ACC5TAX Taxation Law Case Study: Analysis and Application

This case study analyzes a taxation law scenario involving Thomas Hawks, a tax and accounting professional. The assignment requires an assessment of his assessable income, including income from personal services, business receipts, and compensation payments. It delves into the application of relevant sections of the Income Tax Assessment Act 1936 and 1997, such as those related to personal service income, ordinary earnings, and the receipts method. Furthermore, the case examines the deductibility of business expenses incurred from a home office, depreciation of assets, and the tax treatment of non-cash benefits. The case also covers the tax implications of compensation received for personal injury and the treatment of photography equipment. The analysis incorporates relevant case law and taxation rulings to determine the correct tax treatment of various income and expense items. The assignment aims to provide a comprehensive understanding of taxation principles in the context of a real-world scenario.

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

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Table of Contents
Answer to question 1 (b):...........................................................................................................2
References:.................................................................................................................................5

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Answer to question 1 (b):
As clarified in “sec 6 ITAA 1936”, receipts that are produced from the product of
personal services are known as personal service income. This hold an adequate relation with
income generating capacity of the taxpayer. The decision cited in “Hayes v FC of T (1956)”
stated that proceeds that is made from execution of personal services is commonly considered
as the incidence of services or business or for any kind of reward for services (Woellner et al.
2016). Commonly a large number of pay that is earned by taxpayer are considered as
ordinary earnings under “sec 6-5, ITA Act 1997”. Income that is earned through personal
service may be held chargeable under ordinary concepts or as statutory income.
The income earned by Thomas Hawks from his business activities of tax and
accounting is viewed as personal service business income. Citing “Hayes v FC of T
(1956)”The receipt of $648,000 amounts to personal business receipts under “sec 6 ITAA
1936” (Barkoczy 2016). The amount received by him has necessary relation with his income
generating activities and will held chargeable in “sec 6-5, ITAA 1997” as proceeds from
ordinary conceptions.
While taxation ruling of “TR 98/1” is connected with classifying business proceeds
based on receipts or earning method. Meanwhile “subsection 6-4 (4), ITAA 1997” states that
income is generally considered as earned by taxpayer when it is received by them (Sadiq
2019). Receipts method is useful for business that earns receipts on the basis of knowledge or
use of skills based on the provision of services. The law court in “FCT v Carden” explained
that proceeds earned mainly by rendering services on personal basis is taxable under receipt
method.
As Thomas has billed an invoice of $648,000 but only managed to receive $576,000,
hence receipt method is followed to take into the account the receipts for assessment purpose.

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Citing the “FCT v Carden” the receipt method provides the correct reflex of income received
under “subsection 6-4 (4), ITAA 1997”.
During the year Thomas reports expense that were occurred in relation to his business.
As it is apparent from the case facts that the commercial activities are carried on by Thomas
from his home office. According to “TR 93/30” when a taxpayer is found to be carrying his
business from home office then in such situation a pertinent percentage of residence and
running outlays are permitted for deduction (Murray et al. 2018). The taxpayer are permitted
to get the deduction for work-related part of electricity and heating cost. The taxpayers are
further permitted to get deduction for depreciation of home office items such as desks,
bookshelves etc. that is used for home-office work purpose.
In “Swinford v FCT (1984)” deductions were permitted to self-employed script
writer for expense on rent as the taxpayer had no other place of business (Morgan, Mortimer
and Pinto 2018). Similarly, Thomas will be entitled to deduction for business expenses
occurred in present income year. He also permissible to claim deduction for the depreciating
the office equipment items as well under “sec 40-30 (1)”. While the office laptop bought by
Thomas can be instantly written off as it is below the threshold limit of $20,000.
Compensation which is received relating to loss of income producing capacity is
treated as capital in amount. In “FCT v Slaven (1984)” the law court held that it is necessary
to ascertain the nature of receipts to treat it as income in the recipient’s hands (Sadiq 2019).
The compensation of $5,000 received as insurance pay-out by Thomas is a not assessable
income because it is a receipts for personal injury and loss of future earning ability.
Thomas also reports the receipts of photography equipment of $2500 from his
photography activity. The amount is treated as non-cash benefit and it is non-convertible to

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cash. Therefore, it is non-taxable receipt and it is not included for assessment of taxable
income for Thomas.

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References:
Barkoczy, S., 2016. Foundations of taxation law 2016. OUP Catalogue.
Morgan, A., Mortimer, C. and Pinto, D., 2018. A practical introduction to Australian
taxation law 2018. Oxford University Press.
Murray, I., Taylor, J., Walpole, M., Burton, M. and Ciro, T., 2018. Understanding Taxation
Law 2019.
Sadiq, K., 2019. Australian Taxation Law Cases 2019. Thomson Reuters.
Woellner, R., Barkoczy, S., Murphy, S., Evans, C. and Pinto, D., 2016. Australian Taxation
Law 2016. OUP Catalogue.