Taxation Law

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

TAXATION LAW1
Table of Contents
Answer to question 1:.................................................................................................................2
Issues:.....................................................................................................................................2
Laws:......................................................................................................................................2
Application:............................................................................................................................4
Conclusion:............................................................................................................................6
Answer to question 2:.................................................................................................................6
Issues:.....................................................................................................................................6
Laws:......................................................................................................................................6
Application.............................................................................................................................8
Conclusion:..........................................................................................................................10
References:...............................................................................................................................11

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Answer to question 1:
Issues:
The issue here is associated to the tax consequences of the compensation amount that
is received by Our Earth Pty Ltd under “Division 6” or “subsection 25 (1) of the ITAA
1936”?
Laws:
Where the taxpayers receive the compensation payment on the basis of right of
seeking compensation or due to cause of action or because of any kind of legal actions taken
by the taxpayer in respect of right of taxpayers or arising because of the legal actions of law
court or comprises of any dissected sum (Evans et al., 2015). Where the taxpayers receive
any kind of compensation for damages, the such kind of compensatory damages are held as
assessable ordinary income within “Division 6 of the ITAA 1997” or it may be considered as
statutory income.
In order to establish whether or not the damages relating to compensation are treated
as ordinary income or capital amount, it is completely dependent on the nature of receipts.
When a taxpayer receives the compensation damages that is associated to income in relation
to the ordinary meaning then the legislative provision of “section 6-5, of the ITAA 1997” is
implemented (Chardon et al., 2016). For example, the compensatory damages are only treated
as income if the damages are received as the series of recurrent, periodic payments cannot be
categorized as instalment of lump sum.
The decision made in “Californian Oil Products Ltd v FCT (1934)” the
compensation damages that are paid or the compensation to insure the taxpayer for the loss of
profit that would originate in the ordinary business course will be treated as income
(Woellner et al., 2016). The reason for this is that it amounts to a part of profit that are gained

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from the business activities even though they are triggered by uncommon or exceptional
events or situations.
The verdict given in the case of “CT (Vic) v Phillips (1936)” explained that if the
compensation that are paid for the loss of business or associated to the loss of basis or basis
of business then the compensation that is received will be considered as the loss of capital
asset (Ingles, 2015). because of absence of countervailing observation, the receipts take the
nature of capital. While in another case of “FCT v Spedley Securities Ltd (1988)” the court
of law in its decision explained that the sum received in the form of damage to goodwill is
viewed as capital in nature. On receiving a compensation amount for injury to the capital
asset is regarded as capital in nature.
Where the taxpayers are given interest for the part of compensation sum then the
amount will be considered as taxable income for the taxpayer on the basis of the ordinary
concept of income. The decision given by court in “Whitaker v FCT (1998)” explained that
post judgement interest has the nature of interest is treated as ordinary income (Duncan et al.,
2018). Where it is noticed that the compensation for lost income is related then the interest
that is paid will be considered income, if the claimant has not suffered damage then the
claimant has received the interest that is awarded.
When it is noted that the taxpayer is permitted to claim deduction for the legal
outgoings which is available under the legislative provision of “section 8-1, ITAA 1997”
then the payment in respect of the legal expenditure will be included into the assessable
income as the taxable recoupment within the “subdivision 20-A”. The legal expenses that is
awarded is usually paid to indemnify the recipient as the successful party for the expense of
bringing lawsuit. The amount is not held as income within ordinary meaning (Svetalekth,
2016). The amount is regarded as the assessable recoupment within the “subsection 20-20