Taxation Law: Determining Taxable Income, Assessable Income, and Tax Consequences

This article discusses the determination of taxable income, assessable income, and tax consequences in various scenarios under Australian taxation law. It covers topics such as income from personal exertion, non-cash business benefits, scholarships, sale of business goodwill, and gifts. The article cites relevant legislation, case law, and taxation rulings to provide a comprehensive analysis.

Running head: TAXATION LAW
Taxation Law
Name of the Student
Name of the University
Authors Note
Course ID

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Table of Contents
Answer to question 1:.................................................................................................................2
Issue:..........................................................................................................................................2
Rule:...........................................................................................................................................2
Application:................................................................................................................................2
Conclusion:................................................................................................................................2
Answer to question 2:.................................................................................................................3
Issue:..........................................................................................................................................3
Rule:...........................................................................................................................................3
Application:................................................................................................................................3
Conclusion:................................................................................................................................3
Answer to question 3:.................................................................................................................4
Issue:..........................................................................................................................................4
Rule:...........................................................................................................................................4
Application:................................................................................................................................4
Conclusion:................................................................................................................................5
Answer to question 4:.................................................................................................................5
Issue:..........................................................................................................................................5
Rule:...........................................................................................................................................5
Application:................................................................................................................................5
Conclusion:................................................................................................................................6

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Answer to question 5:.................................................................................................................6
Issue:..........................................................................................................................................6
Rule:...........................................................................................................................................6
Application:................................................................................................................................6
Conclusion:................................................................................................................................7
Answer to question 6:.................................................................................................................7
Issue:..........................................................................................................................................7
Rule:...........................................................................................................................................7
Application:................................................................................................................................7
Conclusion:................................................................................................................................8
Reference List:...........................................................................................................................9

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Answer to question 1:
Issue:
The current issue is based on determining the taxable income for Jean for the year
ended 2018 along with deductions occurred in deriving assessable income.
Rule:
“Section 6-5 of the ITAA 1997” defines income from personal exertion as the income
comprising of salaries, wages, fees, income from services rendered or proceeds of business.
As defined under “taxation ruling of TR 98/1” income derived from employment are
generally considered taxable based on receipts basis (Woellner et al. 2016). The court of law
in “Brent v FCT (1971)” for several taxpayers income derived during the year represents the
income received for that year. As held in “Henderson v FCT (1970)” income generated in
the year is income earned in that year. “Section 8-1 of the ITAA 1997” allows a person to
claim an allowable deductions if the expenses are occurred in producing the taxable income.
Application:
The cash received by Jean along with the invoices sent to the patients would be
included in his taxable income under the receipts methods. Referring to “Brent v FCT
(1971)” cash received from patients of $400,000 constitutes income that is earned by Jean.
Further reference to “Henderson v FCT (1970)” it can be stated that Jean income would be
assessable under receipts methods (Barkoczy 2016). Jean incurred expenses as salaries paid
to casual staff, nurses and other expenditure. Therefore, Jean can claim allowable deductions
for these expenses under “section 8-1” as they were occurred in gaining taxable income.
Conclusion:
Conclusively the sum of $400,000 will be included in Jean assessable income.

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Answer to question 2:
Issue:
The current issue is based on determining whether the non-transferable free holiday
voucher would be regarded as assessable income.
Rule:
Income tax is levied on income that comes on the actual receipts. An individual is
chargeable for the income that goes into his pocket. As held in “Cooke & Sherden v FCT
(1980)” the court stated that the value of free overseas holiday given to the retailer as a
portion of sales incentives scheme does not constitute assessable income (Tan, Braithwaite
and Reinhart 2016). However, “section 21 of the ITAA 1936” was immediately bought into
action which stated that the value of non-cash business benefits that is received by an
individual taxpayer constitutes taxable income.
Application:
In case of Noah it is found that he issued an invoice to his client for services
performed amounting to $5,700. However, Noah was provided with the non-transferable free
overseas voucher. Referring to the decision made in “Cooke & Sherden v FCT (1980)” and
in respect of “section 21A” the value of free overseas holiday given to Noah constitutes non-
cash business benefits (Cao et al. 2015). Therefore the same would be considered taxable
income under the arm’s length of the non-cash benefits receipts as Noah assessable income.
Conclusion:
Considering the legislative response under “section 21A of the ITAA 1936” the non-
cash business benefits received by Noah will be included in his assessable income.

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Answer to question 3:
Issue:
Is the amount received as Scholarship by the employee from the employee would be held
assessable?
Rule:
“Paragraph 23 (z) of the Taxation ruling TR 93/39” defines that education costs of
scholarships paid to the employee for undertaking the full time education course in school,
college or university will not constitute as the exempted income (Braithwaite 2017). As held
in “Federal Commissioner of taxation v Ranson (1989)” the court stated that scholarship
payment constituted income under ordinary concepts and cannot be regarded as an exempted
income.
Application:
As evident from the case study Mary being an employee in public company was given
scholarship by her employer for undertaking a fulltime accounting degree in a university.
Therefore, referring to “Paragraph 23 (z) of the Taxation ruling TR 93/39” education costs
of scholarships paid to the employee for undertaking the full time education course in
university will not constitute as the exempted income (Miller and Oats 2016). Citing the
reference of “Federal Commissioner of taxation v Ranson (1989)” the receipt of
Scholarship by Mary from her employer will be considered as the taxable income and it is
subjected to withholding tax from her periodic payments. The amount of scholarship received
by Mary will considered as the income under the ordinary concepts. Furthermore, Mary will
be required to show her scholarship amount as the assessable income at the time of filing tax
return.

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Conclusion:
On a conclusive note, it is advised that Mary should inform her employer that her
scholarship is taxable income and the same is required to be reported by Mary while filing
her tax return.
Answer to question 4:
Issue:
The current issue is concerned with the determination of income tax consequences
from the receipts on sale of business goodwill and relinquishing or restricting rights.
Rule:
According to the Australian taxation office where a recognized goodwill is transferred
to a corporate structure any form of capital gains derived would be subjected to tax.
Similarly, a person receiving any form of payment for relinquishing or restricting rights
would not constitute as income. Alternatively, a person receiving payment for not doing
something specific would not be regarded as income (Saad 2014). According to the
judgement of the court in “Jarrold v Boustead (1964)” lump sum payments that is received
by the rugby players for giving up the status of the amateur would not be regarded as income.
Application:
As evident in the current situation of Peter he sold the recognized goodwill of his
accounting practice for a sum of $400,000 will be regarded as capital gain. Therefore, the
receipt of $400,000 for the sale of goodwill would be subjected to capital gains tax. On the
other hand it is also noticed that Peter received a further sum of $40,000 to not open another
accounting practice within the range of 10 km. The sum of $40,000 received by Peter
constitute payments received for restricting his accounting practice rights. Citing the

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reference of “Jarrold v Boustead (1964)” receipt of $40,000 would not be considered as
income and attracts no tax liability (Robin and Barkoczy 2018).
Conclusion:
On a conclusive note, the sale of business goodwill by Peter would be subjected to
capital gains tax whereas the sum of $40,000 does not attracts tax liability as it is a payment
for agreement of not establishing any accounting practice within 10 km of Hawthron
business.
Answer to question 5:
Issue:
The current issue is based on the determination of whether the sale of small household
on the online site and profit derived from it would be held assessable under business or
hobby?
Rule:
The “taxation ruling of TR 97/11” distinguishes between whether the activities indulged
in by the taxpayer constitute business or hobby. The most relevant factor in distinguishing
business and hobby includes
a. An activity that consists of commercial sale of products will be held as business
whereas hobby constitutes sale of goods among relatives and friends (Robin 2017).
As held in “FCT v Ferguson (1979)” amount obtained from hobby constitutes income
while profit generated from such hobby constitutes business activities (Blakelock and King
2017).

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Application:
As evident Emma’s activities of frequent purchase and sale of household by using
online site resembles repetitive in nature. Her activities consists of commercial sale of
products and does not constitute hobby. Citing the case of “FCT v Ferguson (1979)” it can
be considered that Emma’s activities constitute business and profits derived would be
regarded taxable.
Conclusion:
Conclusively the amount obtained by Emma is a business income whereas profits
derived from such activities is regarded as performing the activities of business.
Answer to question 6:
Issue:
The current issue is based on the determination of whether the gift received by the
surf life saver on duty from the parents for saving the life of drowning child would be
considered as the taxable income.
Rule:
An unsolicited gift does not turns out to be part of the income of the recipient just
because the generosity was inspired on account of goodwill. Any form of gain that is just a
mere gift does not possess the character of income. In the event of “Hayes v Federal
Commissioner of Taxation (1956)” the court of law held that the receipts of share by the
accountant in the company from the previous owner does not constitute income (Pinto 2011).
In another instance of “Scott v FCT” a solicitor receiving a gift of 10,000 pound from the
longstanding client’s wife out of husband estate cannot be regarded as income.

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Application:
As evident in the current situation it is noticed that the surf life saver saved the life of
child from getting drowned. The parents of child gave the surf life saver a watch that valued
$500 in the form of gift. Citing the reference of “Scott v Federal Commissioner of Taxation
(1935)” the receipt of gift by surf life saver is just a mere gift and does not possess the
character of income. Therefore, the receipt of gift would not be held as assessable income for
surf life saver.
Conclusion:
Conclusively, the receipt of gift is not an income and will not be included in the
taxable income of the surf life saver.

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Reference List:
Barkoczy, S., 2016. Foundations of taxation law 2016. OUP Catalogue.
Blakelock, S. and King, P., 2017. Taxation law: The advance of ATO data
matching. Proctor, The, 37(6), p.18.
Braithwaite, V. ed., 2017. Taxing democracy: Understanding tax avoidance and evasion.
Routledge.
Cao, L., Hosking, A., Kouparitsas, M., Mullaly, D., Rimmer, X., Shi, Q., Stark, W. and
Wende, S., 2015. Understanding the economy-wide efficiency and incidence of major
Australian taxes. Canberra: Treasury working paper, 2001.
Miller, A. and Oats, L., 2016. Principles of international taxation. Bloomsbury Publishing.
Pinto, D., 2011. State taxes. In Australian Taxation Law (pp. 1763-1762). CCH Australia
Limited.
Robin and Barkoczy woellner (stephen & murphy, shirley et al.), 2018. Australian taxation
law 2018. OXFORD University Press.
Robin, H., 2017. AUSTRALIAN TAXATION LAW 2017. OXFORD University Press.
Saad, N., 2014. Tax knowledge, tax complexity and tax compliance: Taxpayers’
view. Procedia-Social and Behavioral Sciences, 109, pp.1069-1075.
Tan, L.M., Braithwaite, V. and Reinhart, M., 2016. Why do small business taxpayers stay
with their practitioners? Trust, competence and aggressive advice. International Small
Business Journal, 34(3), pp.329-344.
Woellner, R., Barkoczy, S., Murphy, S., Evans, C. and Pinto, D., 2016. Australian Taxation
Law 2016. OUP Catalogue.

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