Taxation Law: Examining Income, Deductions, and Business Transactions

This assignment provides solutions to three distinct taxation law problems. The first question examines whether a payment received for a media interview is taxable income under section 6-5 of the ITAA 1997, concluding that it is taxable as a reward for service. It also considers an alternative scenario where writing a book would result in royalty income. The second question analyzes whether a single mother can claim a deduction for childcare expenses under section 8-1 of the ITAA 1997, determining that it is a private expense and not deductible. The final question assesses whether profits from isolated transactions, specifically the sale of wildflowers, constitute business activities and are taxable under section 25(1) of the ITAA 1936, ultimately concluding that the profit-making purpose makes the income taxable. Desklib provides this assignment solution and many more resources for students.

Running head: TAXATION LAW
Taxation Law
Name of the Student
Name of the University
Authors Note
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1TAXATION LAW
Table of Contents
Answer to 1:...............................................................................................................................2
Issue:..........................................................................................................................................2
Laws:......................................................................................................................................2
Applications:..........................................................................................................................2
Conclusion:............................................................................................................................3
Answer to 2:...............................................................................................................................3
Issues:.....................................................................................................................................4
Laws:......................................................................................................................................4
Applications:..........................................................................................................................4
Conclusion:............................................................................................................................5
Answer to 3:...............................................................................................................................5
Issues:.....................................................................................................................................5
Laws:......................................................................................................................................5
Applications:..........................................................................................................................5
Conclusion:............................................................................................................................6
Reference List:...........................................................................................................................7

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Answer to 1:
Issue:
Is the receipt by Jenny based on “rewards for service” taxable as income from
ordinary concepts under the “section 6-5 of the ITAA 1997” for making an appearance in the
media interview?
Laws:
I. “section 6 of the ITAA 1997”
II. “Section 6-5 of the ITAA 1997”
III. “Scott v Commissioner of Taxation (1935)”
IV. “Brent v Federal Commissioner of Taxation (1971) ATC 4195”
V. “Hobbs v Hussey (1942) 24 TC 153”
Applications:
The character of an item as income should be judged based on the circumstances of
the derivation by the taxpayer. To possess the character of income the item should be in the
form of gain by the taxpayer that derives it (Pinto, 2013). “Section 6 of the ITAA 1936”
explains that income from individual effort refers to the income that are received from the
salaries, wages, pension, gratuities, fees or any kind of business proceeds that is acquired by
the taxpayer.
Majority of the income that is acquired by an individual taxpayer is characterized as
the ordinary income under “section 6-5 of the ITAA 1997” (Woellner et al., 2016). As held in
“Scott v Commissioner of Taxation (1935)” the expression income cannot be termed as art
and requires appropriate applications of principles in determining how the receipts have to be
treated as earnings and should be determined in agreement with the ordinary concepts.
The case study provides that Jack who is publisher expressed the interest of knowing
regarding the life of Henry a famous jazz singer that passed away. A successful approach was
made by Jack to reach the deceased singer’s wife Jenny and offered her $1 million for
narrating the story of her late husband. Prior to sitting in an interview Jack also paid Jenny
with an advance of $500,000. An item having the character of income comes home on the
event of deriving such income by the taxpayer. To possess the character of income it should
be a gain for the taxpayer (Barkoczy, 2016). An item having the income character which is
derived will be characterised as income on the basis of the realisable value.

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The advance payment of $500,000 and the $1 million that is made by Jack to the
deceased husband of Jenny possess the character of income since it has come home for the
taxpayer. The sum paid to Jenny has the character of income and the same is regarded as gain
as the taxpayer has derived the income beneficially.
Denoting the judgement that was made in “Brent v Federal Commissioner of
Taxation (1971) ATC 4195” the taxation commissioner held that the train robber wife was
provided the special right of publishing the story of her life (Tan et al., 2016). The amount
that was received for such interview in the media company was viewed as the “reward for
service”. The receipts was considered for taxation purpose based on the ordinary conceptions
of the “section 6-5 of the ITAA 1997”
The amount of $500,000 and remaining sum from $1 million constitutes income as
“reward for service” for Jenny which is held assessable as income from ordinary concepts
under “section 6-5 of the ITAA 1997”. This is because there was sufficient association
between the receipts and the provision of service namely the reward that is received by her.
On an alternative situation if the decision was undertake to write the story by Jenny
herself, then the publications of such book would be regarded as royalties from the
biographies. Citing the decision of law court in “Hobbs v Hussey (1942) 24 TC 153” the
taxpayer was the criminal and a sum of £1500 was received by the taxpayer just because of
selling the rights to the newspaper article for publishing the taxpayer autobiographies (Long
et al., 2016). Likewise, if an alternative decision of wring the book was taken by the taxpayer
then the income that would be derived from such publications by Jenny would be held as
royalty income and same would have been liable for taxation.
Conclusion:
Convincingly, the receipt of income from television appearance possess the character
of income for Jenny. The income would attract tax liability based on the “section 6-5 of the
ITAA 1997” as income from ordinary concepts. An alternative decision of writing the book
on her husband would have resulted in royalties from the sale of publications and would be
subjected for assessment under “section 6-5 of the ITAA 1997”.
Answer to 2:

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Issues:
Is the taxpayer under “section 8-1 of the ITAA 1997” entitled for a permissible
deductions from her assessable income relating to the payment made to child day-care
centre?
Laws:
1. “Section 8-1 of the ITAA 1997”
2. “Section 8-1 (2) of the ITAA 1997”
3. “Lunney v Federal Commissioner of Taxation (1958) 100 CLR 478”
4. “Lodge v Federal Commissioner of Taxation (1972) ATC 4174”
Applications:
“Section 8-1 of the ITAA 1997” lay down two positive limbs that offers the taxpayers
with the facilities of claiming deductions from their taxable earnings for any sum of loss or
outgoings till the extent that they are occurred in acquiring or producing the taxable income
(Cao et al., 2015). Furthermore, an individual taxpayer is allowed to claim deductions
relating to the expenditure which is occurred by the taxpayer necessarily in course of their
business activities with the intent of gaining or producing their taxable income.
“Section 8-1 (2) of the ITAA 1997” lay down four negative limbs which does not
permits a taxpayer from claiming deductions relating to the cost that are capital or having the
characteristics of capital or the expenses are private in nature (Saad, 2014). An individual
taxpayer is permitted to claim for the allowable deductions up to the extent that the expenses
are in producing the exempted or the non-taxable non-exempted income or the provision of
the act prevents the taxpayer from deducting any expenditure from their taxable income.
The scenario obtained from the case provides that Sally who is by profession an
account and a single mother is required to keep her child in day care centre so that she can
attend her work. As a consequence to this she incurs a day care expenditure for her child.
Referring to the “section 8-1 (2) (b) of the ITAA 1997” where a taxpayer incurs any
outgoings that has the nature of private or domestic might not be permitted as deductions
since it does not fulfil the conditions of either the positive limbs or such outgoings is not
permissible as deductions under the second negative limbs.
Citing the judgement of the taxation commissioner in the case of “Lunney v Federal
Commissioner of Taxation (1958) 100 CLR 478” is it essential to look into the characteristics

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of the earnings even though the outlays forms the indispensable requirement to the source of
taxable returns (Robin & Barkoczy, 2018).
The taxation commissioner in “Lodge v Federal Commissioner of Taxation (1972)
ATC 4174” did not allowed the taxpayer from claiming allowable deductions relating to the
childcare expenditure because it does not have any relevance in obtaining the taxable income
(Robin, 2017). Likewise in Sally situations the childcare expenditure that is incurred prior to
attaining her work is held as neither relevant nor considered as incidental in the derivation of
Sally’s taxable income. The child day-care expenditure is more of private or domestic in
nature which cannot be allowed for deductions under “section 8-1 of the ITAA 1997”.
Conclusion:
The analysis conducted above provides that the child day-care expenditure does not
meets the criteria of the positive limbs and nor it is allowed for deduction under the second
negative limbs of the “section 8-1 (2) (b) of the ITAA 1997”. Therefore, no deductions is
allowable to Sally under “section 8-1 of the ITAA 1997”.
Answer to 3:
Issues:
Does the activities of the taxpayer represents execution of business activates and
whether the profits from the isolated transactions is subjected for assessment under “section
25 (1) of the ITAA 1936”?
Laws:
1. “Subsection 25 (1) of the ITAA 1936”
2. “Taxation ruling of TR 92/3”
3. “Blockey v Federal Commissioner of Taxation (1923)”
4. “Federal Commissioner of Taxation v Myer Emporium Ltd”
Applications:
As defined in the “taxation ruling of TR 92/3” a guidance has been provided in
understanding whether any sort of profits made from the isolated transactions would be
classified as income and therefore, under “subsection 25 (1) of the Income Tax Assessment
Act 1997” the profits are regarded as taxable (Oishi et al., 2018). Isolated transitions is
viewed as those transactions that are not within the ordinary course of the taxpayer executing
the business and signifies certain transactions that entered by the non-business taxpayers.

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The scenario depiction from the case study of Joseph provides that he was performing
the business of plumbing. However, it is learnt that he bought a twenty hectare of land to
plant native wildflowers and selling those wildflowers to the market. Joseph undertook the
steps of clearing and ploughing the land. Although the initial idea was not to cultivate or
harvest commercial crops in five years but reported expenditure on loan, acquiring seedlings
and expenses on fertilizers.
According to the judgement made in “Federal Commissioner of Taxation v The Myer
Emporium Ltd (1987) ATC 4363” it was held that an interest bearing loan was made by the
taxpayer to receive interest in return of the lump sum (Bankman et al., 2017). The taxation
commissioner by relying on the second strands to decide the motive of the taxpayer for was
to derive income and sum received as interest was regarded as income.
The ruling explains that the profits from the isolated transactions is regarded as
income under the ordinary concepts. The “taxation ruling of TR 92/3” provides explanation
that the intention of the taxpayer to enter into such transactions was to derive profit
(McDaniel, 2017). The explanations provides that relevant purpose of the taxpayer is not
regarded subjective but it is the intent which is discerned from the isolated transactions
surrounds the settings of the event (Schenk, 2017). The taxpayer usually have requisite
purpose of entering into the isolated transactions. Similarly, in case of joseph the transactions
that was entered into had the profit making purpose with commercial nature.
As laid down in “Blockey v Federal Commissioner of Taxation (1923)” it was held
that the profit from the purchase and sale of wheat scrip was an isolated transactions and the
same was taxable (Pope et al., 2017). Likewise for Joseph the land was bought with the
intention of making profit and cultivation of wildflower to sale those in the market reflected
commercial business.
Conclusion:
As understood from the above discussion profit making purpose was relevant when
land was bought by Joseph and harvesting of flower for selling them to market was
accompanied with profitmaking objective. The income from the sale of wildflowers by
Joseph represents profit from isolated transactions and accounted as executing the activities
of business.

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Reference List:
Bankman, J., Shaviro, D. N., Stark, K. J., & Kleinbard, E. D. (2017). Federal Income
Taxation. Wolters Kluwer Law & Business.
Barkoczy, S. (2016). Foundations of taxation law 2016. OUP Catalogue.
Cao, L., Hosking, A., Kouparitsas, M., Mullaly, D., Rimmer, X., Shi, Q., ... & Wende, S.
(2015). Understanding the economy-wide efficiency and incidence of major
Australian taxes. Canberra: Treasury working paper, 2001.
Long, B., Campbell, J., & Kelshaw, C. (2016). The justice lens on taxation policy in
Australia. St Mark's Review, (235), 94.
McDaniel, P. (2017). Federal Income Taxation. Foundation Press.
Oishi, S., Kushlev, K., & Schimmack, U. (2018). Progressive taxation, income inequality,
and happiness. American Psychologist, 73(2), 157.
Pinto, D. (2013). State taxes. In Australian Taxation Law (pp. 1763-1762). CCH Australia
Limited.
Pope, T. R., Rupert, T. J., & Anderson, K. E. (2017). Pearson's Federal Taxation 2018
Corporations, Partnerships, Estates & Trusts. Pearson.
Robin & Barkoczy woellner (stephen & murphy, shirley et al.). (2018). Australian taxation
law 2018. Oxford University Press.
Robin, H. (2017). Australian taxation law 2017. OXFORD University Press.
Saad, N. (2014). Tax knowledge, tax complexity and tax compliance: Taxpayers’
view. Procedia-Social and Behavioral Sciences, 109, 1069-1075.
Schenk, D. H. (2017). Federal Taxation of S Corporations. Law Journal Press.
Tan, L. M., Braithwaite, V., & Reinhart, M. (2016). Why do small business taxpayers stay
with their practitioners? Trust, competence and aggressive advice. International
Small Business Journal, 34(3), 329-344.
Woellner, R., Barkoczy, S., Murphy, S., Evans, C., & Pinto, D. (2016). Australian Taxation
Law 2016. OUP Catalogue.

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