Taxation Law: Personal Exertion Income And Fringe Benefits

Application

Section 6-1 of the Income Tax Assessment Act 1997 provides the meaning of an income which is the result of personal exertion. This income has been defined by the section as the receipt of money by a person in form of any fee, superannuation, commissions, retirement benefits, salary, wages, pension allowance or gratuities which have been provided to such person while he or she had been working for an organisation as an employee or such person has provided any form of personal service to gain the income. In addition, intersection also provides that an income which is received or may be considered as arising from personal exertion would also consist of any money which has been provided to a person in the way of a subsidy or county with respect to the business activity which they have been operating. The section additional clarifies that any money received by a person would be taken as an assessable income if such money has been received under section 393-10 of the ITAA. This assessable income is also an income from personal exertion (Barkoczy 2016). When a person is carrying out of business activity in form of a sole proprietorship or a partnership and has been provided with received in relation to the business amount so received would also be considered as an income which has a resulted from personal exertion. An income would not be considered as and income for personal exertion would include dividend, shares or rents which a person has received through a secondary business activity. The word person referred to above signifies a taxpayer (Devos and Zackrisson 2015).

In the case of Brent v Federal Commissioner of Taxation (1971) ATC 419 it had been ruled by the court that any money received by a person from selling his personal experience to a newspaper would be taken as an income from personal exertion. This sale can be in any form such as a story or photographs.

In the case of Housden (Inspector of Taxes) v. Marshall [1958] 3 All ER 639 it had been ruled by the court that a person who sold newspaper cuttings and photographs along with other documents having information to a newspaper regarding a famous personality is an income from personal exertion.

In the case of T v. Whitfords Beach Pty Ltd (1982) 150 CLR 355 the judge stated that when a person indulgence in isolated transactions it is not considered to be income. However if the isolated transaction has been entered into having the sole purpose of making profit it is considered to be an assessable income.

Statutory method of FBT

In this section provisions with respect to an income which is considered to be have been derived from personal exertion have been applied to analyse whether on the three instances where Hillary had been paid would constitute as an income resulting from personal exertion. It has been stated by the case study that the profession of Hillary is a mountaineer. She has been appointed by a newspaper to go on trekking and write about her personal experience. She did exactly the same and for this she had been provided with $10, 000 by the newspaper. Every legal right she had with respect to the trekking subsequently sold by her to the newspaper for a price of $1000. To analyse the nature of the income provisions of section 6 have to be applied. In the present scenario Hillary has been provided with $10000 as a fee for providing services to the newspaper and therefore the income under the provisions of this section would be a income from personal exertion.

She had also received money amounting to $5, 000 by selling the Manuscript she made to the library. She had also sold the photographs clicked by her which were worth $2, 000 to the same. The above discussed cases have to be applied in the scenario to analyse the nature of income and by Hillary. In the present situation it can be stated that when she had carried out the trekking she had the intention of making profit. However she did not write the book or click the photographs for the purpose of selling them. This is an isolated transaction. Therefore it would not be considered as an income from personal exertion.

The income of$10, 000 is an income from personal exertion but the other amount of $5, 000 in $2, 000 is not an income from personal exertion for Hillary.

Issue

The issue which has been identified through the facts is that whether the money received by the parents would be considered as an assessable income under the provisions of the Income Tax Assessment Act 1997.

Any income which is liable to be taxed is known as assessable income. The Australian Taxation Office steps assessable income as gratuities salary wages and others payments which arise out of services provided (Saad 2014). This income also includes any form of allowance such as travel, car and laundry. Any interest received from the bank or employment bonus or any form of rent is also considered as an accessible income (Endres and Spengel 2015).

Issue

Provisions related to money which has been obtained through an isolated transaction is dealt by taxation ruling 92/3. This ruling determines the question that whether money received from an isolated transaction would be constituted as and assessable income or not with respect to the rule under section 25-1 of the ITAA 36. Isolated transactions have been defined as those transactions which do not occur in the course of ordinary business carried out by the taxpayer.

In the case of FC of T v. The Myer Emporium Ltd (1987) 163 CLR 199  it was held by the court that the money which has been provided by a company to one of its subsidiaries in form of a loan was to be considered as an assessable income. The defendant company had forgiven the interest from the subsidiary in return of a lump sum amount. the court provided that as there was an intention on the part of the company to make profit and it sold its right to receive interest for a lump sum the income received would be considered as an accessible income (Werlauff 2016).

The same reasons have been discussed in the case of FC of T v. Whitfords Beach Pty Ltd (1982) 150 CLR 355 where the court considered an isolated transaction with had the view of making profit as an assessable income.

In the present situation a loan amount of $40, 000 has been provided by the parents to their son. The facts of the case provide that the parents did not want any interest on the loan from their son. They stated that after the period of 5 years the sun would provide them with an amount of $50, 000. Instead of 5 years the son returned the money in 2 years giving them an interest of 5 % per year. This transaction can be considered to be an isolated transaction. This is because the primary’ business of the parents was not providing money on loan. In addition the transaction was at arm’s length. Whether or not the money received by the parents is an accessible and come or not would be determined based upon the intention to make profit. In this situation and can be stated that when the parents demanded an extra payment over the loan provided giving up there right of interest they had the intention of making profit. Similar situation has been seen in the case of FC of T v. The Myer Emporium Ltd  with the courts stated that the money received in assessable income. Further the application of the case of FC of T v. Whitfords Beach Pty Ltd also signifies that isolated transaction having an intention of making profit is an assessable income. Therefore the money which has been received by the parents in a lump sum was in assessable income.

Rule

Where is no other form of tax is applicable capital gain tax is imposed. This tax is applied when there is a sale of a Capital Asset. The calculation of  CGT is done by following specific steps provided by the ITAA 97. Analysing a capital gain event is the first step of calculating CGT. Section 104-5 of the legislation provides that where there is a sale of property it includes event A1.

Section 108-5 states that a capital gain asset has to be present which must be any kind of property. Section 109-5 discusses in relation to the timing of the event. The timing of the event is that time when the property has been purchased. The calculation of capital gain is done by subtracting net proceeds with the cost base.

Under section 116-20 it has been stated that any money which has been received or is about to be received is considered as capital proceeds from the sale of the Asset. However under section 116-30 it has been stated that and actions which are at arms length include the market value of the property as capital proceeds.

The definition of cost base has been provided by section 110-25 as a cost which includes acquisition cost, cost of owning, capital expenditure and incidental cost.

Under section 114-1 it has been provided that a property purchased on 21st September 1999 before 12: 45 AM reduces the CGT by 50% or is reduced by the process of indexation. However the discount provided under this section is not applicable on companies under the provisions of section 115 10.

With respect to the capital gain tax in this situation it can be stated that the transaction has taken place at arm’s length. This is because the property has been sold to his daughter. In this situation the provisions of section 116-30 are to be applied. Through the application of the section it can be stated that the market value has to be taken into consideration of the property. The market value has been considered as $8000000.

In this case the property has been sold to a company and thus by applying section 115-10 would be done signifying that no indexation or 50% discount would be applied. The calculation are as follows

References 

Barkoczy, S., 2016. Foundations of taxation law 2016. OUP Catalogue.

Brent v Federal Commissioner of Taxation (1971) ATC 4195

Devos, K. and Zackrisson, M., 2015. Tax compliance and the public disclosure of tax information: An Australia/Norway comparison. eJournal of Tax Research, 13(1), p.108.

Endres, D. and Spengel, C. eds., 2015. International company taxation and tax planning. Alphen aanDen Rijn: Kluwer Law International.

FC of T v. The Myer Emporium Ltd (1987) 163 CLR 199  

FC of T v. Whitfords Beach Pty Ltd (1982) 150 CLR 355

Housden (Inspector of Taxes) v. Marshall [1958] 3 All ER 639

Income Tax Assessment Act 1936

Income Tax Assessment Act 1997

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

T v. Whitfords Beach Pty Ltd (1982) 150 CLR 355

Werlauff, E., 2016. Taxation of Foreign Foundations in Light of EU Law. European Company Law, 13(1), pp.7-13

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