Taxation Law

This document provides answers to various questions related to Taxation Law. It covers topics such as ordinary income, illegal acts, reimbursement, business receipts, personal gains, land development, prize winnings, exempted income, primary production, compensatory receipts, and capital gains. The document 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:.................................................................................................................4
Answer i:................................................................................................................................4
Answer ii:...............................................................................................................................5
Answer iii:..............................................................................................................................5
Answer iv:..............................................................................................................................5
Answer to question v:.............................................................................................................5
Answer to question 9:.................................................................................................................6
Answer to question 10:...............................................................................................................6
References:.................................................................................................................................7

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Answer to question 1:
Answer i:
Denoting “section 6-5, ITAA 1997” most of the income that is received by the
taxpayer is considered ordinary income (Grange, Jover-Ledesma and Maydew 2014). Harvey
reports a receipt of phone from his employer. The phone is an ordinary income under
“section 6-5, ITAA 1997” since it was received in course of employment.
Answer ii:
As evident simple gains of windfall nature is not viewed as income. While receipts
from gambling is not classified as income except the taxpayer is carrying the commercial
activity of gambling. The winnings reported by Claire from gambling is an ordinary income
under “section 6-5, ITAA 1997” because his professional involves gambling.
Answer to question 2:
Answer i:
Proceed obtained from illegal acts are held assessable income if it involves carrying
on of business activity. The commissioner in “FCT v La Rosa (2002)” treated the receipts
from the sale of illegal drug as the taxable income (Jover-Ledesma 2014). Geoff earned
$50,000 by sale of stolen television. The receipts are taxable under “section 6-5, ITAA
1997” as ordinary income.
Answer ii:
Statutory earnings are treated taxable under numerous provision of taxation acts. The
dividend of $450 derived by Craig will be taxable as statutory income under “section 44 of
the ITAA 1936”.

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Answer iii:
Reimbursement is defined as payment given to employee for expenditure occurred.
The reimbursement of office supplies to Mark by his employer is not an income.
Answer iv:
In “Bennett v FCT (1947)” the commissioner held that payments linked with
alteration in employment entitlements may give rise to capital receipts for surrender of
appreciated capital rights is treated as ordinary income.
Answer to 3:
Any kind of receipts made from business activities is held as income under “section
6-5, ITAA 1997”. There are two steps involved in determining business receipts as ordinary
income. Firstly determining whether any commercial activity is performed by taxpayer.
Secondly, whether the revenue received is from the normal business course. The
commissioner in “FCT v JR Walker (1985)” explained that the degree of turnover, capital
invested and extent of activity is an important reflector of business (James 2015). The
commissioner in “Thomas v FCT (1972)” undertaking any commercial approach amounts to
greater than the recreational activity. Similarly, in case of Sam the collection and sale of old
hats through online mode at Ebay is business activity because a commercial approach was
undertaken for sale of old hats. The activity involved regularity and the receipts constitutes
ordinary income from business.
Answer to question 4:
Simple gains are not treated as income. The commissioner in “Scott v FCT (1966)”
opinion that personal gains are not an income under section “section 25 (1) of the ITAA

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1997” (Krever 2013). The receipt of $100 redeemable voucher is a personal gift for Christine.
Therefore it is not an income.
Answer to question 5:
Land owners at times has the prospect of subdividing and selling the land that is
owned from a long time. Property development may at times carry a substantial intention of
deriving profits. The commissioner in “FCT v Whitfords Beach Pty Ltd (1982)” held that
taxpayer assessable under “section 25 (1)” relating to profits made from the subdivided sale
of land as the taxpayer went beyond the concept of mere realisation of land and the activities
undertaken involved the business of land development (Kenny 2013). In the present situation,
the subdividing and sale of land by the taxpayer that was originally purchased for farming
and constructing school will be held as taxable income. The sum of $1,500,000 will be
assessable under “section 25 (1), ITAA 1936” as it amounted to profit making undertaking.
Answer to question 6:
The commissioner of taxation in “Moore v Griffiths (1972)” opinion that simple prize
winnings cannot be regarded as income (Sadiq and Coleman 2013). Therefore, it becomes
vital to determine the nature of receipts on the basis of appropriate facts and quality of
income that is received by the recipient. Clearly, sum received through instalment basis is not
held as ordinary income. The commissioner in “FCT v Dixon (1952)” held that periodic
receipts were treated as income depending on the character of payments (Morgan, Mortimer
and Pinto 2013).
The amount of $50,000 through winnings from Quiz by Adam is a simple gain and
not an ordinary income under “section 6-5, ITAA 1997”. Later the decision of exchanging
the prize money into monthly instalments of $5,000 cannot be classified as income and hence
non-taxable income under “section 6-5, ITAA 1997”.

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Answer to question 7:
Answer i:
As defined under “section 50-5”, institutions such as charities, scientific and religious
organisations are exempted from taxation notwithstanding the type of income they receive
(Sadiq 2014). Evidently the amount of $50,000 received by community service is an
exempted earnings under “section 50-5, ITAA 1936”.
Answer ii:
Entities such as cultural film, sporting entities and recreational clubs are considered as
exempted entities (Woellner 2013). The sum of $300,000 received by NONA Art Society is
considered exempted income under “section 50-45”.
Answer iii:
Welfare payments such as maintenance payment made to individual are exempted
under “section 51-30”. Single family supplement paid to working couple is a welfare
payment and the receipts is exempted under “section 51-30, ITAA 1936”.
Answer iv:
Payments made to defence members are exempted under “section 51-5”. Likewise the
allowance that is paid to the defence force must be viewed as exempted income with in the
legislation provision of “section 51-5, ITAA 1936”.
Answer to question v:
Payments received for relinquishing rights is not an income. As held in “Jarrold v
Boustead (1964)” receipt of lump sum payment by the rugby player for giving up the status
of amateur is not an income. Similarly, mere winnings from prizes is not an income however,
if it is associated to revenue producing activity then it is held as income (Woellner et al.,

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2014). As held in “Kelly v FCT” award received by taxpayer for being the best player was
income as it was related to his revenue producing activities. The amount of $5,000 received
by Emma as appreciation is an income whereas the agreement of $25,000 for not attending
the meeting is not a taxable income.
Answer to question 9:
The character of activity, method employed and the intent of taxpayer is useful in
deciding whether the taxpayer is performing the business of primary production. The profit
making purpose forms the vital element in such situations. Accordingly in “Thomas v FCT
(1979)” the intent of engaging in an activity is held as relevant indicator. The sum of $40,000
derived by Jacob from selling of limestone signifies a profit making intention was existent
while entering into the transaction. Consequently, the receipt of $40,000 is an assessable
ordinary income.
In an another agreement entered into by Jacob for selling the photos up to a period of
five years and yielding a sum of $15,000 constitutes business activities. The sum will be
included for assessment as ordinary income under “section 6-5, ITAA 1997”.
Answer to question 10:
As per “section 6-5, ITAA 1997” compensatory receipts are held as taxable earnings.
The court in “Allied Mills Industries Pty Ltd v FCT (1989)” held that un-dissected lump sum
that is received as claim settlement is held as ordinary income (Sadiq 2014). In the case of
Sparkle Ltd the termination of contract and receipt of lump sum amounting to $100,000 is a
taxable income. The amount represents the recoupment of loss under “section 20-20 (2),
ITAA 1997”.

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Capital gains that have the nature of capital is not an income. Evidently, selling of buckets
and receiving $20,000 represents capital receipts and therefore not an assessable income
under “section 6-5, ITAA 1997”.

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References:
Grange, J., Jover-Ledesma, G. and Maydew, G. 2014 principles of business taxation.
James, S. 2015. The economics of taxation.
Jover-Ledesma, G. 2014. Principles of business taxation 2015: Cch Incorporated.
Kenny, P. 2013. Australian tax 2013. Chatswood, N.S.W.: LexisNexis Butterworths.
Krever, R. 2013. Australian taxation law cases 2013. Pyrmont, N.S.W.: Thomson Reuters.
Morgan, A., Mortimer, C. and Pinto, D. 2013. A practical introduction to Australian taxation
law. North Ryde [N.S.W.]: CCH Australia.
Sadiq, K. and Coleman, C. 2013. Principles of taxation law 2013. Sydney, N.S.W.: Lawbook
Co./Thomson Reuters.
Sadiq, K. 2014. Principles of taxation law.
Woellner, R. 2013. Australian taxation law 2012. North Ryde [N.S.W.]: CCH Australia.
Woellner, R., Barkoczy, S., Murphy, S., Evans, C. and Pinto, D. 2014. Australian taxation
law 2014.