Taxation Law: Understanding Income, Deductions, and Tax Liability

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 B:.............................................................................................................2
References:.................................................................................................................................5

TAXATION LAW2
Answer to question 1 B:
Income that is earned from the private efforts is explained in sec 6 (1), ITA Act 1936.
This includes the voluntary payment which is related to the professional activities. While
“sec 87-15, ITAA 1997” says that an individual will be treated as carrying the persona
service business when the receipts obtained from one major clients is not more than 80% of
the income. The law court in “McNeil v FC (2007)” the receipt of amount is considered
income based on the quality in the recipient’s hands (Butler 2019). As long as the payments
possess the nexus with the receipt of income generating activities it will be treated as
ordinary earnings for the receiver. While “sec 6-5 (1), ITA Act 1997” explains that the
taxable earnings of the taxpayer amounts to income that is earned in accordance with
ordinary conceptions.
Thomas Hawks reports the receipts from his tax accounting business where he
provides taxation and accounting advice. Under “sec 87-15, ITAA 1997”, the receipts will be
considered as income earned from personal service business. This is because around 70% of
the business receipts is earned by Thomas from one of its main clients. Referring to “McNeil
v FC (2007)” the receipts will be held taxable as ordinary income under “sec 6-5 (1), ITA
Act 1997”.
Derivation of income is held important under “sec 6-5 (4), ITA Act 1997” because the
point of derivation is held important in ascertaining when the income will be held taxable.
Under the cash method taxpayer is only needed to ascertain what they have actually received.
The cash method is usually applied on small business that has few employees and the income
is usually earned based on taxpayer personal skills. In “Carden v FCT (1938)” the cash basis
was held appropriate method of accounting business receipts (Murray et al. 2018). Thomas in
the present year reported the cash receipt of $576,000 from his tax accounting business.