This assignment discusses whether the receipts derived from business activities amount to ordinary income under the ordinary concepts of 'section 6-5, ITAA 1997'. It explores the rule, application, and conclusion in relation to the topic.
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Running head: TAXATION LAW Taxation Law Name of the Student Name of the University Authors Note Course ID
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1TAXATION LAW Table of Contents Answer to question 1..................................................................................................................2 Issues:.....................................................................................................................................2 Rule:.......................................................................................................................................2 Application:............................................................................................................................3 Conclusion:............................................................................................................................4 References:.................................................................................................................................5
2TAXATION LAW Answer to question 1. Issues: Are the receipts derived from the business activities amounts to ordinary income under the ordinary concepts of“section 6-5, ITAA 1997”? Rule: Usually majority of the income that comes in to the taxpayer is regarded as the ordinary income. The court in“Scott v CT (1935)”held that income should not be viewed as the term of art and requires the application of principles to treat the receipts in accordance with the ordinary concepts and use of mankind. Gains originating from the business activities should be classified as ordinary income under“section 6-5”. As per“Carden v F C of T (1938) 63 CLR 108”the income of the taxpayer is judged through cash basis process if the income is gained through the primary services or primary work performed (Miller and Oats 2016).The receipts are characterised as ordinary income when it has three broad general characteristics; a.Receipts is money or convertible to money b.Receipts is periodic and involves recurrence of receipts c.The receipts are related to revenue generating activities. Voluntary payments are treated as income if there is appropriate connection with the income producing activities of the taxpayer. The commissioner in“FCT v Dixon (1952)” assessed the taxpayer for the supplementary that are received as income. The court held the payment as ordinary income based on ordinary concepts (Kenny 2013). While in“FCT v Harris (1980)”periodic but unpredictable unsolicited lump sums were received by the
3TAXATION LAW former employer as the supplementary where the payments were unrelated to the quality of services rendered. The payments were non-taxable. Recovery of bad debt can have explained as per the“subsection 63 (3)”, bad debt is nothing but the difficulties in identifying the debt where the taxpayer want to recover the extra debt amount that has been added (Morgan and Castelyn 2018). As per the“subsection 63 (3)”when the taxpayer gets the chance to receive the whole debt or part of the debt amount then this will be considered as the taxable income for the taxpayer (Sadiq 2018). Application: In this section Andrew smith is performing the business of sole practicing lawyer. The receipt of $910,000 from the services provided to clients amounts to receipts that are directly related to the services rendered by Andrew. The receipts by Andrews holds the determinative product of income producing activities. Citing“FCT v Dixon (1952)”the receipts of payments for the services rendered by Andrew constitutes income based on the ordinary concepts of“section 6-5, ITAA 1997”. Later, Andrew recovered an amount of bad debt as $5,000 from the partial settlement of $12,000 in the year of 2016. As per the“subsection 63 (3)”this received debt will be treated as the taxable income for the Andrew in the year of 30thJune 2019. The assessable income Andrews for the year ended 30thJune 2019 is computed below;
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4TAXATION LAW Conclusion: The receipts from the services rendered by Andrews is linked with the revenue producing activities and amounts to ordinary income under“section 6-5, ITAA 1997”. While therecoveryofbaddebtsisincludedforassessmentunderlegislativeprovisionof “subsection 63 (3)”.
5TAXATION LAW References: Kenny, P. 2013.Australian tax 2013. Chatswood, N.S.W.: LexisNexis Butterworths. Miller, A. and Oats, L., 2016.Principles of international taxation. Bloomsbury Publishing. Morgan,A.andCastelyn,D.,2018.TaxationEducationinSecondarySchools.J. Australasian Tax Tchrs. Ass'n,13, p.307. Sadiq, K., 2018.Australian Tax Law Cases 2018. Thomson Reuters.