University Taxation Law Assignment: ITAA 1997 and Income Determination

This assignment analyzes whether a lump sum received for the dissolution of a deal should be considered taxable income under Section 6-5 of the ITAA 1997. The issue revolves around the tax treatment of a $7,500,000 compensation payment received by Connect-IT. The analysis considers if the payment constitutes proceeds or capital, referencing legal precedents like Allied Mills Industries Pty Ltd v. Federal Commissioner of Taxation (1989) and Californian Oil Products Ltd (in liq) v. Federal Commissioner of Taxation (1934). The assignment applies the ordinary concepts of income, assessing whether the terminated contract significantly affected the revenue-generating structure of the company. The conclusion states that the compensation received by Connect-IT is income and should be assessed as revenue under Section 6-5 of the ITAA 1997. The assignment also references Allsop v FC of T (1965) and section 20-20 (2). The assignment is supported by a reference list of relevant taxation law resources.

Running head: TAXATION
Taxation
Name of the Student
Name of the University
Authors Note
Course ID

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Table of Contents
Answer to question 1:.................................................................................................................2
Issue:..........................................................................................................................................2
Legislations:...............................................................................................................................2
Application:................................................................................................................................2
Conclusion:................................................................................................................................4
Reference List:...........................................................................................................................5

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Answer to question 1:
Issue:
The present study is concerned with the determination of whether the lump sum
received for the dissolution of deal should be taken into considerations as taxable income
under Section 6-5 of the ITAA 19971.
Legislations:
a. Allied Mills Industries Pty Ltd v. Federal Commissioner of Taxation (1989)
b. Californian Oil Products Ltd (in liq) v. Federal Commissioner of Taxation (1934)
c. F C of T (NSW) v Meeks (1915) 19 CLR 568
d. Section 6-5 of the ITAA 1997
e. section 20-20 (2)
Application:
With reference to Section 6-5 of the ITAA 1997 receiving of $7,500,000 in the nature
of compensation for the end of contract by the company Connect-IT would be treated as
proceeds and it should be considered for duty as per the ordinary concepts2. As the general
rule in determining whether the compensation received by Connect-IT is proceeds or capital
in nature, it is very necessary to determine whether the terminated contract is allied in
providing service and is linked with the income production structure.
1 ROBIN, H. AUSTRALIAN TAXATION LAW 2017. OXFORD University Press, 2017
2 Blakelock, Sarah, and Peter King. "Taxation law: The advance of ATO data
matching." Proctor, The 37.6 (2017): 18.

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In the present study, Connect-IT might take into the consideration the substitute
commercial client and it can be argued that the settlement might significantly affect the
revenue making structure of the company. The contract did not affected adversely on the
static background in which the company did its commercial activities and the quantity of
payment received would be accounted as proceeds or income in nature. If the interruption of
deal formed, the vibrant share of their corporate processes an disagreement can be bought
frontward that the nature of reward received was capital. With reference to Californian Oil
Products Ltd (in liq) v. Federal Commissioner of Taxation (1934) 52 CLR 28; (1934) the
judgment publicised reinforced the viewpoint3. The taxpayer settled to go in a five-year bond
with an intercontinental corporation that gave them the sole right of allocating the oil goods
in Australia.
Successively the foreign corporation desired to conclude the bond and paid
Californian Oil with a figure to recompense for the conclusion of contract. The court stated in
its ruling by placing forward that the extent of recompense was in the nature of capital
subsequent to the conclusion of the contract. It is compulsory to establish the implication of
the void contract for Connect-IT. Even though it is discovered that Connect-IT would is
capable of finding a new substitute appointments with alternative clients and it can be
determined that the figure received was in the form of proceeds account.
As held in the case of Allied Mills Industries Pty Ltd v. Federal Commissioner of
Taxation (1989) receipt of $7,500,000 establishes an un-dissected imbursement of lump sum
3 Barkoczy, Stephen. "Foundations of Taxation Law 2016." OUP Catalogue(2016).

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for the disbursement of claims4. With reference to the ruling passed in Allsop v FC of T
(1965) such sums will be chargeable as recoupment of forfeiture under section 20-20 (2).
Conclusion:
The reception of recompense by Connect-IT would be observed as income and will be
measured for assessment as the revenue in accord with the ordinary concepts of Section 6-5
of the ITAA 1997.
4 Woellner, R. H., et al. Australian Taxation Law Select: Legislation and Commentary 2016.
Oxford University Press, 2016.

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Reference List:
Barkoczy, Stephen. "Foundations of Taxation Law 2016." OUP Catalogue(2016).
Blakelock, Sarah, and Peter King. "Taxation law: The advance of ATO data
matching." Proctor, The 37.6 (2017): 18.
ROBIN, H. AUSTRALIAN TAXATION LAW 2017. OXFORD University Press, 2017.
Woellner, R. H., et al. Australian Taxation Law Select: Legislation and Commentary 2016.
Oxford University Press, 2016.