Taxation Law: Income, Deductions and Assessable Earnings

Running head: TAXATION LAW
Taxation Law
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TAXATION LAW1
Table of Contents
Part A:........................................................................................................................................2
Issues:.....................................................................................................................................2
Rule:.......................................................................................................................................2
Application:............................................................................................................................4
Conclusion:............................................................................................................................7
Part B:.........................................................................................................................................7
Facts:......................................................................................................................................7
Judgement:.............................................................................................................................8
Reason for Judgement:...........................................................................................................8
Significance of Principles in Case:........................................................................................8
References:...............................................................................................................................10

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Part A:
Issues:
a. Is the taxpayer here held taxable for the income derived from the employment as
income from the personal exertion within the ordinary meaning of “sec 6-5, ITAA
1997”?
b. Will the taxpayer be held liable for assessment for gains derived from the home based
business as income from the business activities?
c. Is the taxpayer entitled to deduction from his assessable income for the outgoings
under the positive limbs of “section 8-1, ITAA 1997”?
Rule:
As per “section 6, ITAA 1997” income from the personal exertion is associated to the
performance of contract or the provision of service. It is important to characterise the receipts
that is received in the hand of recipients (Woellner et al. 2016). Earnings from personal
exertion is characterised as income if it represents adequate relation with the amount that is
received and the income producing activity. In “Hayes v FCT (1956)” the amount that is
received from private efforts is characterised as the incident of occupation or the reward for
rendering services.
There are certain situations where the employees are paid for the expenses they
incurred. The reimbursement will be non-assessable income for the employee while the
employer will be liable for the fringe benefit tax under the “section 23L of the ITAA 1936”.
There is situation where receipts may hold adequate relation with income generating
act of taxpayers. In “Kelly v FCT (1985)” the award that was received by the football player
was viewed as ordinary income under “sec 6-5, ITAA 1997” because it was having
satisfactory relation with skill and occupation of taxpayer (Braithwaite and Reinhart 2019).

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While “section 21A” explains that non-cash benefit might have connection with the personal
services but if it is not convertible cash it is not treated as ordinary earnings. As held in
“Cooke & Sherden v FCT (1980)” a non-cash business benefit does not have the character of
income if it cannot be converted in cash.
A gain that has the character of simple gift should be viewed as income. In “FCT v
Scott (1966)” gift received out of personal relationship should not be viewed as having the
character of income (Barkoczy 2016). The ATO explains that a person is allowed to claim
deduction which they incur for business purpose travel. The examples include airfares,
accommodations, taxi fares etc. Voluntary payment that are received by the taxpayer that has
adequate relation with the taxpayer revenue creating acts will be held as taxable ordinary
income. In “Calvert v Wainwright (1947)” tips that are received by the taxi driver was
regarded as chargeable earnings.
The taxpayers are not entitled to any claim for deduction associated to the cost of
acquiring or selling the rental property. The example of such outgoings include the purchase
price of property, fees on bank guarantee, stamp duty etc. Rather these costs are included into
the purchase price of the property for capital gains tax purpose (Keyzer, Goff and Fisher
2017). However, upon renting the property the taxpayer is entitled to deduction for cost that
are occurred when the property is let-out for tax purpose.
A taxpayer is entitled to deduction for outgoings that are occurred at the time of
generating assessable earnings. A deduction is permitted under “section 8-1, ITAA 1997”
when the outgoings occurred is necessarily for business purpose or for generating taxable
business earnings (Burton and Karlinsky 2016). It should be noted that outgoings that
occurred before the beginning of income generating acts are not held as income because they
are not occurred while generating assessable income. In “Goodman Fielder Wattie v FCT