Taxation Law

This document provides answers to various questions related to taxation law. It covers topics such as ordinary income, illegal activities, gifts, land development, winnings from prizes, exemptions, primary production, and compensation payments. The document also includes references for further reading.

Running head: TAXATION LAW
Taxation Law
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Table of Contents
Answer to question 1:.................................................................................................................2
Answer i:................................................................................................................................2
Answer ii:...............................................................................................................................2
Answer to question 2:.................................................................................................................2
Answer i:................................................................................................................................2
Answer ii:...............................................................................................................................2
Answer iii:..............................................................................................................................3
Answer iv:..............................................................................................................................3
Answer to 3:...............................................................................................................................3
Answer to question 4:.................................................................................................................3
Answer to question 5:.................................................................................................................4
Answer to question 6:.................................................................................................................4
Answer to question 7:.................................................................................................................5
Answer i:................................................................................................................................5
Answer ii:...............................................................................................................................5
Answer iii:..............................................................................................................................5
Answer iv:..............................................................................................................................5
Answer to v:...........................................................................................................................5
Answer to question 9:.................................................................................................................6
Answer to question 10:...............................................................................................................6
References:.................................................................................................................................8

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Answer to question 1:
Answer i:
Conferring to “section 6-5, ITAA 1997” major parts of income that comes into the
taxpayer is treated as ordinary income (Miller and Oats 2016). The phone that is received by
Harvey by his employer as award is regarded as ordinary income under “section 6-5, ITAA
1997” because it holds nexus with his employment.
Answer ii:
A mere windfall gains cannot be classified as income. Income made from gambling
activities is not held as income unless the taxpayer is carrying the business of gambling. The
winnings by Claire as the full time Jockey will be included as ordinary income within the
ordinary meaning of “section 6-5, ITAA 1997” as he is carrying the business of gambling.
Answer to question 2:
Answer i:
If the illegal activities that has the characteristics of business with the objective of
deriving income, then the proceeds from such activities are held as income. Similarly, in
“FCT v La Rosa (2002)” proceeds obtained from illegal drugs held as assessable income
(Jones and Rhoades-Catanach 2015). The amount of $50,000 derived by Geoff from selling
of stolen television constitute ordinary income under “section 6-5, ITAA 1997”.
Answer ii:
Statutory income is viewed as earnings that are treated taxable under several provision
of tax acts. Similarly, dividends of $450 received by Craig is statutory income under “section
44 of the ITAA 1936”.

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Answer iii:
Reimbursement are held as payment received by worker for expense occurred.
Reimbursement of office supplies to Mark from his employer is not treated as income.
Answer iv:
The court of law “Bennett v FCT (1947)” held that payments associated to changes in
employment entitlement may lead to capital receipts for relinquishing the valuable capital
rights falling inside the category of ordinary income.
Answer to 3:
Gains from business activities are held as ordinary income under “section 6-5, ITAA
1997”. To comprehend whether the receipts are held as ordinary income from business there
are two steps. Namely, ascertaining whether the taxpayer is carrying the business activity.
Secondly, whether the receipts constitute normal revenue from the business. In “FCT v JR
Walker (1985)” the scale of activity, capital employed and extent of turnover is regarded as
common indicators of business (Barkoczy 2016).
While in “Thomas v FCT (1972)” whether the commercial approach has been
undertaken or the activities amounts to more than recreational activity is regarded as business
indicator. Collecting and selling old hats at Ebay by Sam should be treated as business
activity. Sam adopted a commercial approach of selling its product online and hence the
receipts should be treated as ordinary business income.
Answer to question 4:
Gains that are simple gift hardly carries the character of income. The law court in
“Scott v FCT (1966)” stated that sum received as gifts are not classified as income under
legislative provision of “section 25 (1) of the ITAA 1997” (David and Abreu 2016). The

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redeemable voucher of $100 received by Christine is a personal gifts and hence does not
amounts to income.
Answer to question 5:
Numerous instances have stated that landowners have the prospect of subdividing and
selling land which is owned for very long period. The development of property can be at
times substantial with the purpose of earning large profit. As held in “FCT v Whitfords
Beach Pty Ltd (1982)” the taxpayer was considered taxable under “section 25 (1)” for profits
made from subdivision and sale of land as the taxpayer went further than mere realisation of
asset and his activities amounted to carrying land development business (Brabazon 2019). In
current case, the taxpayer subdivided the land which was purchased for farming and building
school camp. The land was later subdivided and sold for $1,500,000. The profit is taxable
income under “section 25 (1), ITAA 1936” since it arises out of profit making undertaking.
Answer to question 6:
The law court in “Moore v Griffiths (1972)” explained that mere winnings from
prizes is not classified as income (Morgan and Castelyn 2018). It is necessary to ascertain the
character of receipts based on relevant facts along with quality of income received in the
recipient hands. Any amount received in fixed instalments does not signifies it as ordinary
income. Similarly, in “FCT v Dixon (1952)” periodic receipts were held as income on the
basis of nature of payments.
The sum of $50,000 received by Adam from quiz represents a simple gain which does
not holds the nature of income within ordinary meaning of “section 6-5, ITAA 1997”. While
the decision by Adam of exchanging the prize money into monthly instalment of $5,000 for
twelve months does not display the nature of income and therefore not taxable within the
concepts of “section 6-5, ITAA 1997”.

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Answer to question 7:
Answer i:
As defined in “section 50-5”, charitable institutions, educational institutions and
religious institutions are regarded as entities which is exempted from tax regardless of
income received (Gashenko, Zima and Davidyan 2019). The amount of $50,000 obtained by
community service would be exempted under “section 50-5, ITAA 1936”.
Answer ii:
As defined in “section 50-45” sporting entities, cultural entities, sports clubs and
recreational societies are exempted entities. The payment of $300,000 received by NONA Art
Society is an exempted under “section 50-45”.
Answer iii:
There are some of the welfare payments such as income maintenance payment given
to individuals are exempted under the “section 51-30”. A single family supplement given to
working couple is a welfare payment which is exempted under “section 51-30, ITAA 1936”.
Answer iv:
As per “section 51-5”, payments given to the members of defence and reserve force is
exempted from tax. The allowance that is given to the defence force must be viewed as
exempted income under “section 51-5, ITAA 1936”.
Answer to v:
Any kind of payment for relinquishing the rights is not an income. The commissioner
in “Jarrold v Boustead (1964)” held that lump sum payment that was given to the rugby
players for giving up their status of amateur was not an income (Mitu and Stanciu 2018). The
winning from prize is not considered as income however if it is noticed that sufficient relation
with income producing activities then it is viewed as income. The commissioner in “Kelly v

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FCT” award that is received by the footballer was considered as income as it was associated
to work. The amount of $5,000 received by Emma as appreciation is an income. While the
agreement receipt of $25,000 for not attending the meeting is not income because it amounts
to payment received for agreeing not do something.
Answer to question 9:
To determine whether the taxpayer is carrying on the business of primary production
it is necessary to determine whether the mode of operations, nature of activity and intent of
taxpayer for entering into the transactions amounts to business. The commissioner in
“Thomas v FCT (1979)” stated that the intention and scale of activity is regarded as the
relevant indicator of business activity (Sadiq 2018). The receipts of $40,000 by Jacob reflects
that a profit making motive was existent at the time of entering into the transaction. The
amount of $40,000 is taxable as ordinary income. Consequently, the agreement entered by
Jacob to sale the photos for five years and obtaining a receipts of $15,000 will be treated
assessable ordinary income under “section 6-5, ITAA 1997” obtained from the ordinary
business course.
Answer to question 10:
As defined under “section 6-5, ITAA 1997” when taxpayer receives a compensation
payment then it is held as taxable income. The commissioner in “FCT v Allied Mills
Industries (1989)” treated the compensation payment received as settlement of claims was an
assessable income (Morgan, Mortimer and Pinto 2018). Sparkle Ltd received a compensation
payment that amounted to $100,000 for premature termination of contract. The amount will
be treated as lump sum payment which is assessable under “section 6-5, ITAA 1997”. The
sum represents recoupment of loss under “section 20-20 (2), ITAA 1997”.

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A gain that are simple capital in nature do not possess the income character. The
disposal of bucket and obtaining an amount of $20,000 is a capital gain which is not carrying
the nature of income. Therefore, the amount is non included for assessment under “section 6-
5, ITAA 1997”.

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References:
Barkoczy, S., 2016. Foundations of taxation law 2016. OUP Catalogue.
Brabazon, M., 2019. International Taxation of Trust Income: Principles, Planning and
Design. Cambridge University Press.
David, F. and Abreu, R., 2016. Taxation and Fiscal Evasion: A perspective on Corporate
Social Responsibility. The Ashgate Research Companion to Corporate Social Responsibility,
p.357.
Gashenko, I.V., Zima, Y.S. and Davidyan, A.V., 2019. Principles and Methods of Taxation.
In Optimization of the Taxation System: Preconditions, Tendencies and Perspectives(pp. 33-
39). Springer, Cham.
Jones, S. and Rhoades-Catanach, S., 2015. Principles of Taxation for Business and
Investment Planning 2016 Edition. McGraw-Hill Education.
Miller, A. and Oats, L., 2016. Principles of international taxation. Bloomsbury Publishing.
Mitu, N.E. and Stanciu, C., 2018. Tax Principles between Theory, Practice and Social
Responsibility. In Current Issues in Corporate Social Responsibility (pp. 11-24). Springer,
Cham.
Morgan, A. and Castelyn, D., 2018. Taxation Education in Secondary Schools. J.
Australasian Tax Tchrs. Ass'n, 13, p.307.
Morgan, A., Mortimer, C. and Pinto, D., 2018. A practical introduction to Australian
taxation law 2018. Oxford University Press.
Sadiq, K., 2018. Australian Tax Law Cases 2018. Thomson Reuters.

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