1TAXATION LAW Table of Contents Answer to question 1:.................................................................................................................2 Issues:.........................................................................................................................................2 Rule:...........................................................................................................................................2 Application:................................................................................................................................3 Conclusion:................................................................................................................................5 References:.................................................................................................................................6
2TAXATION LAW Answer to question 1: Issues: Is the taxpayer held liable for assessment for the receipts made during the course of employment under the ordinary concepts of“section 6-5, ITAA 1997”? Rule: As per“section 6-5 (1)”, the assessable income of the taxpayer comprises of the income under the ordinary concepts. In“CT v Scott (1935)”the commissioner interpreted income with respect to ordinary concepts and usage1. The voluntary payment will be treated as ordinary income if there are sufficient connection with the income producing activities of the taxpayer. Similarly, in“Calvert v Wainwright (1947)”tips received by the taxi driver was treated as the ordinary income. Simple prize winning is not held as income, nonetheless prizes may be treated as income if there are sufficient relation with the income producing activities of the taxpayer. In “Kelly v FCT (1985)”award received by the professional footballer for being the best player was an ordinary income because it was related to his employment and skills. Unexpected payment received as the incidence of employment is treated as ordinary income. In“Laidler v Perry (1965)”Christmas bonuses paid to the employees as redeemable gift vouchers was held as income2. A receipts that cannot be converted into ordinary income unless it meets both the prerequisites, namely cash or convertible into cash and the amount should be a real gain to the taxpayer. The court in“FC of T v Cooke and Sherden (1980)” 1Coleman, Cynthia and Kerrie Sadiq,Principles Of Taxation Law 2013 2Jover-Ledesma, Geralyn,Principles Of Business Taxation 2015(Cch Incorporated, 2014)
3TAXATION LAW held that a gain that cannot be convertible into cash or cash convertible. The item should be readily convertible to cash. Gifts that are not related to employment, services or business should not be treated as income. As defined under the“section 6 of the ITAA 1997”, income that are made from the personal exertion includes the salaries, wages, commissions, superannuation allowances, retirement gratuities that are received in capacity of the employee or for any kind of services rendered by working as the employee will be treated as assessable income. A nexus with the receipts derived from the personal service of the taxpayer will be treated as the ordinary income3. The court in“Dean v FC of T (1997)”held that retention payment that was made to the key employee in consideration of remaining employed for 12 months’ period after the takeover was treated as income. Application: AsunderstoodAndrewworkedasawaiteratalocalrestaurantandmade approximately $22.00 per hour. The wages received in capacity of employee amounts to income from personal services and employment under the“section 6 (1), ITAA 1936”. The wages received by Andrew amounts to ordinary income under“section 6-5 (1), ITAA 1997”4. Referring to“CT v Scott (1935)”the receipts will be assessable within the ordinary concepts under“section 6-5”. Later Andrew received tips from dinners. Citing the case of“Calvert v Wainwright (1947)”the tips received by Andrews amounts to voluntary payments and holds sufficient 3Grange, Janet, Geralyn A Jover-Ledesma and Gary L Maydew,2014 Principles Of Business Taxation 4Kenny, Paul,Australian Tax 2013(LexisNexis Butterworths, 2013)
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4TAXATION LAW connection with the income producing activities of the taxpayer. The tips received will be included for assessment purpose as ordinary income under“section 6-5 (1), ITAA 1997”. Andrew received the award for Employee of the month and included a cash bonus of $250. Referring to“Kelly v FCT (1985)”award received by the Andrew for being the employee of the month was an ordinary income because it was related to his employment and skills. During the month of December 2016 Andrew also received a bottle of wine as a Christmas gift that valued $80. Quoting“Laidler v Perry (1965)”the gifts is received as the incidence of employment and will be treated as ordinary income5. Therefore, it will be included for assessment purpose within the ordinary meaning of“section 6-5, ITAA 1997”. In November 2016, Andrew also received a prize money of $150 for obtaining a highest mark in advance taxation. Referring to“FC of T v Cooke and Sherden (1980)”the gift is non-convertible into money and not related to employment, services or business. Therefore, it does not amount to ordinary income because it does not have the character of income. The annual salary and sign on fees received by Andrew from the Brisbane accounting firm refers to the amount that is derived from the provision of personal service and employment under“section 6, ITAA 1997”6. Citing“Dean v FC of T (1997)”the sign on bonus and salary has nexus with the personal service of the taxpayer and under“section 6-5, ITAA 1997”the amount is assessable as the ordinary income. 5Sadiq, Kerrie et al,Principles Of Taxation Law 2014 6Krever, Richard E,Australian Taxation Law Cases 2013(Thomson Reuters, 2013)
5TAXATION LAW Alternatively, if the prize received by Andrew from the University was in the form of cash instead of gift voucher then it would still qualify as non-assessable ordinary income under“section 6-5, ITAA 1997”. This is because the amount is not related to employment, services or business. Conclusion: Andrew will be taxable for the amounts made from the salaries, tips, awards, bonuses and gifts because it is an income under the ordinary course of“section 6-5, ITAA 1997”.
6TAXATION LAW References: Coleman, Cynthia and Kerrie Sadiq,Principles Of Taxation Law 2013 Grange, Janet, Geralyn A Jover-Ledesma and Gary L Maydew,2014 Principles Of Business Taxation Jover-Ledesma, Geralyn,Principles Of Business Taxation 2015(Cch Incorporated, 2014) Kenny, Paul,Australian Tax 2013(LexisNexis Butterworths, 2013) Krever, Richard E,Australian Taxation Law Cases 2013(Thomson Reuters, 2013) Sadiq, Kerrie et al,Principles Of Taxation Law 2014