ACCT 3002 Taxation Law Assignment: Income & Dividend Analysis

This assignment provides an analysis of assessable income under Australian taxation law, specifically focusing on rent income and dividend income. The solution references key sections of the ITAA 1936 and relevant case law to determine how these income streams are treated for tax purposes. The assignment discusses the inclusion of rent in assessable income, referencing the cash basis of accounting for non-business individuals and relevant court cases. It also examines the taxation of dividend income, including franking credits and dividend reinvestment plans. The solution applies these principles to calculate the assessable income and potential tax deductions for an individual, demonstrating an understanding of relevant legislation and its practical application.

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

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TAXATION LAW
Table of Contents
Rent Income.................................................................................................................................2
Dividend Income..........................................................................................................................2

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TAXATION LAW
Rent Income
Any income earned by an individual is classified on the basis of s. 6(1) of ITAA 1936.
This section deals with the income earned by an individual from a personal exertion and the
income from a property. It suggests that the income from property includes the rent, dividends
and interest earned by an individual. According to Case A63, 69 ATC 359, the rent of an
individual is included as a part of the assessable income of an individual for the period when it is
received. This was also held in the case of Arthur Murray (N.S.W.) Pty. Ltd. v. F.C. of T. (1965)
114 C.L.R. 314. The court, in this case suggested that the amounts paid for the services which
were to be subsequently rendered cannot be constituted as the income of an individual. As per s.
6-5(4) ITAA 1997, derivation of an income happens as soon as the individual directs it to. As
held in the other important cases like FCT v. Clarke (1927) 40 CLR 246 and FCT v. Thorogood
(1927) 40 CLR 454, the term derived income refers to income obtained or acquired and not
received. However, as the individual in this case is not a business, the determination of the
income also depends on the method of taxation being used by the individual. As suggested by
Dixon J in C of T (SA) v. Executor Trustee & Agency Co of SA Ltd (Carden's case) (1938) 63
CLR 108, 5 ATD 98, an individual that is not a business should use receipt or cash basis of
accounting. Paragraph 134 of this case also suggests that when there is no substantial amount of
outstanding expenses corresponding to the outstanding earnings, then the cash basis should be
used. Hence, it can be suggested that Alex should use the cash basis of accounting. The rental
income for the year would be $70000.
Dividend Income
Under s. 44(1) ITAA 1936, the dividends paid by a company to a shareholder are the
assessable income of the individual. These are also covered under s. 6(1) of the act. However, in

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TAXATION LAW
this case, the discussion is limited to the dividend distributed by the companies. Franking credits
associated with the dividends of the individuals are covered under the statutory income of an
individual under s. 207-20(1) ITAA 1936. The amount of these credits is allowed as a deduction
under s207-20(2) ITAA 1936. The assessable income of the individual includes the dividends
received by them from either a resident or a non-resident company. As per the guidelines of the
ATO, a dividend reinvestment plan is one in which the shareholders are offered an opportunity to
acquire additional shares in a company without receiving cash payment for the same. This is
included under the amount credited by a company to its shareholders as shareholders. Hence, the
amount of reinvestment is also considered as a part of the income earned by the shareholders.
The franking credits associated with the dividends received are allowed as a deduction on the tax
payable by the individual. Hence, the income earned by the individual in the given situation is
valued at $55000. $18000 will be allowed as a deduction from the tax payable by the individual.