Advise Bridget regarding the income tax implications to her, arising from the above facts in relation to the 2016/17 income year. In your answer, make sure you: (1) apply the HIRAC methodology and refer to any relevant cases, legislative provisions, and principles of tax law; and (2) show your calculation of Bridget’s taxable income for the 2016/17 income year, fully explained by reference to any relevant legislative provisions, and principles of tax law.
The current subject determines whether the income and expenses reported by taxpayer in the income year would be considered for tax assessment and tax deductions under “section 6-5 and 8-1 of the ITAA 1997”.
Presently the issue revolves with the tax assessment of Bridget who has reported income from personal exertion through salaries and rent. The issue also circulates around deductions originating from the expenses occurred by Bridget under “section 8-1 of ITAA 1997”.
Income generated from the employment income are regarded as income from personal exertion, which constitute taxable earnings under “section 6-5 of the ITAA 1997”[1]. Income from wages and salaries, superannuation, allowances and gratitude received by an employee for rendering services would constitute an assessable income. The court of law stated in “Calvert v Wainwright (1937)” that receipts of income must possess appropriate connection with the taxpayer’s revenue generating capacity.
Rent is regarded as the periodic or regular payment that is paid to the property owner relating to the use of property or land. As held in the case of “Federal Commissioner of Taxation v Dixon (1952)” amount received will be treated as assessable based on assumption that the sum of money is payable periodically[2]. However, expenses related to deriving of income is allowed for deductions under “section 8-1 of the ITAA 1997”.
According to “section, 6-5 winning from the prizes will not be taxable income in respect of ordinary and statutory sense[3]. The primary reason for not taking prize winning as an income since it is a windfall gain.
An important characteristics related to earnings is the state of affairs when the income is generated by an individual taxpayer. Additionally, amount that is generated by the individual taxpayer from the prizes is assessable income given that the sum that is derived by taxpayer should be having association with the income earning activities. The court stated in “FCT v Stone 2005” where police officer generated income from the salary income and endorsement[4]. The police officer used the prize money in performing the occupations of athlete. Consequently, amount that is received will be considered assessable because it has sufficient connection with the employment related activities.
Importantly, one of the vital aspects of transactions for being considered as income, it should arise in situation when the person derives the earnings[5]. Winning of prize money is a windfall gain and they are not included for assessment since it is not an income. Winning from prize money is held as income when the taxpayer is having relation with the income earning capacity. The judgement in “Moore v Griffiths (1972)” stated that mere winning from prize is not regarded as income.
Money that is received by a person for surrendering the rights does not constitute as earnings. This is because the amount that is derived by the individual taxpayer is for complying with the contract of non-performing anything and the amount received for it cannot be claimed as taxable income. As held in “Pritchard v Arundale (1972)” shares paid to the accountant for leaving the personal practice and working for the firm for a period of six months does not constitute an income.
Accordingly, the “taxation ruling TR 98/9” provides that where an individual incurs self-education expenses for improving the employment skills or revenue generation capacity and simultaneously being employed in an employment will be allowed for deductions. As held in the case of “FCT v Studdert (1991)” where the court allowed deductions to the flight engineer relating to the cost incurred in undertaking the flight lesson as this would help in improving the performance in his present job and increasing the prospect of promotion[6].
“Section 8-1” is associated with the deductions relating to work-related clothing. As held in “Mansfield v FCT (1996)” the federal court permitted the flight attendant to claim the permissible deductions relating to the cost of protective clothing since they were necessary in discharge of their employment duties[7].
An individual taxpayer is allowed to put forward the claim of allowable deductions relating to the expense of travel if the expense is related to the taxpayer’s employment place. Similarly, the court denied allowable deductions in “FCT v Payne (2001)” for the cost related to travelling between his place work and home. This is because both were unrelated to work and not deductible under “section 8-1”.
Evidences obtained from the study of Bridget suggest that earnings from salaries generated through employment both from full and part time work will be treated as income from personal assertion. Citing the example of “calvert v wainwright (1937)” revenue from personal exertion is an assessable income under “s6-5 of the act”[8]. Additionally it is noticed that Bridget employer often pays the taxi fare for Bridget as she is noticed to work late in the office. Bridget employer reimburses the amount of taxi fare incurred and consequently the amount received is an exempted fringe benefit under the “FBTA Act 1986”.
Bridget generated income from rent and the same will be treated as assessable income under “section 6-5 of the ITAA 1997”. However, she incurs a rental expense in deriving the income. Therefore, Bridget incurred the rental expenses at the time when the property was let out and the same can be claimed as allowable deductions under “s8-1 of the ITAA 1997”.
Instances suggest that Bridget won a cash prize of $3000. Winning from the cash prizes is not regarded as income since it is a windfall gain. Referring to the example of “Moore v Griffiths (1972)” mere winning from prize by Bridget is not regarded as income and is not included in the assessable income[9].
Bridget received $30,000 as appearance on television cooking show and was provided with an equipment of $10,000. Therefore, the amount of $30,000 will be held as income and will be assessable under section 6-5. On the second instances, Bridget was paid with $20,000 based on the condition that she will not appear in identical television cooking show for two years. Referring to the example of in “Pritchard v Arundale (1972)” payment received by Bridget is for surrounding the right of not appearing on identical cooking television program and the same does not constitute income in nature. Therefore, receipt of $20,000 will not be taxable under “s6-5 of the ITAA 1997”.
Occurrences from study of Bridget suggest that she incurred a self-education expenditure with the hope of enhancing her income earning activities and gaining promotion. The self-education expenses was occurred when Bridget was employed. Therefore, referring to “FCT v Studdert (1991)” Bridget will be able to claim allowable deductions since the expenses were occurred in improving her earning capacity and advancement in skill[10].
In the later instances, Bridget was rewarded with cash prize for being the best accountant. The receipt of cash prize by Bridget was associated with her profession and income earning capacity. In respect to the reference of “FCT v Stone 2005”, the amount received by Bridge is an income since the award is considered incidental to her employment[11].
Additionally, Bridget occurred expenditure related to the contemporary suits with the hope of looking more qualified. According to the verdict of commissioner in “Mansfield v FCT (1996)”, an individual taxpayer is only allowed to claim allowable deductions for occupational specific clothing. The expenses incurred by Bridget on contemporary is not a compulsory clothing and she would be disallowed from claiming permissible deductions in this respect.
A tabular representation of assessable income and deductions with total tax payable is stated below;
Bridget bought forward the instances of airfares and accommodations for attending a job interview in Melbourne. According to the ATO, an individual taxpayer shall be allowed to claim deductions for travelling expenses if the taxpayer is travelling between two places of work with none of the places being the taxpayer home. Referring to the example of “FCT v Payne (2001)”, Bridget will not be allowed to claim allowable deductions on airfares and accommodations since it is not related to her income generating activities[12].
Conclusion:
On conclusive note, income from the personal exertion derived by Bridget will be treated as the assessable income. While the expense that are associated with the income earning capacity of Bridget will be considered allowable deductions under section 8-1 of the act.
Reference List:
Blackstone, William et al, Commentaries On The Laws Of England (J.B. Lippincott, 2013)
Blazek, Jody and Amanda Adams, Tax Planning And Compliance For Tax-Exempt Organizations: (2014)
Coleman, Cynthia and Kerrie Sadiq, Principles Of Taxation Law 2013
Cortis, Natasha, and Christine Eastman. “Salary sacrificing in Australia: are patterns of uptake and benefit different in the not?for?profit sector?.” Asia Pacific Journal of Human Resources 53.3 (2015): 311-330.
Grange, Janet, Geralyn A Jover-Ledesma and Gary L Maydew, 2014 Principles Of Business Taxation
Kavelaars, P and J Korving, Tax Case Law Of The Court Of Justice Of The European Union. Edition 2014. Direct Taxes, Social Security Law, Procedural Law, Pending Cases (SDU, 2014)
Kenny, Paul, Australian Tax 2013 (LexisNexis Butterworths, 2013)
Krever, Richard E, Australian Taxation Law Cases 2013 (Thomson Reuters, 2013)
Morgan, Annette, Colleen Mortimer and Dale Pinto, A Practical Introduction To Australian Taxation Law (CCH Australia, 2013)
Shakow, David J. “A Wealth Tax: Taxing the Estates of the Living.” BCL Rev. 57 (2016): 947.
Woellner, R. H et al, Australian Taxation Law 2014
Young, Ernst &, Ernst & Young Tax Guide 2014 (Wiley, 2013)
Shakow, David J. “A Wealth Tax: Taxing the Estates of the Living.” BCL Rev. 57. 2016: 947
Blackstone, William et al, Commentaries On The Laws Of England J.B. Lippincott, 2013
Blazek, Jody and Amanda Adams, Tax Planning And Compliance For Tax-Exempt Organizations: 2014
Coleman, Cynthia and Kerrie Sadiq, Principles Of Taxation Law 2013
Grange, Janet, Geralyn A Jover-Ledesma and Gary L Maydew, 2014 Principles Of Business Taxation
Kavelaars, P and J Korving, Tax Case Law Of The Court Of Justice Of The European Union. Edition 2014. Direct Taxes, Social Security Law, Procedural Law, Pending Cases (SDU, 2014)
Kenny, Paul, Australian Tax 2013 (LexisNexis Butterworths, 2013)
Krever, Richard E, Australian Taxation Law Cases 2013 (Thomson Reuters, 2013)
Morgan, Annette, Colleen Mortimer and Dale Pinto, A Practical Introduction To Australian Taxation Law (CCH Australia, 2013
Cortis, Natasha, and Christine Eastman. “Salary sacrificing in Australia: are patterns of uptake and benefit different in the not?for?profit sector?.” Asia Pacific Journal of Human Resources 53.3 (2015): 311-33
Young, Ernst &, Ernst & Young Tax Guide 2014 (Wiley, 2013
Woellner, R. H et al, Australian Taxation Law 201
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