As defined under “Section 6-5 and 6-10 (3) of the ITAA 1997” an individual is
considered to have received an amount when it is dealt in a way or in their behalf. According
to “Subsection 6-2 (2) of the ITAA 1997” it provides that a person would be considered for
assessment relating to income generated directly or indirectly from every sources all through
the income year1. According to “taxation ruling of TR 2002/14” explains where a lump sum
is held as prepaid rent.
According to “taxation ruling of TR 2002/14” an individual receiving a prepaid
amount of rent would be regarded taxable given the objective of the person signifies the lump
sum receipt of payment in advance for use of dwelling for a fixed time period. The case study
provides that the taxpayer received a lump sum amount of $15,000 in prepaid from the tenant
for lease negotiation. The court of law in “Frezier v Commissioner of Stamp Duties (NSW)”
the board of taxation explained that sum of prepaid rent in the form of lump sum constitutes
rent2. The judgement of board of taxation stated that prepaid rent contained the character of
home coming for the taxpayer and such sum will be wholly considered for taxation in which
the sum is derived. Citing the reference of Arthurs, the receipt of prepaid lump sum received
by the landlord would be considered taxable under income from ordinary concept3.
1 Woellner, Robin, et al. "Australian Taxation Law 2016." OUP Catalogue (2016).
2 Barkoczy, Stephen. "Foundations of taxation law 2016." OUP Catalogue (2016).
3 Vann, Richard. "Hybrid Entities in Australia: Resource Capital Fund III LP Case." (2016).

3TAXATION LAW
Answer to B:
According to the Australian Taxation Office insurance pay-out for wholly private
items should not be included while filing tax return. But the ATO provides that individual
deriving an insurance pay-out for items that are employed in generating taxable income may
be required to be included in their assessable return4. If it is noticed that a person receiving a
lump sum amount of payment for covering the assets, the taxpayers are required to allocate
such receipts of payment among the assets for assessment purpose. The present scenario
highlights that Cheryl held a warehouse which was destroyed in fire and subsequently
received an insurance payment of $500,000 to compensate the loss.
Referring to the verdict in “Allied Mills Industries Pty Ltd v FCT (1989)” the
taxation commissioner identified that an item having the nature of compensation receipts is
dependent upon the amount received5. Compensation are usually regarded as the capital item
except in circumstances of substitution principle where it replaces what was lost. It is worth
mentioning that receipt of compensation for the loss of employment is held as income
because it constitutes what is lost. In the present circumstances of Cheryl, compensation
payment that is received is regarded as the capital receipt for the loss of warehouse from fire
constitute a capital item. Referring to the view of taxation commissioner the receipt of
4 Tan, Lin Mei, Valerie Braithwaite, and Monika Reinhart. "Why do small business taxpayers
stay with their practitioners? Trust, competence and aggressive advice." International Small
Business Journal 34.3 (2016): 329-344.
5 Cao, Liangyue, et al. "Understanding the economy-wide efficiency and incidence of major
Australian taxes." Canberra: Treasury working paper 2001 (2015).