Taxation Law

This document provides answers to various questions related to Taxation Law. It covers topics such as ordinary income, statutory income, illegal activities, gains from business activities, gifts, land development, prize winnings, exemptions for charitable and sporting entities, and more. The document also includes references to relevant case law and legislation.

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

1TAXATION LAW
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 question iv:...........................................................................................................6
Answer to question 9:.................................................................................................................6
Answer to question 10:...............................................................................................................6
References:.................................................................................................................................8

2TAXATION LAW
Answer to question 1:
Answer i:
The interpretation of “section 6-5, ITAA 1997” explains that income which comes to
taxpayer is an ordinary income (Barkoczy 2016). The receipt of phone by Harvey from his
employer is an award which constitutes an ordinary income because it is related to his work
and employment. The phone constitutes an ordinary income under “section 6-5, ITAA 1997”.
Answer ii:
A simple windfall cannot be treated as having the character of income. Winnings from
gambling is not held as income unless one is carrying on the business of gambling. Claire
being a full time horse race jockey wins a prize money of $2000 from Melbourne Cup. The
winnings will be treated as ordinary income under “section 6-5, ITAA 1997” because Claire
is carrying on the business of gambling.
Answer to question 2:
Answer i:
Income and other types of ill-gotten that are originates from the illegal activities may
be considered assessable because legality is not the test in ascertaining the assessable income.
If the illegal activities have the business characteristics with the desire of producing income,
then the proceeds are treated as income. The court in “FCT v La Rosa (2002)” held the
proceeds from the illegal drugs were treated as taxable income (Blakelock and King 2017).
The sum of $50,000 from the sale of stolen television by Geoff is an ordinary income under
“section 6-5, ITAA 1997”.

3TAXATION LAW
Answer ii:
Statutory income is regarded as the income that are specified as the assessable under
the numerous provisions in the taxation acts (Burton 2017). Dividends received by Craig of
$450 will be treated as statutory income under “section 44 of the ITAA 1936”.
Answer iii:
Reimbursement are treated as payment that are made to the worker for the actual
expenditure incurred. The reimbursement of office supplies by the boss of Mark cannot be
treated as income.
Answer iv:
The court in “Bennett v FCT (1947)” held that payments made relating to the
changes in the entitlement under the employment might results in capital receipts for
relinquishing the valued capital rights falls into the category of ordinary income.
Answer to 3:
Gains that originates from performing the business activities is regarded as ordinary
income under “section 6-5, ITAA 1997”. To understand whether the receipts are ordinary
income from the business involves two step procedure. Firstly, to ascertain whether the
taxpayer is performing the business (Fry 2017). Secondly, determining whether the receipts
are normal proceeds of the business activity. As held in “FCT v JR Walker (1985)” the scale
of activities together with the type of capital and degree of turnover is the common indicators
of business. Similarly, in “Thomas v FCT (1972)” when a commercial approach is
undertaken or whether the activities are more than the recreational activity is the business
indicator. The activities undertaken by Sam of collecting and selling old hats at ebay amounts
to carrying on the business. A commercial approach was undertaken by Sam represents
business and the receipts would be treated as ordinary income from business.

4TAXATION LAW
Answer to question 4:
A gain that has the mere gift does not possess the nature of income. The court of law
in the case of “Scott v FCT (1966)” held that the amount that are given as gift does not
possess the character of income under “section 25 (1) of the ITAA 1997”. The receipt of
redeemable voucher of $100 by Christine is not the income. The gift amounted to personal
gifts and hence not treated as income for Christine.
Answer to question 5:
There are several examples that have demonstrated that the landowners possess the
opportunity of subdividing and selling the land they have owned for a very long period of
time. In some instances, the property developments can be very substantial with the objective
of earning large amount of profit from the project. As held in the case of “FCT v Whitfords
Beach Pty Ltd (1982)” the taxpayer was treated assessable on the profits derived from the
sale of land under section 25 (1) because it has gone beyond the mere realisation of the
capital asset and its activities comprises of carrying on the business of land development
(James 2016). Similarly, the taxpayer here subdivided the land that was bought for farming
and building the school camp. The taxpayer however with the intention of making profit
subdivided and sold the land for $1,500,000. The profit is assessable because it originated out
of profit making scheme or undertakings it is assessable under “section 25 (1), ITAA 1936”.
Answer to question 6:
The court of law in “Moore v Griffiths (1972)” held that simple prize winnings is not
treated as income (Miller and Oats 2016). The nature of the receipts should be determined
with respect to the relevant factors together with the quality of income received in the hands
of recipient. The fact that the amount is received in the fixed instalments does not stamp the
same as ordinary income. The court in “FCT v Dixon (1952)” held that periodic receipts are

5TAXATION LAW
treated as income depending upon the nature of payment. The lump sum receipt of $50,000
by Adam from the quiz constitutes a mere gain that does not has the character of ordinary
income under “section 6-5, ITAA 1997”. On the other hand, Adam decides to exchange his
prize money for the monthly instalment of $5,000 for a period of twelve months. Therefore,
the monthly instalment of $5,000 does not exhibit the characteristics of income and hence not
assessable within the ordinary meaning of “section 6-5, ITAA 1997”.
Answer to question 7:
Answer i:
According to the “section 50-5”, charitable, educational, scientific and religious
institutions are entities that are exempted irrespective of the type of income they receive. As
evident the sum of $50,000 received by the community service is an exempted income under
“section 50-5, ITAA 1936”.
Answer ii:
Under “section 50-45” entities sporting, cultural, film and recreational societies,
associations and clubs are treated as exempted entities (Morgan and Castelyn 2018). The
payment of $300,000 received by the NONA Art Society is treated as the exempted income
under “section 50-45”.
Answer iii:
There are certain types of welfare payments together with the income maintenance
payment to the individual under “section 51-30”. A single income family supplement that are
paid to the working couple with the two young children amounts to welfare payment
(Morgan, Mortimer and Pinto 2018). The receipts would be exempted under the “section 51-
30, ITAA 1936”.

6TAXATION LAW
Answer iv:
As explained under the “section 11-15” there are certain kinds of income that are
exempted. Under this legislation exemption is applicable to the income instead of entity that
receives it (Robin and Barkoczy 2019). Accordingly, under the “section 51-5”, payments that
are made to the members of the defence and reserve force members are exempted from
taxation. Similarly, the allowance that are paid to the member of defence force should be
treated as exempted income under “section 51-5, ITAA 1936”.
Answer to question iv:
Payments for relinquishing or restricting the rights are not treated as income. This
amounts to payments that are received for agreeing not to do something. In “Jarrold v
Boustead (1964)” lump sum payments that is received by the rugby players for surrender of
amateur status was not treated as income (Robin 2019). A simple prize is no an income but it
is an income if there are adequate relation with the income producing activities. In “Kelly v
FCT” award received by footballer was held as income because it was related to his work.
The sum of $5,000 that are received by Emma as an appreciation is an income while the
agreement receipt of $25,000 for not attending meeting cannot be treated as assessable
income.
Answer to question 9:
The nature of activity, the intention of taxpayers and the method of operation helps in
ascertaining whether the business of primary production is carried on. The nature of activity
especially the profit making purpose is considered important. As held in “Thomas v FCT
(1979)” the intention of the taxpayer in indulging into the activity is considered relevant
indicator (Sadiq 2018). The receipts of $40,000 by Ryan indicates that a profit motive was
present while indulging into the activity. Therefore, the sum of $40,000 is assessable as
ordinary income. Similarly, the agreement entered into by Ryan of selling the photos for five

7TAXATION LAW
years represents and deriving the receipts of $15,000 represents carrying on of the business
activities and the amount will be assessable as ordinary income under “section 6-5, ITAA
1997”.
Answer to question 10:
Compensation receipts are treated as assessable income under “section 6-5, ITAA
1997”. As held in “Allied Mills Industries Pty Ltd v FC of T (1989)” receipt of un-dissected
lump sum for settlement of claims is treated as income (Woellner et al. 2016). Similarly, in
the case of Sparkle Ltd premature cessation of contract and receipt of lump sum amounting to
$100,000 will be treated as assessable income. It amounts to recoupment of loss under
“section 20-20 (2), ITAA 1997”.
A gain of capital nature does not have the character of income. Similarly, the sale of
bucket and deriving a sum of $20,000 constitute a capital gain that does not has the character
of income and hence not assessable under “section 6-5, ITAA 1997”.

8TAXATION LAW
References:
Barkoczy, S. 2016. Foundations of taxation law 2016. OUP Catalogue.
Blakelock, S., and King, P. 2017. Taxation law: The advance of ATO data
matching. Proctor, The, 37(6), 18.
Burton, M. 2017. 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, 50.
Fry, M. 2017. Australian taxation of offshore hubs: an examination of the law on the ability
of Australia to tax economic activity in offshore hubs and the position of the Australian
Taxation Office. The APPEA Journal, 57(1), 49-63.
James, K. 2016. The Australian Taxation Office perspective on work-related travel expense
deductions for academics. International Journal of Critical Accounting, 8(5-6), 345-362.
Miller, A., and Oats, L. 2016. Principles of international taxation. Bloomsbury Publishing.
Morgan, A., and Castelyn, D. 2018. Taxation Education in Secondary Schools. J.
Australasian Tax Tchrs. Ass'n, 13, 307.
Morgan, A., Mortimer, C., and Pinto, D. 2018. A practical introduction to Australian
taxation law 2018. Oxford University Press.
Robin and Barkoczy Woellner Stephen & Murphy, Shirley Et Al.. 2019. Australian Taxation
Law Select 2019: Legislation and Commentary. OXFORD University Press.
Robin, H. 2019. Australian Taxation Law 2019. Oxford University Press.
Sadiq, K. 2018. Australian Tax Law Cases 2018. Thomson Reuters.

9TAXATION LAW
Woellner, R., Barkoczy, S., Murphy, S., Evans, C., and Pinto, D. 2016. Australian Taxation
Law 2016. OUP Catalogue.