Taxation Law: Letter of Advice

This letter provides advice on the tax consequences of participating in a game show, including the tax liability of various receipts and winnings. It discusses the treatment of sign-on fees, restrictive contracts, non-cash benefits, prize winnings, and business venture profits. The letter concludes with a summary of the tax implications for each type of receipt or income.

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

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Letter of Advice
To Julie
From ABC Tax Consultants
Date: 03-05-2019
Dear Julie
Issues:
The current issue is based on determining whether the receipts obtained from
participating in the game show will be considered as the income. The letter would also
consider the tax liability of numerous receipts that is derived by the taxpayer from entering
into the game show.
Brief Answers:
On a brief note, the sum received for signing a contract of employment should be
declared by you in your taxable income. While the restrictive contract payment received from
the game show is a capital receipt which is not considered as taxable income (Miller & Oats,
2016). The benefit that is provided for tourism to Dubai is a non-cash benefit which will have
no tax liability. In addition to this, the prize winnings is considered as simple winnings from
the TV which is non-taxable. However, the decision of making investment in the business
venture and deriving profits thereon will be considered as taxable profits from the business
venture. The free car and master chef logo constitutes uncertain gifts for personal qualities
that is not an ordinary income.
Facts:
There may be instances where the employer provide the candidates with the sign of
fees so that they can attract the people into the new contract (Herdegen, 2016). The initial

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sign on fees are regarded as the payment relating to the future services. The sign on fees are
considered as receipts of personal services and hence it will be considered as taxable income
by the IRD.
A restrictive covenants or the agreement is better known as payment made the
individual for restricting the rights or an agreement of not doing something. It is regarded as
the agreement between the person that enters into the place of restriction or other forms of
income producing activities or rights (Fleurbaey & Maniquet, 2018). The payments that are
received for entering in such kind agreement are usually considered as non-taxable capital
receipt for the recipient. The payments for restrictive contract by majority of the high court
have been considered as capital since the restrictive payment amounts to a compensation for
the taxpayers where they give up or restrict the part of their trading activity.
There are certain prerequisites of the income. This includes the non-cash benefit that
might have the relation with the individual personal services however if the payment or
benefit cannot be converted into cash then such kind of benefit is not considered as income
(Novak, 2018). Where the employer provides an employee with the free accommodation or
holiday trip then this kind of amount are treated as employer paid expenses. The taxpayer in
such situations are not required to include the amount into their taxable income because it is a
real gain to the taxpayer and does not amounts to income.
Prize and chance winnings are not treated as taxable income if the amount received by
the taxpayer is a simple gain which is derived by the luck. Winnings as casual participant on
the TV show are considered as chance winnings and are considered non-taxable where the
taxpayer derives a windfall gain (Alt, 2018). Alternatively, winnings from TV shows will be
considered as taxable income if the earnings is derived by the taxpayer by using their degree
of personal services or skill which simply outweighs the chance winnings. It is regarded as

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the irrelevant payment that does not originates from the employer. However, there are
difficulty in ascertaining whether the sufficient degree of skill which simply outweighs luck
factor is based on certain conditions as well (Morgan & Castelyn, 2018). This includes the
degree of professionalism, whether the received is related to the services instead of the
personal qualities, whether the reward is paid prior to or after the services and finally whether
the reward that is received is associated to the contract of the taxpayer.
Nexus or connection with income earning activities is commonly established for the
common items related to personal services. This includes the salary and wages, commissions,
bonus and fees that is charged for the personal services rendered or ancillary payments that
are received as the incident of labour (Bamford, 2018). Receipts that are earned from the
personal exertion are considered fundamental. A receipts that is received by the taxpayer for
rendering employment or any other services are considered as income. In order to consider
the receipt to be produced from the employment or services rendered there should be
sufficient connection with the income producing activities (Graetz et al., 2015). It is
noteworthy to denote that an adequate connection exists when the receipt is received by the
employer directly or indirectly from the activities. Usually, the relation with the employment
or services rendered is regarded as the most important factor and represents the connection
with the income producing activities.
Discussions:
The current letter seeks to provide you advice on the tax consequences of numerous
receipts that is reported by you from participating in the game show. Before the start of show,
the producers of the master chef provided you with the employment contract with a sign on
fees based on the conditions that the amount will be refundable if the contestants does not
make up to the fifth episodes (Bankman et al., 2018). However, you managed to reach the
fifth episode in the game show and keep the amount of $5,000. The initial sign on fees are

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regarded as the payment relating to the future services that would be rendered by you. The
sign on fees are considered as receipts of personal services and hence it will be considered as
taxable income by the IRD.
As the part of your contract it was stated that once you win the Master Chef a
restrictive covenants needs to be signed by you which has the stipulations that you will not be
able to associate in any kind of TV stations. To compensate you an amount of $50,000 was
received you. The payments that are received for entering in such kind agreement are usually
considered as non-taxable capital receipt for the recipient (Schmalbeck et al., 2015). The
payments for restrictive contract in your case is being considered as capital since the
restrictive payment amounts to a compensation for where you are required to not appear in
another TV shows and give up or restrict the part of your trading activity.
You later reported the receipt of tourism to Dubai that included the accommodation
and entry to the Dubai food festival. As the employer provides you with the free
accommodation and holiday trip then this kind of amount are treated as employer paid
expenses. The payment constitutes the non-cash benefit which is non-convertible to cash
(Oishi et al., 2018). As a result of this the benefit of free overseas holiday and
accommodation received by you will not be regarded as income. Therefore, it is a non-cash
benefit which is provided to you by the employer of game show. In such situations Julie, you
are not required to include the amount into your taxable income because it is a real gain to
you and does not amounts to income.
In later part you reported the receipts from winning the Master Chef competition and
as the part of winning the show you were provided with the prize of $50,000. The amount is
received by you after the conclusion of the game show (Schenk, 2017). The letter seeks to
explain you that prize and chance winnings are not treated as taxable income if the amount

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received by a taxpayer is a simple gain which is derived by the luck. In your case the prize
winnings of $50,000 that is received by you as casual participant on the TV show is
considered as chance winnings and it is considered non-taxable, since you derived it as a
windfall gain.
As the part of prize it also included the ability of working with the Nadia Liam into
her business venture. You, as an investor made a capital investment to the business by
investing all of your prize money. You did not received any kind of salary for working into
the business of Nadia Liam however you were entitled to certain portion of profit arising
from that business venture. The share of profits from business constitute gains that would
originate from carrying on the business (McCluskey & Franzsen, 2017). The gains that will
be derived by you will be treated on revenue accounts and will be considered taxable. The
business profits can be shown as the product of income producing activity by you which may
be usually considered as the determinative factor of income character. Therefore, you will be
considered taxable for the income derived from making investment in business venture.
As part of the winning deal you also got a deal to write the book and you were
provided with the upfront amount of $10,000. The letter seeks to explain you that nexus or
connection with income earning activities is commonly established for the common items
related to personal services. The deal of writing a book and publishing the story represents
rendering of personal services and the ancillary payments that are received is an incident of
labour. It is noteworthy to denote that the receipts obtained from the deal of wring book by
Julie is a receipt that is received by you for providing personal service (Creedy & Mok,
2018). The receipts holds sufficient connection with the income producing activities. The
relation with the services rendered of writing a book and publishing the same is regarded as
the most important factor and represents the connection with the income producing activities.
As a result the receipts will be considered taxable for Julie as it is an income for the services

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rendered. The free car and master chef logo constitutes uncertain gifts for personal qualities
that will not be treated as an ordinary income.
Conclusions:
The letter seeks to provide a concluding opinion regarding the above stated
explanations that the amount received as the sign on fees should be declared by the taxpayer
as it is taxable income. While the restrictive contract payment received by Julie will be
considered as capital receipt which is non-taxable income. The benefit that is provided in the
form of tourism to Dubai is a non-cash benefit which will be considered non-taxable benefit.
In addition to this, the prize winnings is considered as simple winnings from the TV which
will not attract tax liability. However, the decision of making investment in the business
venture and deriving profits thereon will be considered as taxable profits from the business
venture.
We anticipate the above stated letter of advice has helped you in serving you purpose
and we look forward to hear from you soon. In case you find any additional information to
share or want to seek any additional information then please feel free to meet us.
Thank You

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References:
Alt, J. (2018). Tax Justice-Justice of Taxation. Ethics Discussion Paper III of the" Tax
Justice & Poverty” Research Project.
Bamford, D. (2018). Arguing for a New Form of Taxation: Lifetime Hourly
Averaging. Journal of Applied Philosophy, 35(2), 280-299.
Bankman, J., Shaviro, D. N., Stark, K. J., & Kleinbard, E. D. (2018). Federal Income
Taxation. Aspen Publishers.
Creedy, J., & Mok, P. (2018). The marginal welfare cost of personal income taxation in New
Zealand. New Zealand Economic Papers, 52(3), 323-338.
Fleurbaey, M., & Maniquet, F. (2018). Optimal income taxation theory and principles of
fairness. Journal of Economic Literature, 56(3), 1029-79.
Graetz, M., Schenk, D., Freeland, J., Lathrope, D., Lind, S., Stephens, R., ... & Keyes, K.
(2015). Federal Income Taxation, Principles and Policies (University Casebook
Series). Foundation Press/West Academic.
Herdegen, M. (2016). Principles of international economic law. Oxford University Press.
McCluskey, W. J., & Franzsen, R. C. (2017). Land value taxation: An applied analysis.
Routledge.
Miller, A., & Oats, L. (2016). Principles of international taxation. Bloomsbury Publishing.
Morgan, A., & Castelyn, D. (2018). Taxation Education in Secondary Schools. J.
Australasian Tax Tchrs. Ass'n, 13, 307.
Novak, M. (2018). Taxation and Expenditure Policies. In Inequality (pp. 85-118). Palgrave
Macmillan, Cham.

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Oishi, S., Kushlev, K., & Schimmack, U. (2018). Progressive taxation, income inequality,
and happiness. American Psychologist, 73(2), 157.
Schenk, D. H. (2017). Federal Taxation of S Corporations. Law Journal Press.
Schmalbeck, R., Zelenak, L., & Lawsky, S. B. (2015). Federal Income Taxation. Wolters
Kluwer Law & Business.