Jenny’s Tax Consequences of Narrating Her Late Husband’s Life Story
The issue here will be taking into the account whether the receipts derived from appearing in the interview shall be accounted as assessable under “section 6-5 of the ITAA 1997”?
- “Section 6-5 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”
Conferring to “section 6 of the ITAA 1936” an individual deriving earnings from individual exertion refers to those income that are within the ordinary meaning (Oishi et al., 2018). This includes income obtained from salaries, wages, bonuses, fees, superannuation, or proceeds that are obtained from the business that is performed by the taxpayer alone or in partnership. It is worth mentioning that “section 6-5 of the ITAA 1997” is associated with the meaning of the ordinary income. Usually majority of the earnings that is obtained by the taxpayer is observed as the ordinary income.
The judicial concept of ordinary income in “Scott v Commissioner of Taxation (1935)” explained that the term income is not viewed as the word of art and essential principles should be implemented in treating those receipts as income (McDaniel, 2017). The receipts should be determined in accordance with the regular concepts of the usage of mankind. As evident in the current situation of Jenny, who is a wife of late husband Henry an Australian famous Jazz singer was approached by a publisher to know the life of Henry. The publisher offered Jenny with $1 million to narrate the story of HenHhhsfha Henry and was paid in advance a sum of $500,000 for appearing in an interview.
According to “section 6-5 of the ITAA 1997” an object of earnings is usually derived when the item comes home to the taxpayer (Woellner et al., 2016). The item carrying the character of earnings has been derived would be held as income up to the realisable value of the amount derived. Accordingly in “Federal Commissioner of Taxation v Brent (1971) ATC 4195” the spouse of the train burglar was granted with the exclusive right by the television corporation to circulate the story of her life (Barkoczy, 2016). The amount that was received by the media company was held taxable based on ordinary concepts of “section 6-5 of the ITAA 1997”. Correspondingly, the sum obtained by Jenny for appearing in the interview with the publisher to narrate the story of her husband will be considered taxable as reward for service under the ordinary concepts of “section 6-5 of the ITAA 1997”.
Instead if Jenny undertakes the decision of writing the biography herself and the amount that would be received from such biography would amount to royalties. Citing the case of “Hobbs v Hussey (1942) 24 TC 153 the taxpayer was viewed as one of notorious criminal and sum of £1500 was received relating to sale of serial rights of his autobiography for the publication in the news article (Tan et al., 2016). Correspondingly, for Jenny, if she writes the book herself the work would be held as autobiography and any sum received from sale of autobiography would be subjected to tax.
Sally’s Claim for a Tax Deduction for Day Care Expenses
Conclusion
For Jenny appearing in the interview and receiving a sum by the publisher is held as income relating to reward for service which would be taxable under ordinary concepts while writing the book herself would amount to royalties that would be held for taxation.
The issue based on ascertaining the claiming the deductibility of the day care expenditure incurred by the accountant on her child under section 6-5 of the ITAA 1997?
- “Section 8-1 of the ITAA 1997”
- “Section 8-1 (2) of the ITAA 1997”
- “Lunney v Federal Commissioner of Taxation (1958) 100 CLR 478”
- “Lodge v Federal Commissioner of Taxation (1972) ATC 4174”
According to the “section 8-1 of the ITAA 1997” there are two positive limbs which denotes that a person can claim an allowable deductions from their chargeable earnings any form of losses or outgoings up to the amount that the outlays are incurred in producing their taxable income (Cao et al., 2015). The losses or outgoings are necessarily incurred in performing on the activities of the business with the objective of gaining assessable income. Though, under “section 8-1 (2) of the ITAA 1997” there are four negative limbs where a person is barred from deducting any form of losses or outgoings under this section up to the level that the expenses are capital in nature or it holds private character (Saad, 2014). The expenses are occurred in producing the exempted income or the provision of the act prevents an individual from claiming the deductions.
The present scenario of Sally, a single parent employed in the form of accountant puts her child into the day care centre. According to the “section 8-1 (2) (b) of the ITAA 1997” any form of losses or outgoings which carries the element of private or domestic in nature is not regarded for deductions (Basak, 2016). This is for the reason that such expenses does not meet either of the criterion set under the positive limbs or the same is non held for deductions in the second negative limbs of “section 8-1 (2) (b) of the ITAA 1997”. The taxation commissioner in “Lunney v Federal Commissioner of Taxation (1958) 100 CLR 478” held that it is imperative to look into the necessary character of the losses or outgoings as whether these losses or expenditure is regarded as the necessary element in producing the taxable income (Robin & Barkoczy, 2018).
The taxation commissioner in “Lodge v Federal Commissioner of Taxation (1972) ATC 4174” deprived of the law clerk from claiming a deductions for the childcare expenditure in order to have her child minded as she can be present in her work (Blakelock & King, 2017). The expenditure non-deductible because it was not relevant in deriving the taxable income of the taxpayer. The expenditure of child day care incurred by Sally would be non-deductible under “section 8-1 of the ITAA 1997” because it is not relevant in deriving the taxable income.
Joseph’s Tax Consequences of Land Purchase and Crop Production
Conclusion
Sally would be prohibited from claiming deductions under “section 8-1 (2) of the ITAA 1997” because the expenses is private in nature and does not meet the criteria of positive limbs and the same is non-deductible under second negative limbs.
Is the activities of the taxpayer accounts for carrying on of a business and profits derived constitutes taxable from the isolated transaction under “section 25 (1) of the ITAA 1936”?
- “Section 25 (1) of the ITAA 1936”
- “Taxation ruling of TR 92/3”
- “Federal Commissioner of Taxation v Myer Emporium Ltd”
The case study of Joseph provides that he is by profession conducts the plumbing business. However, viewing retirement in his mind he decides to purchase a 20 hectare land so that he can harvest wildflowers in it for the purpose sale in the market. The preliminary arrangement of clearing the land was conducted however a decision was undertaken to not harvest the first commercial crops for the first five years. According to the “taxation ruling of TR 92/3” a guidelines has been given in understanding whether the profits derived from the isolated transactions is held as income and therefore assessable under “section 25 (1) of the ITAA 1936” (Robin, 2017).
The taxation commissioner in Myer Emporium Ltd v Federal Commissioner of Taxation (1987)” held that objective of the taxpayer which was allotted with the right of getting income as income from loans that was made in return of the lump sum (Burke, 2016). The court of law was reliant on the second strands and stated the receipt of such sum was held as income.
In the same way, the circumstances of Joseph highlights that the purchase of land by Joseph accompanied the objective of revenue making. The land purchased by Joseph should be held as capital asset and the income derived from harvest of wildflower is regarded as the objective of profit making. Joseph entered into the transaction during the due course of his business or profession. As per the the purpose of the taxpayer is not regarded as the subjective intention (Schmalbeck et al., 2015). Rather it is the objective of the taxpayer which is ascertained from the purpose of taking into the account the facts and situation surrounding the case.
Evidently in the situation of Joseph it is not necessary that the intention of deriving profit was sole intent. The situation of Joseph suggest that the profit deriving object was the single purpose. Cultivating the wildflower is regarded as the significant purpose in assuring that the venture yields profits (Simmons et al., 2017). Purchasing the land by Joseph and starting activities of cultivation puts forward the intent of profit making despite a five year time remains in harvesting the first commercial crops. The sale of wildflowers from the isolated transactions results in income which is assessable under “section 25 (1) of the ITAA 1936”.
Conclusion
The situation can be concluded by stating that the purchase of land is held as the capital asset for Joseph which held the object of profit deriving. The income that would be generated from the sale of wildflowers is held as earnings which is assessable under “section 25 (1) of the ITAA 1936”.
References
Barkoczy, S. (2016). Foundations of taxation law 2016. OUP Catalogue.
Basak, S. (2016). Equalization Levy: A New Perspective of E-Commerce Taxation. Intertax, 44(11), 845-852.
Blakelock, S., & King, P. (2017). Taxation law: The advance of ATO data matching. Proctor, The, 37(6), 18.
Burke, K. (2016). Federal income taxation of partners and partnerships in a nutshell. West Academic.
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.
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.
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.
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., Barkoczy, S., Murphy, S., Evans, C., & Pinto, D. (2016). Australian Taxation Law 2016. OUP Catalogue.
Order an Essay Now & Get These Features For Free:
Turnitin Report
Formatting
Title Page
Citation
Outline
