Taxation Law

Running head: TAXATION LAW
Taxation Law
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1TAXATION LAW
Table of Contents
Answer to question 1:.................................................................................................................2
Issues:.....................................................................................................................................2
Rule:.......................................................................................................................................2
Application:............................................................................................................................4
Conclusion:............................................................................................................................5
Answer to question 2:.................................................................................................................6
Issues:.....................................................................................................................................6
Rule:.......................................................................................................................................6
Application:............................................................................................................................8
Conclusion:..........................................................................................................................10
References:...............................................................................................................................11

2TAXATION LAW
Answer to question 1:
Issues:
Is the taxpayer accountable for assessment under the “section 6-5, ITAA 1997” for
the income derived from the employment? Is the accounting firm liable for expense payment
fringe benefit tax under “section 20, FBTAA 1986”?
Rule:
As per “section 6 (1), ITAA 1936” income obtained from the private exertion or the
income obtained from the private exertion signifies earnings obtained from remunerations,
wages, fees, commissions, bonus received as employee or profits obtained from business
activities1. According to “section 6-5, ITAA 1997” usually most of the income made by the
taxpayer is treated as ordinary income. As stated under “Scott v FCT (1935)” income should
not be seen as term of art and receipts must be viewed as earnings in adherence with the
usage of mankind and ordinary concepts2.
Voluntary payments would be treated as earnings given that there is adequate nexus
with the revenue making activities of the taxpayer. Similarly, in “Calvert v Wainwright
(1947)” tips that are received by the taxi driver was considered as income because it was
from the revenue producing activities of the taxi-driver3. As a general rule, when a simple
winning from prizes is earned then it is not held as income. But may be held as income if
there are adequate nexus with income earning activities of taxpayers. In “Kelly v FCT
1 Woellner, Robin, et al. "Australian Taxation Law 2016." OUP Catalogue (2016).
2 Burton, Mark. "A Review of Judicial References to the Dictum of Jordan CJ, Expressed in Scott v. Commissioner of Taxation, in
Elaborating the Meaning of Income for the Purposes of the Australian Income Tax." J. Austl. Tax'n 19 (2017): 50.
3 Barkoczy, Stephen. "Foundations of taxation law 2016." OUP Catalogue (2016).

3TAXATION LAW
(1985)” the monetary award received by footballer player for best player was treated as
income because it is related to employment by club and his use of skill.
A gain that are treated as the mere gift is not an income. As held in “Hayes v FCT
(1956)” shares received in the company by the previous boss was not the income4.
Accordingly, there must be an adequate relation amid the benefit derived and personal
exertion. Salary and wages are held as personal exertion income. As held in “Dean v FCT
(1997)” remuneration payment made to employees for being employed after the takeover was
treated as income.
The reconciliation rule under “section 6-25 (2)” explains that if the sum is both the
ordinary and statutory earnings then the rules relating to statutory income prevails apart from
any contrary intention is given5. Alternatively, if the employer gives any kind of fringe
benefit to the employee then the benefit would not be taxable for employee under “section
23L, ITAA 1936” but the employer would be liable for fringe benefit tax on the value of
benefit given.
According to “section 20, FBTAA 1986” the expense payment fringe benefit happens
when the employer makes the payment to the employee to discharge in parts or whole of the
obligations of another person to pay the sum to the third person in relation to the expenses
occurred by the employee or recipient6. The expense payment fringe benefit happens when
the employer reimburses the employee in relation to the expenses occurred.
4 Sadiq, Kerrie. Australian Tax Law Cases 2018. Thomson Reuters, 2018.
5 Morgan, Annette, Colleen Mortimer, and Dale Pinto. A practical introduction to Australian taxation law 2018. Oxford University Press,
2018.
6 Morgan, Annette, and Donovan Castelyn. "Taxation Education in Secondary Schools." J. Australasian Tax Tchrs. Ass'n 13 (2018): 307.