Income Tax Assessment Act 1997 and 1936
Discuss about the Federal Income Taxation Of Partner And Partnership.
Would Jenny be held accountable for appearing in the media conversation for the purpose of narrating the story of her husband and receiving amount relating to the reward for service shall be held assessable under “section 6-5 of the ITAA 1997” as income from ordinary concepts?
- “Section 6-5 of the ITAA 1997”
- “section 6-1 of the ITAA 1997”
- “Scott v Commissioner of Taxation (1935)”
- “Brent v Federal Commissioner of Taxation (1971) ATC 4195”
- “Hobbs v Hussey (1942) 24 TC 153”
An individual deriving income from the private exertion might be held as taxable earnings based on concept of statutory income or ordinary income. As stated in the reconciliation rule of the “section 6-25 of the ITAA 1997” states that if the amount constitute both the ordinary and the statutory income then the rules of statutory income prevails except a conflicting intention is specified (Pinto, 2013). The nexus test defines that the three should be a nexus among the receipts and the provision relating to the services which includes product or reward or any ordinary incident relating to the provision of services.
In accordance with the “section 6 of the ITAA 1936” income which is created from the private effort or income obtained from the individual comprises of the earnings, salaries, wages, gratuities that is received as an employee or the proceeds that is obtained from the sum that is received based on the bounty of services (Brokelind, 2014). It also includes the proceeds that a person obtains from the business that is carried on by the person alone or in partnership or any form of amount that is included in the taxable earnings of the taxpayer by virtue of the “section 393-10 of the ITAA 1997” (Coleman & Sadiq, 2013). Nevertheless “section 6-1 of the ITAA 1997” does not takes into the account any form of amount that is obtained from the principle business comprising of money lending or unless the interest is received relation to the debt that is due for the goods or services supplied.
The case study opens up with the situation stating that Jenny who is the wife of the late husband Henry once a renewed Jazz singer. Jenny was approached by Jack, a publisher who was keen on knowing about the life of Henry. Jack initially offered Jenny with an amount of $1 million for narrating the life story of Henry and in advance rewarded Jenny with a sum of $500,000 for appearing in the interview.
In view of that, “section 6-5 of the ITAA 1997” describes ordinary income as maximum of the returns that is originates into the taxpayer. The jurisdictional concept of ordinary proceeds includes income according to the ordinary concepts (Grange et al., 2014). The expression “income” should not be viewed as the term of art as it requires the application of necessary principles in order to determine as to what extent those receipts essentially required to be held as earnings and should be held in agreement with the common conceptions and usage of mankind. The law court in “Scott v Commissioner of Taxation (1935)” explained that a constituent that has the character of income is derived when the same has the home coming nature for the taxpayer (James, 2014). The existence of unlawfulness, dissolution or the ultra vires does not prevents the source.
Taxability of Income Earned
The element of income possesses the component of proceeds that is obtained would be believed as proceeds till the sum of its derivation value (Kenny, 2013). The court of law stated that the character of profits ought to be established in terms of the situations of its source by the person who derives it. To possess the character of income the item should be held as the gain by the by the person that derives it. There is no gain except the article of earnings is obtained beneficially by a person. The judgement that was passed in “Federal Commissioner of Taxation v Brent (1971) ATC 4195” stated that the other half of the train thief was allowed by the media company with the special right of publishing the story of her life and return received a payment that was held as reward for service (Krever, 2013). The payment that was received by the robber of the wife was regarded as the income on the basis of ordinary concept of the “section 6-5 of the ITAA 1997” and the same was considered for taxation.
Taking account of the situation of Jenny the sum that was paid to her by the publisher is held as the reward for the service for appearing in the interview and narrating the story of Henry’s life. The amount that was received by her holds sufficient nexus among the receipts and the provision of service which is the reward under the provision of services (Morgan et al., 2013). The advance payment of $500,000 and remaining amount constituted taxable under “section 6-5 of the ITAA 1997” as earnings on the basis of ordinary concepts.
On the alternate situation if a decision of writing the book by Jenny was undertaken then the amount received from such sale of publications of biographies would have amounted to royalties. Referring to the event of “Hobbs v Hussey (1942) 24 TC 153” the taxpayer was considered as infamous criminal and obtained an amount of £1500 based on the sale of the consecutive privileges of his autobiographies for publishing the same in the article of the newspaper (Sadiq et al., 2014). Denoting the evidences of “Hobbs v Hussey (1942) 24 TC 153” it can be stated that the sum that would be derived from the sale of biographies would amount to royalties that would be held taxable for Jenny.
Conclusion:
Denoting the above stated analysis of the case a conclusive evidence can be presented that the sum of $500,000 and remaining amount from $1 million would be subjected for assessable based on normal perceptions of “section 6-5 of the ITAA 1997” as reward for services. Alternatively, if the decision of writing the book is undertaken by Jenny then the amount from the sale of such biographies would amount to royalties that is taxable under the provision of ITAA 1997.
Deductibility of Expenses Incurred
Would the taxpayer be eligible to entitlement for a permissible deduction under the “section 8-1 of the ITAA 1997” for the charge sustained in child day care centre?
- “Lunney v Federal Commissioner of Taxation (1958) 100 CLR 478”
- “Lodge v Federal Commissioner of Taxation (1972) ATC 4174”
- “Section 8-1 of the ITAA 1997”
- “Section 8-1 (2) of the ITAA 1997”
Under two positive limbs of the “section 8-1 of the ITAA 1997” which enables an individual from their assessable income to deduct any type of outgoings till the amount that the outlays are sustained in generating his or her assessable income (Woellner, 2013). “Section 8-1 of the ITAA 1997” enables the taxpayer to deduct from their chargeable earnings any form of losses or outgoings that is necessarily occurred at the time of performing the trade or for producing the assessable earnings. On the other hand “section 8-1 (2) of the ITAA 1997” does not enables a person for entitlement to deductions linked to the outgoings till the magnitude that the outgoings are having the characteristics of capital or the same is occurred in the form of private or domestic in character (Woellner et al., 2013). “Section 8-1 (2) of the ITAA 1997” prohibits an individual to subtract any form of losses or outgoings that is incurred in producing the exempted earnings or the non-taxable non-exempted earnings or the establishment of the act prohibits the person from deducing the expenditure (Tan et al., 2016). The nexus test defines that for an expenditure to be allowed as deductions there must be a positive association between the outgoings and any one of the positive limbs given the outgoings are not capita in nature.
The scenario obtained from the case study of Sally lay down that she is a single mother and to attend her job she is puts her child in the day care centre. An important consideration of the “section 8-1 (2)(b) of the ITAA 1997” describes that the outgoings that are in the nature of private or having the characteristics of domestic are barred from being held as deductions (Cao et al., 2015). Accordingly, “section 8-1 (2) (b) of the ITAA 1997” explains that these expenditure fails to satisfy the norms stated in positive limbs or non-allowable deductions under the second positive limbs. The judgment of the assessment commissioner in “Lunney v Federal Commissioner of Taxation (1958) 100 CLR 478” explained that for an expenditure to be held as the allowable deductions it is necessary to gauge in to the necessary character of that expenditure (Davison et al., 2015). It is insufficient that the losses or outgoings forms the necessary character of the prerequisite in the derivation of the taxable earnings.
Isolated Business Activities
Quoting the ruling of full federal law court in “Lodge v Federal Commissioner of Taxation (1972) ATC 4174” the law court firmly denied the new law clerk with the deductions for the cost that was incurred in the child day care expenditure so that she can attend her work (Saad, 2014). The taxation commissioner in its view held that the child day care expenditure incurred by the new law clerk neither held any relevant nor any form of incidental in the events through which the a person obtained her assessable income.
Preceding from the above stated judgement, it argument can be bought forward in the condition of Sally that the outgoings on child day-care that was sustained to attend her work was relevant nor any form of incidental in the activities through which Sally obtained her assessable income. The expenditure held private or domestic in nature and cannot be held deductible under the “section 8-1 of the ITAA 1997” for the reason that the it does not satisfy any of the positive limbs and the child care day expenditure is not deductible under the second negative limb of “section 8-1 (2) (b) of the ITAA 1997”.
Conclusion:
Understandably from the above stated analysis carried of the child day care expenditure, a conclusive evidences can be presented that the expenses purely held the character of private and domestic in nature. The expenditure does not meet any of the positive limbs of “section 8-1 of the ITAA 1997” and therefore cannot be allowed as deductions under the second negative limbs of the “section 8-1 (2) (b) of the ITAA 1997”.
Would the actions of a person amount to execution of the business and whether earnings obtained from the isolated business would be accountable for taxes in the “section 25 (1) of the ITAA 1936”?
- “Taxation ruling of TR 92/3”
- “Subsection 25 (1) of the ITAA 1936”
- “Federal Commissioner of Taxation v Myer Emporium Ltd”
- “Blockey v Federal Commissioner of Taxation (1923)”
- “Californian Copper Syndicate v Harris (1904) TC 159”
The case study opens up with the circumstances stating that Joseph conducted the business of plumber. Eying future retirement he ended up purchasing a twenty hectare of land and planted native wildflower that he intended to harvest and sell in the market. A preliminary measure of clearing the land and ploughing the land and compost was conducted. Though Joseph intended to not harvest the first commercial crop within the span of five years however occurs expenses on interest on loan, fertilizers expenses and expenses on acquiring seedlings.
The assessment ruling of “Taxation ruling of TR 92/3” offers guidelines in discovering that whether the proceeds that is derived from the isolated businesses are held as earnings and henceforth, chargeable under the “subsection 25 (1) of the Income Tax Assessment Act 1997” (Oishi et al., 2018). The expression isolated transactions refers to the transactions that is out of the ordinary business course of the taxpayer carrying on the business or those contacts that are come into by the non-business taxpayers.
Child Day-Care Expenses
The ruling lay down the viewpoint specified in “Federal Commissioner of Taxation v The Myer Emporium Ltd (1987) ATC 4363”. The law court held that the taxpayer of the business made an interest bearing credit to the subsidiary (Bankman et al., 2017). Following some days, the taxpayer owed the right of receiving the interest income from the credit in return for the lump sum amount. The full federal court remained dependent on the second strands of their reasoning and held that the amount that was obtained by the taxpayer was earnings.
The taxation ruling of “Taxation ruling of TR 92/3” elucidates that whether the proceeds obtained from isolated businesses is held as earnings based on the normal impressions and use of mankind is largely reliant on the situation of the event (McDaniel, 2017). Nevertheless, the profits from the isolated transactions is usually held as income when the purpose or the purpose of the taxpayer for arriving into the business was to create the gains (Burns & Ziliak, 2017). The transactions that was entered into by the taxpayer and the incomes that is made is in the ordinary sequence of executing the trade or executing the operation of the commercial transactions.
The taxation ruling of “Taxation ruling of TR 92/3” enlightens that the relevant purpose or the determination of taxpayer not viewed as individual intention or the purpose of the taxpayer (Murphy & Higgins, 2016). Reasonably, it is objective or the aim that is discerned from the isolated considerations of the evidences that surrounds the circumstances of the event. Evidently in the situation of Joseph though eyeing future retirement it is not indispensable that the objective of the profit making was the dominant object or the intention of entering into the transaction of harvesting the wildflower. It is obvious that if the profit making was the significant purpose for Joseph.
The taxpayer is ought to have the obligatory objective at the stint of arriving in to the activities of harvesting the native wildflower and selling the same to the market. Given that the transaction or the operations is out of the ordinary business course of the taxpayer trade the object or the aim of a person should prevail in respect of the business of the operations that is in question (Schmalbeck et al., 2015). The transaction might take place outside the normal sequence of the trade that is executed even though the transaction is out of the ordinary business course of the taxpayer. In order to characterize a transaction as business operations or the commercial transition it is adequate if the transaction that is entered into by the taxpayer is business or having commercial character (Burke, 2016).
Likewise in the case of Joseph the transaction took place outside the normal sequence of the trade that is executed even though the transaction is out of the ordinary business course of Joseph. The transaction of harvesting the wildflowers carries the character of business operations or the commercial transition.
The Federal Court in “Blockey v Federal Commissioner of Taxation (1923)” well-thought-out that the earnings from the acquisition and transaction of wheat scrip constituted an isolated business was chargeable income (Simmons et al., 2017). The full federal court in the case of “Californian Copper Syndicate v Harris (1904) TC 159” held a deep-rooted standard in performing with the question associated to revenue tax where the titleholder of the normal venture decides on to realise it and gains a better value for the same that was originally acquired it (Hoffman et al., 2014). But the court of law held that the greater value that is obtained from the realisation constituted income which was assessable.
Evidently in the situation of Joseph it is not vital that the income is obtained by on its own or by one of numerous possible means where a deal is entered into by the taxpayer. It is adequate that Joseph entered into the transaction with the objective of making income or revenues in the utmost beneficial manner by ploughing the land and the profit is obtained by any means that applies the preliminary profit generating objective. The activities of harvesting native wildflower carried the nature of business and had the taste of commercial flavour.
Conclusion:
Preceding from the above discussion it can be stated that the profit creation determination was significant at the time of purchasing the land and the activities of harvesting native flower carried the commercial intent. The amount that would be derived from the sale constituted profit from the isolated transactions and amounted to carrying on of the business by Joseph.
Reference list:
Bankman, J., Shaviro, D. N., Stark, K. J., & Kleinbard, E. D. (2017). Federal Income Taxation. Wolters Kluwer Law & Business.
Brokelind, C. (2014). Principles of law: function, status and impact in EU tax law. Amsterdam: IBFD.
Burke, K. (2016). Federal income taxation of partners and partnerships in a nutshell. West Academic.
Burns, S. K., & Ziliak, J. P. (2017). Identifying the elasticity of taxable income. The Economic Journal, 127(600), 297-329.
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.
Coleman, C., & Sadiq, K. (2013) Principles of taxation law.
Davison, M., Monotti, A., & Wiseman, L. (2015). Australian intellectual property law. Cambridge University Press.
Grange, J., Jover-Ledesma, G., & Maydew, G. (2014) principles of business taxation.
Hoffman, W. H., Raabe, W. A., Maloney, D. M., Young, J. C., & Smith, J. E. (2014). South-Western Federal Taxation 2015: Corporations, Partnerships, Estates and Trusts. Nelson Education.
James, M. (2014) Taxation of small businesses.
Kenny, P. (2013). Australian tax. Chatswood, N.S.W.: LexisNexis Butterworths.
Krever, R. (2013). Australian taxation law cases. Pyrmont, N.S.W.: Thomson Reuters.
McDaniel, P. (2017). Federal Income Taxation. Foundation Press.
Morgan, A., Mortimer, C., & Pinto, D. (2013). A practical introduction to Australian taxation law. North Ryde [N.S.W.]: CCH Australia.
Murphy, K. E., & Higgins, M. (2016). Concepts in Federal Taxation 2017. Cengage Learning.
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.
Saad, N. (2014). Tax knowledge, tax complexity and tax compliance: Taxpayers’ view. Procedia-Social and Behavioral Sciences, 109, 1069-1075.
Sadiq, K., Coleman, C., Hanegbi, R., Jogarajan, S., Krever, R., Obst, W., & Ting, A. (2014) Principles of taxation law.
Schmalbeck, R., Zelenak, L., & Lawsky, S. B. (2015). Federal Income Taxation. Wolters Kluwer Law & Business.
Simmons, D. L., McMahon, M. J., Borden, B. T., & Ventry, D. J. (2017). Federal Income Taxation. Foundation 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. (2013). Australian taxation law select. North Ryde, N.S.W.: CCH Australia.
Woellner, R., Barkoczy, S., Murphy, S., Evans, C., & Pinto, D. (2014) Australian taxation law.
Order an Essay Now & Get These Features For Free:
Turnitin Report
Formatting
Title Page
Citation
Outline
