Jenny’s Taxable Income for Professional Services
Discuss about the Business Primary Producers In Detail.
- Jenny, wife of a famous jazz singer, will receive $1 million on retailing the story of her husband to a publishing house. Jenny will receive $500,000 immediately and rest of the money after the interview is done. In the given case the money received by Jenny is taxable. The following laws and rulings will demonstrate the reason for the conclusion.
Any person who is receiving or will receive any amount of payment from giving any interview to the media, may or may be form a part of the assessment of the income as per the circumstance. If we consider the fact stated above, it is evident that Jenny is receiving payment. We should consider the following to deduce whether it is income or not. (2001/206, n.d.)
- The money received is of significant amount, it is not merely to cover the cost incurred or the inconvenience of the assesses.
- Assesses need to provide a service (in the form of giving a story to the media) in return of the amount received.
- The tax payer’s need to provide a service so that he/she can receive the payment in lieu of the service, also the discussion regarding any negotiation or arranging the terms of payment and planning the interview clearly states that it was not spontaneous in nature.
Now if we consider the case study of Higgs v Olivier 33 TC 136, we will understand the nature of taxable income of Jenny:
In the given case it so happened that Oliver, the actor entered into an agreement to produce, direct as well as act in the film “Henry 5”. However, the film could not do well on release, later on it was agreed for the better promotion of the file that if Oliver did not appear in any film or direct or produce any other film other than the one with the same production house for a period of 18 months, he will be paid a sum of $15000. Though it is not the onus of the company to compulsorily employ him for that period.
Conclusion:
It was held as capital receipt, since the taxpayer was not receiving this amount for the role played by him or as a further remuneration for the film. He received this in nature of not playing any role or producing or direct any film for 18 months.
Similarly, Jenny who will receive an amount of $1000000, will consider it as capital nature for narrating the story of Henry’s life.
- b) If Jenny had written the book herself, then also it would have been considered as a professional income. Writing a book is considered as a hobby until and unless it has not been published. If Jenny writes and publish the book, it will be considered as a professional income.
It is an income which the assesses is receiving on providing a professional service, which includes the following:
- Gift and premium
- any money received for any advertisement
- Royalties received for any exclusive right for any work related to art, drama, dance
- amount received as patent for any new creation
If a person is providing an interview to media or writing a book or article will count as professional, if the services provided is for one or more than one time, and he/she has to provide the service to earn the income received from it. Also, the person’s previous engagements are not continuous in nature, as well as it is not generating much revenue. In the given case, Jenny will receive money on writing the story and assuming that she does not have any continuous engagement to deal with, the money received by Jenny on writing the book will be considered as an assessable income in her hand.
Sally’s Exemption Claim and Domestic Expenses
Conclusion:
As per the above provision, Jenny is liable to pay tax for writing and publishing the story and it will be considered as professional earning. Also, she can claim deduction for any expenses incurred by her for the expenses incurred related to writing and publishing the story.
As per Section 8-1 one can deduct from there assessable income the amount of loss or any expenditure to the extent that:
It was incurred to gain or produce your assessable income,
It is necessarily incurred in carrying on a business for the purpose of gaining or producing your assessable income. (Income Assessment Act 1997, n.d.)
Section 8-1 (2) provides that we cannot deduct a loss or expenditure:
- It is a loss or expenditure of capital or of capital nature,
- it is a loss or expenditure of a private or domestic nature; or
- it is incurred in relation to gaining or producing your exempt income or your non-assessable non-exempt income; or
- a provision of this Act prevents you from deducting it.
However, Sally being the head of her house and sole provider of her child can claim exemption. This exemption can be claimed by either of the parents for joint custody, but it is evident that sally is the sole provider of her child.
So, she can claim exemption provided the following points are fulfilled:
- The reason for sending her child to child care is not to earn income,
- Her all total income does not exceed $100,000 or equal.
- Daughter’s age is below 12 years old
Conclusion:
So as per the given case Sally who is a single mother and wants to deduct the expense incurred for keeping her job, which is actually domestic in nature, will not be considered as an expense for earning the income. The income earned by her should be considered a whole, provided she can claim exemption under the dependent if the above criteria is fulfilled.
Joseph who purchased land for harvesting and selling of native wildflowers business is expected to earn his income after 5 years. Joseph has incurred some expenses for the harvest that he expects to get after 5 years. He has incurred interest on loan to finance the land, cost for the preparation of the land fertilizer cost and cost for purchasing native seeds.
As per the rules, one has to pay taxes on the income earned by the business which is known as assessable income. To reduce the amount tax, one can claim deduction on the cost incurred to run the business. One can claim concession, rebate and offsets as well to reduce the tax.
There are set of rules to consider while claiming deduction of expenses incurred to run the business. They are the following:
- The expenses should be related to business, one cannot expect to claim deduction on the expenses earned for personal use.
- If in case the expense is a mix of both private and business use, the assesses must claim only the part of expense he incurred for the business.
- He must have records to prove the expenses he claims to have incurred for the business.
The harvesting and selling of native wild flower comes under primary production.
A producer is primary in nature if it in production business as an individual, trust company or in the form of partnership. One will be considered as a primary producer if it carries the following business:
- prepare or breed plants, fungi or anything related to it in any physical environment
- preserve animals for the purpose of selling them off in the market
- produce dairy products from raw material
- organize operations relating directly to catching of any marine animals
- organize operations relating directly to maintain pearls or pearl shell
- putting or taking care of trees in a plantation or forest that are intended to be cut down
- cutting down of trees or forest in whole
- transferring of plant or forest cut down by you
The following will be considered as landscape operation:
- when mainly and chiefly
- Putting an end to or destroy any kind of animal pest found in the land
- Putting an end to or destroy the growth of any plant causing harm to the land
- stopping or reduce land from wearing down other than by the use of fences
- set uptight fences to stop the animal from getting affected by the wearing out land and also stopping from further damage in those areas
- making drainage works to control salinity or helping with the prevention of drainage
- set uptight fences to divide land classes in between the land approved by the management plan
- setting up an embankment to prevent the over flowing or similar improvement
- for expenditure incurred on or after 1 July 2004, a structural improvement or an alteration, addition, extension or repair to a structural improvement that is reasonably incidental to the construction of a embankment or drainage works. (Land care operation, n.d.)
Now, as for the expenses incurred by Joseph if we consider the ruling of Queensland Meat Export Company Ltd v FCT (1939) 5 ATD 176, which states that a company in the market of meat work claimed a deduction for 3 years, though the premises was not being used for any work related to business due to not being able to have enough animal for meat.
They were allowed for the deduction, as the taxpayer has not completely abandoned his business, also he has maintained and preserve the premises so that they can use it in future when they will have enough animals.
Conclusion:
So, as per the above ruling the taxpayer is eligible for deduction of expenses incurred for maintaining and preserving the land. Also, he can claim the expenditure related to setting up the business i.e. he is eligible for claiming interest expense, fertilizer cost and cost for purchasing native seed. Though he will not be able claim these deductions right away, he can claim only when he generates income.
- TR 2005/1, (2009). gov. Available at: https://law.ato.gov.au/atolaw/view.htm?docid=TXR/TR20051/NAT/ATO/00001 [Accessed 15th May, 2018]
- Land care Operation, (n.d.). Ato.gov. Available at: https://www.ato.gov.au/Business/Primary-producers/In-detail/Capital-expenditure/Landcare-operations/ [Accessed 15th May, 2018]
- 2001/206, (n.d.). Ato.gov. Available at: https://law.ato.gov.au/atolaw/view.htm?docid=AID/AID2001206/00001&PiT=99991231235958 [Accessed 15th May, 2018]
- Income assessment Act 1997, (n.d.). Ato.gov. Available at: https://www.ato.gov.au/law/view/document?docid=PAC/19970038/8-1 [Accessed 15th May, 2018]
- Hobbs v. Hussey(1942) 24 TC 153
- Housden (Inspector of Taxes) v. Marshall(1958) 3 All ER 639
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