Taxation Law: Understanding Ordinary Income and Tax Avoidance

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

2TAXATION LAW
Answer to question 1:
Issues:
According to “s 6-5, of the ITA Act 1997”, is the yearly payment considered as the ordinary
income?
Rule:
The ordinary income and statutory income is considered under the taxable income,
although, the ordinary income is not falling under the explanation of taxation acts. The
ordinary income is defined as the earnings from the case law and is contingent on the rules
those are formed through the decisions (Mattozzi and Snowberg 2018). The taxation incomes
are responsible for managing the value of ordinary income and these values are determined
through the case laws those are made for ascertaining the principles of case law. According to
the “s 6-5 ITAA” the sum of income will be considered as taxable. Under the section of “s 6-
5, ITAA 1997”, the ordinary income is considered as taxable income (Ramsey 2015). The
ordinary income calculated for an individual is calculated according to the receipts received
for their services. So if the income is considered as to be ordinary income for the taxpayer
then this amount will be taxable, so we have to measure first if the income is falling under
ordinary income or not.
In accordance with “Scott v CT (NSW) (1935)”, the taxation commissioner stated that
income is not indicates a term of art this is comprehensive for its valuation (Ihori 2017). This
requires the submission of proper principles those are fit for the ordinary concepts and its
usages. The high court in “Scott v FC of T” highlighted that ordinary income are reliant on
the quality of the receipts.

3TAXATION LAW
Severe amounts are considered as the ordinary income, specifically the salary and
wages as these incomes shows the characteristics for reappearance, uniformity and
periodicity. However, these incomes should be considered as general flow of income (Saez
and Stantcheva 2018). The functionality of the receipts must be determined by depending
upon several important factors with the quality in the recipient’s hands. In fact the payment
received in regular period of time does not fall under the category of ordinary income. The
receipt is not considered as the ordinary income until that is a real gain or cash for the
taxpayer. Both the fundamentals should be considered as the ordinary income if the payments
are held to be regular and contains the procedure of regular flow for the taxpayer.
In comparison with the lump sum payments, the periodically paid payments are
considered as the ordinary income for the taxpayer. The federal court in “Blake v FCT
(1984)” written off as regular reception of payment is considered as an income (Kennedy
2018). Similarly, in “Dixon v FCT (1952)”, stated that these payments should be in yearly
basis and character of income stream will be known as income.
Application:
The lottery commissioner arranges the instant lottery where commission delivers the
payment of $50,000 each every year for 20 years’ time. The first amount is paid to the winner
along with the winning notification and later the rest of the amount is paid in instalments
every year in a regular basis. Mentioning the verdict in “Scott v C of T (NSW) (1935)” this is
necessary to evaluate the characteristics of the annual payment to the recipient. Citing the
event of “Scott v FCT” the yearly payment of $50,000 is considered as ordinary income as
this has the characteristics of reappearance, uniformity and periodicity (Saez 2016). The
amount is paid every year of to the winner, where the condition is applied that the
outstanding amount will be paid to the nominee if the winner dies during this period of time.