Taxation

Running head: TAXATION
Taxation
Name of the Student
Name of the University
Author Note

TAXATION1
Answer 1
Issue
Whether the payments made to the common Bank amounting to 4 million dollars for the sale of
trademarks by AAPL would be included as taxable income.
Rule
The assessable income pertaining to an individual taxpayer as per the provisions of s 6.5, ITAA 97,
covers although receives that have been incurred on the ordinary concept. The meaning of the expression
income accrued from ordinary concept is required to be construed as per the meaning assigned by the
courts in different judgements. The concept of ordinary income demarcates the earnings that has been
accrued as per the concept of ordinary income earning endeavours. This can be illustrated the case of
Scott & Ors v FC of T 2002 ATC 2158. This needs to be determined by the test of the conscience of a
reasonable person. The determination of the consideration of the income as ordinary income by a
reasonable individual would also be considered under this test. Under this section, income accrued from
royalty is also taxable under this concept.
Income can also be accrued from capital as per the provisions established in Eisner v Macomber (1920)
252 US 189. The implication of the same is that earnings always flow from the capital. Any income
accrued by virtue of surrendering rights would assume the capital nature and would not be included as
income of assessable nature as can be conceived with the case of Pritchard v Arundale [1972] Ch 229.
All the earnings received owing to the realisation of asset of capital nature would accrue to capital
income. This can be illustrated with the case of Scottish Australian Mining Co Ltd v FC of T (1950) 81
CLR 188. Lump sum amount paid, would not be included within capital receipts by virtue of the principal
established in Kwikspan Purlin System Pty Ltd v FC of T 84 ATC 4282.
Application

TAXATION2
In the instant situation, AAPL has been wishing to sale the business to AJPL. AJPL has not been able to
gather enough funds for the purpose of affecting the purchase and entered into an agreement under a
licence on 01.07.2018 with AAPL. This allowed the usage of Sunrace trademark belonging to AAPL
towards AJPL for a period of 10 years as a consideration towards annual royalty. Royalty is required to be
considered in the form of ordinary income resulting from rights as can be inferred with the case of Eisner
v Macomber (1920) 252 US 189. Again, an amount of 4 million dollars has been received by AAPL from
the Common Bank which is an on related financial institution of Australia for the sale of its rights as
created under the licence agreement entered into with AJPL. Any income accrued by virtue of
surrendering rights would assume the capital nature and would not be included as income of assessable
nature as can be conceived with the case of Pritchard v Arundale [1972] Ch 229. All the earnings
received owing to the realisation of asset of capital nature would accrue to capital income. This can be
illustrated with the case of Scottish Australian Mining Co Ltd v FC of T (1950) 81 CLR 188. In this
context, it can be construed that the receipt of 4 million dollars as to be viewed as a receipt of capital
nature from realisation of assets of capital nature depicting towards contractual right. Again the payment
made was in the form of a lump sum. Lump sum amount paid, would not be included within capital
receipts by virtue of the principal established in Kwikspan Purlin System Pty Ltd v FC of T 84 ATC 4282.
Hence, the payment made in the form of lump sum is required to be given a treatment as capital receipt
and will not be included within taxable income.
Conclusion
The payments made to the common Bank amounting to 4 million dollars for the sale of trademarks by
AAPL would not be included as taxable income.
Answer 2
Issue
Whether there are any taxation implications arising from the transactions made by Jack.