Taxation Law Assignment - Assessable Income and Receipts Analysis

This taxation law assignment addresses the issues of assessable income, focusing on receipts from professional practice and the recovery of bad debts. The student analyzes whether receipts from a professional lawyer's practice constitute income under the ordinary concepts of the ITAA 1997, referencing relevant case law such as "Scott v C of T (1935)" and "Carden v F C of T (1938)". The assignment examines the characteristics of income, including money or its convertibility, periodicity, and income-generating activities. It then applies these principles to a case study involving a lawyer's income and the subsequent recovery of a bad debt, calculating the assessable income. The conclusion classifies the receipts as ordinary income and emphasizes the nexus between the receipts and the revenue-producing activities.

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:.................................................................................................................2
Issues:.....................................................................................................................................2
Rule:.......................................................................................................................................2
Application:............................................................................................................................3
Conclusion:............................................................................................................................4
References:.................................................................................................................................5

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Answer to question 1:
Issues:
Are the receipts from professional practice amounts to income under the ordinary
concepts of the “section 6-5 of the ITAA 1997”?
Rule:
As per the “section 6-5 (1) of the ITAA 1997” assessable income of the taxpayer
includes the income based on the ordinary concepts (Coleman and Sadiq 2013). As held in
“Scott v C of T (1935)” income should be viewed as term of art and receipts are to be
comprehended based on relevant principles by treating the receipts as income in accordance
with the ordinary concepts and usages.
A taxpayer can use both the cash and accrual basis for an appropriate type of income.
Income from business can be derived on accrual basis whereas the income from personal
services is derived on the cash basis. Income from business which involves providing
personal services must be accounted under the cash basis. As held in “Carden v F C of T
(1938) 63 CLR 108” the income of taxpayer is ascertained on cash basis given the income is
obtained through the rendering services (Kenny 2013). There are three characteristics of
income;
a. Income should be money or convertible to money
b. Income should be periodicity, recurrence and regularity in nature
c. Receipts derived from the income generating activities would be treated as ordinary
income
Voluntary receipts are assessed as income given there is sufficient relation with the
revenue producing activities of the taxpayer. The court in “FCT v Dixon (1952)” held the
taxpayer assessable for the receipt of supplementary income (Krever 2014). The payment

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constituted ordinary income under the ordinary concepts of “section 6-5”. The court in “FCT
v Harris (1980)” held the taxpayer non-assessable payments received from the previous
employer as unpredictable unsolicited lump sum was not related to the quality of services
rendered.
As per “subsection 63 (3)” the recovery of bad debt is amounts to taxable income and
the same is included for assessment purpose.
Application:
The case study provides that Andrew is carrying on the business of professional
lawyer and during the relevant income year he received $910,000 from his professional
practice. Referring to the “Carden v F C of T (1938) 63 CLR 108” the cash receipts of
$910,000 by Andrew amounts to income from business of providing personal services. The
cash receipts are having nexus with the revenue generating activities. The receipts hold the
determinative characteristics of the income producing activities (Morgan, Mortimer and Pinto
2013). Quoting “FCT v Dixon (1952)” receipts from rendering the personal service income
by Andrew is an income under the ordinary concepts of “section 6-5, ITAA 1997”.
In the later stages, a bad debt of $12,000 which was written off previously by Andrew
is received as the partial settlement in the present income year. Referring to “subsection 63
(3)” the recovery of bad debt amounts to income which is included for assessment purpose.
The taxable income of Andrews is computed below;

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Particulars Amount($) Amount($)
Cashreceivedfromlegal service 9,10,000
Add: Accounts Receivables on30June2019 52000
Less: Accounts receivableon30June2018 38000 9,24,000
Recovery of Baddebt 5,000
Total AssessableIncome 9,29,000
IntheBooksofAndrew
CalculationofAssessableIncome
For theyear ended30thJune2019
Conclusion:
The receipts by Andrews must be classified as the ordinary income under “section 6-
5, ITAA 1997” because it establishes sufficient nexus between the receipts and revenue
producing activity.

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References:
Coleman, C. and Sadiq, K. 2013. Principles of taxation law 2013.
Kenny, P. 2013. Australian tax 2013. Chatswood, N.S.W.: LexisNexis Butterworths.
Krever, R. 2014. Australian taxation law cases 2014.
Morgan, A., Mortimer, C. and Pinto, D. 2013. A practical introduction to Australian taxation
law. North Ryde [N.S.W.]: CCH Australia.