Tax Implications For Bridget’s Income

Background Information

The following problems of tax assessment is based on the determination of the incomes and expenditure that is reported during the year 2016-17.

The following case study of Bridget is linked with the understanding of the issue arising from the consequences of assessment of the earnings from salaries, income from rent, cash awards and prize winnings. Further issues accompanying the study is regarding the claim of allowable deductions for expenses reported by Bridget.

According to the “Section 6-5 of the ITAA 1997” income that is derived through the private exertion as the income from salary, wages, pension, superannuation, retiring gratuities etc. relating to the services rendered or the proceeds related to business is performed by an individual or the amount received as subsidy will be included in the taxable revenue (Santhanam 2016). Earnings derived through private exertion must be included in taxable earnings as statutory income or ordinary income. As held in “Scott v CT (1935)” receipts will be treated as income and should be determined in compliance with the ordinary concepts (Edmonds, Holle and Hartanti 2015).

Rent is regarded as payment made by an individual to another person possessions namely the building or equipment shall be accountable for tax. The judgement of court in “Adelaide Fruit and Produce Exchange Co Ltd (1932)” represents money received will be regarded as taxable pay (Kirchler and Hoelzl 2017). Expenses arising out renting the property is regarded as the permissible deductions till when the property has been let out.

As stated under “ATO ID 2002/644” winning from prizes is not assessable income under both the ordinary and statutory concepts because the winning from prizes is a windfall gain under “Section 6-5 and Section 6-10” (Saad 2014). As held in the case of “Moore v Griffiths (1972)” mere winning from the prizes is not treated as income and the same is barred from being included in the taxable income of taxpayer.    

The feature of a transaction to be treated as the earnings should be viewed in circumstances when the income is earned by the taxpayer. Consequently, income from prizes will be treated as taxable income if the amount received by the taxpayer is holding appropriate connection with the revenue generating ability of the taxpayer. As held in “FCT v Stone 2005” the court stated that Mrs Stone being a policewomen and javelin thrower derived earnings from salary and endorsement (King 2016). She carried the prize money in executing business of professional athlete therefore the money will be treated as income since it was related with her employment.   

Income Tax Implications for Bridget’s Salaries

Amount that is received by the taxpayer for limiting the rights is not regarded as the income. Amount received by the taxpayer and complying with the agreement of not doing anything is not a taxable income (Yuan 2016). As held in “Jarrold v Boustead (1964)” lump sum that is received by rugby player for giving up the amateur status does not constitute income.

The “taxation ruling of TR 98/9” expenses incurred in self-education is entirely allowed for deductions since these expense is occurred to enhance the skill of the taxpayer where the individual is currently employed (Somers and Eynaud 2015). These expenses are occurred by taxpayer for getting promotion and deriving greater income. As held in the case of “FCT v Finn (1961)” the architecture was allowed an allowable deduction for studying architecture since it was occurred in enhancing the skill for income producing activities (Peiros and Smyth 2017).

As stated in “section 8-1 of ITAA 1997” expenses occurred in compulsory clothing or professional related clothing will be allowed as deductions (Butler 2016.). The court of law stated in “FCT v Edwards (1994)” the commissioner allowed deductions to the taxpayer for additional clothing such as hats, formal evening wear since these were required in her job.

According to the “section 25-100 of the ITAA 1997” a deduction is allowable relating to expenses of travel amid the workplaces (Woellner et al. 2016). Travel expense is only allowed for deductions when these expenses has been occurred between the two places of employment with none of the places is related to taxpayers’ home. The federal court judgement in the case of “Lunney v FCT (1958)” travel between home and the taxpayers usual place of work is usually not treated as the allowable deductions.

The following case study provides that Bridget derived assessable income from the salaries derived from being employed in both part and full time work. The salary that is received by Bridget is from the personal exertion for the services that is provided as the accountant. With reference to the case of “Scott v CT (1935)” earnings generated through private exertion is taxable under “section 6-5 of the act” (Doerrenberg, Peichl and Siegloch 2017).

Observance from the circumstance of Bridget suggest that she has earned an income from rent of $30,000 and these rental income is regarded as the part of earnings which would be treated as taxable income. Additionally, evidences suggest that expenses that are directly associated with the taxpayer assessable income is allowed as deductions. The expenses occurred by Bridget when the property was rented out will be considered for deductions under “section 8-1 of the act”.

Tax Implications for Rental Income and Deductions

In the following scenario it is found that Bridget received a cash of $3000 in the form of prize. The winning from prizes of $3000 by Bridget represents a windfall gain and does not has the character of being classified as income. Citing the reference of “Moore v Griffiths (1972)” mere winning from the prizes is not treated as income and the same is barred from being included in the taxable income of Bridget (Lombard 2017). 

Evidences from the study suggest that Bridget has received a sum of $30,000 as the considerations for appearing on television cooking program along with this she also received an equipment of $10,000. The sum of considerations received forms the part of taxable income which will be taxable under “section 6-5” of the act.  

As observed Bridget has received a payment of $20,000 from the TV station with the agreement of not making an appearance on any form of identical cooking show for two years. With reference to “Jarrold v Boustead (1964)” amount that is received by the Bridget for limiting the rights for not making appearance on similar cooking show does not constitute an income and will not be assessable under “section 6-5 of the ITAA 1997” (Butler 2016).

An instance was bought up where Bridget reported a self-education expenses in order to get promotion. As the expenses is incurred by Bridget during the course of employment where she is currently engaged a deduction will be allowed to her. Citing the reference of “FCT v Finn (1961)” a deduction is permissible to Bridget in respect of “section 8-1 of the act”.

Another instances were found where Bridget was reward with cash for being the best accountant. The cash prize was related to the profession in which she is engaged and associated with the income generating activities. Citing the judgement of “FCT v Stone 2005”, income from prizes will be treated as taxable income since the amount received by the Bridget is holding appropriate connection with the revenue generating ability of the taxpayer.

Expenses were occurred by Bridget on suits which would make her look more professional. As held in “FCT v Edwards (1994)” deductions can be only allowable for expenses if it holding a relation with occupation of the taxpayer (Woellner et al. 2016). Similarly, the contemporary suit is neither compulsory uniform nor it is occupation specific therefore it will be treated as non-allowable deduction under “section 8-1 of the ITAA 1997”. 

Tax Treatment of Prize Money

An expense on airfares and accommodation is was reported by Bridget as she attended an interview related to new job in an accounting firm of Melbourne. A deduction will be considered as permissible deductions relating to the expenses on travelling between the two place of work. It is noteworthy to denote that travel expenses will be regarded as allowable expenses if the travel is directly associated with the two place of taxpayer income generating activities having no relation with taxpayer’s home (Peiros and Smyth 2017). Citing the reference of “Lunney v FCT (1958)” the taxpayer in the current context will be not be allowed for claiming an allowable deductions relating to the expenses on airfare and accommodations since it is not related to Bridget income earning activities.   

A computation of the taxable income and deductions is stated below determining the tax payable and deductions that can be claimed is stated below;

Conclusion: 

The case study can be concluded by stating that the income generated by Bridget from her personal exertion will be considered to be assessable along with the rental income derived under “section 6-5” of the act. Similarly, under “section 6-5” of the act Bridget will be able to claim an allowable deductions relating to the expenses on self-study, rental property expenses and other expenses reported as allowable deductions 

Reference List:

Butler, D., 2016. Superannuation: Transferring foreign super fund amounts to an Australian resident. Taxation in Australia, 50(8), p.481.

Doerrenberg, P., Peichl, A. and Siegloch, S., 2017. The elasticity of taxable income in the presence of deduction possibilities. Journal of Public Economics, 151, pp.41-55.

Edmonds, M., Holle, C. and Hartanti, W., 2015. Alternative assets insights: Super funds-tax impediments to going global. Taxation in Australia, 49(7), p.413.

King, A., 2016. Mid market focus: The new attribution tax regime for MITs: Part 2. Taxation in Australia, 51(1), p.12.

Kirchler, E. and Hoelzl, E., 2017. 16 Tax Behaviour. Economic Psychology, 2380, p.255.

Lombard, M., 2017. Everything producers need to know about tax: current affairs. FarmBiz, 3(2), pp.10-11.

Peiros, K. and Smyth, C., 2017. Successful succession: Tax treatment of executor’s commission. Taxation in Australia, 51(7), p.394.

Saad, N., 2014. Tax knowledge, tax complexity and tax compliance: Taxpayers’ view. Procedia-Social and Behavioral Sciences, 109, pp.1069-1075.

Santhanam, R., 2016. 51_Salaries and Income-Tax.

Somers, R. and Eynaud, A., 2015. A matter of trusts: The ATO’s proposed treatment of unpaid present entitlements: Part 1. Taxation in Australia, 50(2), p.90.

Woellner, R., Barkoczy, S., Murphy, S., Evans, C. and Pinto, D., 2016. Australian Taxation Law 2016. OUP Catalogue.

Yuan, H., 2016. Mid market focus: The sharing economy and taxation. Taxation in Australia, 51(6), p.293.

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