ACC30005 Taxation: Assessable Income Analysis for Marissa Simpson

This assignment focuses on determining the tax implications related to various transactions for Marissa Simpson, specifically regarding the generation of assessable income. It analyzes different income streams such as salary, sign-on fees, software development contracts, payments from Scott, damages received, and software sales. The analysis involves applying relevant sections of the ITAA 1997, tax rulings, and case law to categorize each income stream as either ordinary income contributing to assessable income or capital receipts which are generally non-taxable. The assignment also considers the implications of isolated activities undertaken with the intention of making a profit. Capital Gains Tax implications are acknowledged but not fully explored due to lack of data.

TAXATION
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Question 2
The objective is to ascertain the tax implications of the given transactions particularly with
regards to assessable income generation for Marissa Simpson.
1) Salary of $120,000 per annum from University of Melbourne – It is known that Marissa is
a lecturer and was working with University of Sydney before taking up the contract with
University of Melbourne. Thus, this is employment income and categorised as ordinary
income under s.6(5) ITAA 1997 (Gilders et. al., 2016). Hence, this would contribute to
assessable income for Marissa.
2) Sign on fees of $ 15,000 – In accordance with tax ruling TR 1999/17, tax ruling IT 2307
and also case law Reuter v. FC of T (1993) 111 ALR 716 at 730, the sign on fees would
constitute as ordinary income only and thereby would contribute to assessable income under
s. 6-5 ITAA 1997 (Barkoczy, 2017).
3) $ 2000 per month as part of ‘software development contract’ – This sum of money was
paid to Merissa so that she should carry all sales activity and related payment of the
associated income. As a result, this income is being derived from personal exertion and hence
would be categorised under ordinary income s. 6-5 ITAA 1997 (Deutsch et. al., 2016).
Therefore, the income would be assessable for tax purposes.
4) $ 70,000 from Scott – It is imperative to determine whether the given receipt is revenue or
capital. It is noteworthy that Scott is paying Merissa $ 70,000 for giving up the right to draw
any future payments from Microtech. Hence, Merissa is selling her right to draw payment for
$ 70,000. Since her right is an asset which can bring future benefits, there $ 70,000 amount of
capital proceeds with regards to sale of an intangible asset. Thus, no assessable income would
be produced from the given transaction (Coleman, 2016).
5) Damages received from Scott to the tune of $ 50,000 – In accordance with tax ruling
TR95/35, the tax treatment of compensation receipts is dependent on the type of income
source that the compensation seeks to provide substitute for. Hence, if any compensation is
provided for any loss of asset, then the same would be treated as capital receipts and
considered non-taxable (Barkoczy, 2017). In the given case, $ 30,000 worth of damages was
paid for harm to Merissa’s reputation which is an intangible capital asset capable of future
benefits. Therefore, $ 30,000 would be capital receipts and would not amount to assessable

income. Additionally, $ 20,000 were paid as damages arising from the computer code
rendered useless which again would be an asset with a potential for deriving future value. As
a result, $ 20,000 compensation would also be termed as capital receipt and would not
contribute to assessable income (Gilders et. al., 2016). It is noteworthy that CGT (Capital
Gains Tax) implications are ignored owing to lack of other details to compute the cost base of
the above assets (Deutsch et. al., 2016).
6) Selling of software for $ 30,000 – As per s.15-15 ITAA 1997, if any isolated activity is
undertaken by the taxpayer with the intention of making profit, then the derived profit from
such activity would be ordinary income (Gilders et. al., 2016). In the given case, even though
Merissa does not regularly develop software but she did so with profit intention. The profit
intention is apparent from the measures taken by her to maximise the asset value. Hence, the
profits on sale of the software would contribute to assessable income under s.6(5) ITAA 1997
(Coleman, 2016).

References
Barkoczy, S. (2017) Foundation of Taxation Law 2017. 9th ed. Sydney: Oxford University
Press.
Coleman, C. (2016) Australian Tax Analysis. 4th ed. Sydney: Thomson Reuters (Professional)
Australia.
Deutsch, R., Freizer, M., Fullerton, I., Hanley, P., and Snape, T. (2016) Australian tax
handbook. 8th ed. Pymont: Thomson Reuters.
Gilders, F, Taylor, J, Walpole, M, Burton, M. and Ciro, T (2016) Understanding taxation law
2016. 6th ed. Sydney: LexisNexis/Butterworths