Taxation Law: Understanding Ordinary Income and Partnership for Taxation

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 annual payment a real gain for the taxpayer that is received periodically by the
taxpayer or annually?
Laws:
If the receipts are not the genuine gain it cannot be classified as the ordinary income
(D'Ascenzo 2015).
In “Myer v FC of T (1987)” held that it is not necessary that the income should be
received in this manner (McGregor-Lowndes 2016). In “Dixon v FC of T (1952)” the law
court held that the periodical payments made were to make up for the lost earnings that
resulted in the character of the income under ordinary concepts (Hashimzade and Epifantseva
2017).
The prerequisites of the ordinary income states that a receipts cannot be viewed as the
ordinary income till it is cash or actually a gain for the taxpayer (Martin and Connor 2017).
On meeting the two requisites the gains will be classified as the ordinary income given it has
portrayed the character of regular or periodical receipts or has the regular flow concept.
In “Blake v FCT (1984)” held that payments that is received by the taxpayer
regularly or periodically is more likely regarded as the ordinary income than the gains paid in
lump sum (Peiros and Smyth 2017).
Application:
The central issue obtained from the case provides that winners of “Set for Life” are
given a sum of $50,000 by the lottery commission every year for 20 years. In “FC of T v
Cooke and Sherden (1980)” the annual payment should be characterised as the ordinary

3TAXATION LAW
income (Shaw 2017). Further reference can be made to the case of “Myer v FC of T (1987)”
to classify the annual payment as the income depending upon the quality of the receipts that
is received in the hands of the recipient.
The annual payment of $50,000 is a genuine gain for the taxpayer. Referring to
“Dixon v FC of T (1952)” the sum of $50,000 fulfils prerequisites of the ordinary income
under the ordinary concepts of “section 6-5, ITAA 1997” because it shows the satisfactory
characteristics of regular or periodical receipts and satisfies the flow concept (Chung 2017).
Therefore, the amount will be treated as the income.
Conclusion:
The quality of the annual payment satisfies the perquisites of ordinary income and
constitute gain for the recipient. The payment is received periodically each year following the
payment of first instalment and hence it is an income under ordinary meaning.