TAXATION. Taxation Name of the Student Name of the Univ

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

TAXATION1
1)
Issue
Whether accurate treatment of tax with respect to compensation as received by Kate and Sophie can be
determined.
Rule
Any commercial loss or losses in other forms suffered by a taxpayer needs to be compensated by way of
compensation periods. The character that the compensation would adopt depends upon the nature of the
loss against which has been received. In compensation that a person receives for as a substitution or
replacement for a loss of revenue is required to be treated as an earning for the taxpayer. The
compensation that are provided against any loss caused to the capital asset need to take the character of a
capital gain (Barkoczy, 2019).
Compensation that a taxpayer receives as interest that has been accrued from a loss of temporary nature in
relation to earnings is to be construed as having the nature of compensating the income. This can be
supported with the case of Federal Wharf Co Ltd v DFC of T (1930) 44 CLR 24. As has been contended
in the case of Riches v Westminster Bank Ltd [1947] AC 390, any interest that has been accrued to a
taxpayer from the starting of a proceeding to the arising of the decision needs to be treated as an earning.
This can be again explained with the case of Whitaker v FC of T 98 ATC 4285, it has been contended by
the court that when there has been a proceeding going on and any medical expenses that a person has
incurred while the continuity of the proceeding, which has been compensated, the compensation needs to
be construed as capital earning. This case has drawn a distinction between the compensation received for
acquisition of assets of capital nature that has and usage for generating taxable earnings and the
compensation that received in the form of damages against injury of private nature. Again this case has
made it clear that any amount that a person receives with respect to the cost of the proceedings after the

TAXATION2
conclusion of the proceeding is to be construed as and income and has no connection with the action with
respect to personal injury.
Any amount received as compensation by the tax per year for any personal injury of permanent nature has
to be construed as an income of capital essence. This rule can also be conceived as applicable in case of
payments that have been received by way of compensation for reputational loss. This can be illustrated
with the case of FC of T v Sydney Refractive Surgery Centre Pty Ltd 2008 ATC where a compensation
had been provided to the company against defamation. This can be construed as a loss caused to the
earning capacity of a person and the compensation has been replacing the same. It has been contended in
this case that when a loss has been caused towards the reputation of a business it reduces the earning
capacity of the business owing to the reason that due to its loss of reputation others would not be willing
to do business with the taxpayer which will diminish its capital assets.
Another aspect that has a connection remote enough with the character of compensation are the treatment
with respect to reimbursements as well as refunds. The treatment that is required to be extended towards
reimbursements can be explained with the case of HR Sinclair & Son Pty Ltd v FC of T (1966) 114 CLR
537. In this case there has been a payment made towards the taxpayers as a compensation for the loss he
has suffered by selling his house. In this case all the reimbursement has been received by way of
compensation against the loss that has been caused to the taxpayer but the same has been made available
to him by virtue of his employment. As can be illustrated by the principles established in the case of FC
of T v Rowe 97 ATC 4317, there has been a payment that the taxpayer has received as a legal fee to be
reimbursed with respect to a rightful proceeding brought by that person with respect to wrongful
dismissal. In general senses, such a legal fee would have been construed as a deduction towards the
taxable income of the taxpayer. It has been contended by the court in this case that the deduction available
with respect to the legal cost was not a reward or an earning and owing to the same it should be excluded
from being considered as assessable earning. Any reimbursement that has been carried out with respect to
an expense which is deductible is required to be not classified as earning.

TAXATION3
As has been contended by the court in the case of Commissioner of Taxes (Victoria) v Phillips 55 CLR
144 1936, when a compensation has been provided to a taxpayer with the chief motive of replacing an
income the same is required to be treated as an assessable income. It has been established with the
principal in the case of Federal Coke Co Pty Ltd v FC of T 77 ATC 4255, any compensation that has been
received with respect to any sterilization with respect to capital assets is required to be construed as
capital gain. The profit loss that has been caused to the taxpayer when Honours compensation to him with
respect to the sterilization of any capital asset is required to be constituted for taxation as capital earning.
As can be conceived from the legal principle established in the case of Allied Mills Industries Pty Ltd v
FC of T 89 ATC 4365, all the receipts that has been received with the motive of compensating any loss
that has been caused towards the income for profit of a taxpayer needs to be conceived as an income for
the purpose of taxation. This is because the payment has been made for the purpose of making up to the
anticipated profit that the business has been expected to earn.
Any compensation that the taxpayer receives with respect to personal injury is required to be treated as
assessable income of a capital nature according to ITAA 97, 118-37 (1).
Application
Sophie
“Lump sum damages for potential loss of reputation $100,000”
In this present instance Sophie has been using a newly launched laser machine upon her client Kate who
suffered severe blistering because of the faulty functioning of the machine. This has caused Kate to suffer
from permanent scarring. The loss caused to a customer would be reputational damage caused to the
business. This needs to be conceived as loss in the earning capacity of the business going to a damage in
its reputation. This requires any compensation received as a lump sum against such a loss to be treated as
capital asset. Hence the amount of 100000 dollars is required to be treated as a capital income. This can
be supported with the case of FC of T v Sydney Refractive Surgery Centre Pty Ltd 2008 ATC.