Taxation Law Exam Notes PDF

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Taxation Law Notes - 13064807 - Income Assessable income: Ordinary income s6-5, Statutory income s6-10 Not assessable income: Exempt income s6-20, Non-assessable non-exempt income s6-23 + Ordinary Income . If Australian resident, assessable income includes the ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year. . If foreign resident, assessable income includes: (a) the ordinary income you derived directly or indirectly from all Australian sources during the income year; and (b) other ordinary income that a provision includes in your assessable income for the income year on some basis other than having an Australian source. * Parsons Propositions: Parsons R W, Income Taxation in Australia, Principles of Income, Deductibility and Tax Accounting . PP 1. An item of an income character is derived when it has “come-home” to the taxpayer. The presence of illegality, immorality or ultra vires does not preclude derivation. . PP 2. An item of an income character that has been derived will be income in the amount of its realisable value. - Relevant cases: Tennant v Smith [1892] AC 150 The value of free accommodation provided to bank employee (prohibited from subletting) was not income. “[Income Tax] is a tax on what comes in…on actual receipts…a person is chargeable for income tax…not on what saves his pocket, but on what goes into his pocket” Cooke & Sherden 80 ATC 4140 The value of free overseas holidays (non-transferable & could not be converted into money) provided to retailers as part of sales incentive scheme was not income But NOTE Legislative Response - s21A ITAA36 ‘non cash business benefits’ may be treated as if they are convertible into cash. (Note also s23L(2)) - Unrealised gains are NOT income Compare Economic concept But NOTE that a gain on discharge of liabilities may be income: FCT v Unilever Australia Securities Ltd 95 ATC 4117 International Nickel Australia Ltd v FCT (1977) 137 CLR 347 Foreign currency gain was assessable income - Illegality/immorality etc is irrelevant: Partridge v Mallandaine (1856) 2 TC 179 (‘business’ of burglary) Lindsay v IRC (1993) 18 TC 43 (whisky smuggling when alcohol was banned) No 275 v MNR (1955) 13 Can Tax ABC 279 (prostitution) . PP 3. The character of an item as income must be judged in the circumstances of its derivation by the taxpayer, and without regard to the character it would have had if it had been derived by another person. - Relevant cases: Is the amount income to this taxpayer? FCT v McNeil 2007 ATC 4223 Share holder received money from participation in share buy-back scheme. Looking at character of the amount in the taxpayer’s hand, this was ordinary income to shareholder. Federal Coke Co Pty Ltd v FCT (1997) 34 FLR 375 - Federal Coke was subsidiary of Bellambi (parent company) - Bellambi had contract to supply coke to Le Nickel. - Le Nickel unable to accept full amount of coke, negotiated and paid compensation to Federal. - Compensation was a gift (held by Court). . PP 4. To have the character of income an item must be a gain by the taxpayer who derived it. - Relevant cases: Hochstrasser v Mayes [1960] AC 376 Employer company set up scheme to compensate employees for loss made on sales of their home when being relocated for work. Amount received was not assessable - no gain. . PP 5. There is no gain unless an item is derived by the taxpayer beneficially - Relevant cases: Countess of Bective v FCT 47 CLR 417 Amount paid to Countess under trust for benefit of daughter. Zobory v CT [1995] 64 FCR 86; 95 ATC 4251 Employees earned interest on money stole from his employer. Interest was not assessable income as he wasn’t beneficially entitled to it and funds were held on constructive trust.

. PP 6. There is no gain if an item is derived by the taxpayer from himself: the principle of mutuality. Income must come in from outside sources The Bohemians Club v FCT [1918] 24 CLR 334 Subscriptions to club by members where they are entitled to participate in any surplus. . PP 7. There is no gain if an item is derived by the taxpayer as a contribution to capital. - Relevant cases: Foley v Fletcher [1858] 157 ER 678 - instalments of purchase price of capital asset (land) . PP 8. Gain which is a mere gift does not have the character of income. - Relevant cases: Hayes v FCT [1956] 96 CLR 47 Accountant received shares in company from business owner, court held it was a gift, not income from personal exertion. Scott v FCT [1966] 117 CLR 514 Solicitor received money from longstanding client’s wife out of husband’s estate, held as a gift. . PP 9. Mere windfall gain does not have the character of income. Gambling/lottery winnings are not income unless taxpayer carrying on a business of gambling. . PP 10. Capital gain does not have the character of income. Income = fruit, capital = tree Eisner v Macomber 252 US 189 [1920] Sun Newspaper Ltd and Associated Newspaper Ltd v FCT [1938] 64 CLR 337 Returned generated from the exploitation/use of capital asset of ordinary operation of the business is generally income. Gain from realization/loss/destruction of capital asset is generally capital in nature, not income . PP 11. Gain which is one of a number derived periodically has the character of income. - Relevant cases: FCT v Dixon [1952] 86 CLR 540 Kelly v FCT 83 ATC 4248 Taxpayer was a pensioner, received and aged pension under Social Security Act. Aged pension was assessed on the regularity and recurrence doctrine. Distinguish windfall amounts received infrequently and unexpectedly (FCT v Harris 80 ATC 4238) Distinguish instalments received for the sale of a capital asset (Foley v Fletcher [1858] 157 ER 678) 12. Gain derived from property has the character of income. 13. Gain which is a reward for services rendered or to be rendered has the character of income. 14. A gain which arises from an act done in carrying on a business, or from the carrying out of an isolated business venture, has the character of income. 15. A gain which is compensation for an item that would have had the character of income had it been derived, or for an item that has the character of a cost of deriving income, has itself the character of income. - Income from personal exertion General principles: - Must have a sufficient connection between the benefit received & personal exertion. - Amount received is a reward/product of personal exertion - Employment relationship/business not necessary - Personal exertion = personal effort (providing services) - Salary/wages are income from personal exertion Reward for services Brent v FCT Wife of train robber granted media company exclusive right to publish her life story. Amount she received for making herself available for interviews were a reward for the service => income from personal exertion. Distinguished from sale of property. Remuneration from employment Dean v FCT Retention payments made in consideration of key employees agreeing to remain employed => income Voluntary payments may be income provided that there is a sufficient connection with taxpayer’s incomeearning activities

Calvert v Wainwright [1947] 27 TC 475 Tips received by taxi driver => income, as tips were an ordinary incident of taxi driver’s activities FCT v Dixon [1952] 86 CLR 540 Taxpayer was a clerk, enlisted in armed forces in WWII. The employer agreed to pay any shortfall in wages to those enlisted. The Commissioner assessed the supplementary payment as income. Court held payments were income according to ordinary concepts. FCT v Harris 80 ATC 4238 Taxpayer received periodic but unpredictable lump sums from former employer as supplement to pension, payments were unrelated to length/quality of service => not income Personal gifts are not income (PP8 Scott v FCT [1966] 117 CLR 514 Prize Mere prize is not income (Moore v Griffiths [1972] 3 All ER 399) It maybe income if have sufficient connection with taxpayer’s income-earning activities Kelly v FCT 85 ATC 4283 Professional footballer received award for ‘best and fairest player’. It was considered income as the award was incidental to his work and employment by the club and related to his exercise of skill FCT v Stones 2005 ATC 4234 Mrs Stone was a policewoman and javelin thrower who made $39000 in salary plus 180000 in endorsements and prize money, found to be carrying on business as a professional athlete and the money was income. + Statutory income . Amounts that are not *ordinary income, but included in assessable income by provisions about assessable income, are statutory income. Note 1: It may be made exempt income or non-assessable non-exempt income under another provision: sections 6-20 and 6-23. . If an amount would be *statutory income apart from the fact that you have not received it, it becomes statutory income as soon as it is applied or dealt with in any way....