As stated under the “section 6-1 of the ITAA 1936” income derived from the personal exertion or the income that is earned from the personal exertion represents the income that includes wages, salaries, commissions, fees, bonuses, pensions, gratuities which is received by the persons or the proceeds that is obtained by an individual for the business carried on. According to the “section 6-1 of the ITAA 1997” an individual that derives the amount from the personal exertion is held as income which is included in the taxable income as the statutory or the ordinary income (Woellner et al. 2016).
Under “section 6-5 of the ITAA 1997” taxable income comprises of the income in accordance with the ordinary concepts. Usually most of the income that comes in to the taxpayer is held as ordinary income (Mumford 2017). The commissioner in “Scott v Commissioner of Taxation (1935)” explained that receipts must be treated as income and should be determined in agreement with the ordinary income concepts.
Payments that are received for media publications may or may not be held as the taxable income. A reward relating to the provision of service is dependent facts of the particular case (Pogge and Mehta 2016). This includes that the quantum of the payment that is made to the taxpayer should be significant and should not merely be the nominal amount to just cover the cost or inconvenience of the taxpayer. The taxpayer is required to provide the service in order to receive the money.
To support the treatment of the payment as the income it can be noticed in the case of “Federal Commissioner of Taxation v Brent (1971) ATC 4195” (Jones and Rhoades-Catanach 2015). It was noticed in the case that the wife of the greatest robber of train was held by the commissioner of taxation to have obtained the taxation income when she was awarded with money of telling the story of her life to the newspaper publications.
In another example the decision that was made in the case of “Housden (Inspector of Taxes v Marshall (1958)” the taxpayer in an agreement decided to make the experiences as the Jockey available (Barkoczy 2016). This included the taxpayer’s photographs and the newspaper articles cuttings. The amount that was received constituted reward for personal service which is taxable under “section 6-5 of the ITAA 1997” as income from ordinary concepts.
Income that are derived from the sale of the autobiographies are regarded as the royalties’ income. According to the decision that was made in the case of “Hobbs v Hussy (1942) TC 153)” the taxpayer who was apparently considered as one of the notorious criminal received an amount of £1500 for the serial rights of the autobiographies that was published in the newspaper (Christie 2015). Therefore, it can be stated that amount derived constituted royalty income which was taxable under ordinary concept of “section 6-5 of the ITAA 1997”.
The case scenario that is obtained from the case study suggest that Hilary was the famous mountain climber. On being approached by the local Newspaper she agreed to write the book and the sell the interest to the newspaper company. After the services were rendered the newspaper company paid Hilary with a sum of $10,000. Citing the reference of “Scott v Commissioner of Taxation (1935)” the receipts must be treated as income and should be determined in agreement with the ordinary income concepts (Sharkey and Murray 2016). With reference to “section 6-1 of the ITAA 1997” the amount of $10,000 that was obtained from the newspaper company was an income from the personal exertion.
Additionally, the quantum of the payment that is made to Hilary was be significant. Hilary was required to provide the service in order to receive the money. To support the treatment of the payment as the income reference can be made to the case of “Federal Commissioner of Taxation v Brent (1971) ATC 4195” where the amount for narrating the story of her life to the newspaper publications (De Wispelaere and Pacolet 2015).
In later instances it was noticed that payment of $5,000 and $2,000 was received by Hilary for the selling the photographs and manuscripts would be classified as income from personal exertion as well (Lang 2014). Mentioning the reference to the court’s decision in “Housden (Inspector of Taxes v Marshall (1958)” the payment that was received would be held as ordinary income and it is taxable under “section 6-5 of the ITAA 1997” as income from ordinary concepts.
Considering an alternative decision of writing the book is undertaken by Hilary the receipts of money from the sale of boo would be classified as the royalty income. By referring to the case of “Hobbs v Hussy (1942) TC 153)” sale of books written by her would lead to autobiographies and income derived would be held as royalty income which was taxable under ordinary concept of “section 6-5 of the ITAA 1997” (Fleurbaey and Maniquet 2017).
Accordingly, in the above stated case of Hilary the income earned would be classified as the personal exertion income for the providing the personal service. The income would be classified as income under ordinary concepts and taxable under “section 6-5 of the ITAA 1997”.
Will taxpayer be held responsible for taxation purpose relating to the interest derived from the loan made to son under “section 6-5 of the ITAA 1997”?
According to the “section 6-5 of the ITAA 1997” ordinary income refers to the income that are usually derived from the ordinary courses. As stated under the “section 6-5 of the ITAA 1997” an item having the character of the income is derived when it comes home to the taxpayer (Basu 2017). The existence of the illegality, immortality or the ultra vires does not take into the consideration the derivation.
To consider the item as having the character of income it must be based on the realisable value. The court of law in “Federal Commissioner of Taxation v McNeil (2007)” stated that the nature of income should be judged in the circumstances of the derivation by the taxpayer (Fleurbaey and Maniquet 2017). In another example of “Hochsrasser v Mayes (1960)” the court stated that to possess the character of income it should have the nature of gain for the taxpayer that derives it. There cannot be any form of gain unless the taxpayer derives it beneficially.
As evident in the current situation, it was noticed that she made an interest free loan to the son for commercial house purpose. The agreed term of loan repayment was five years by the son. But it was later noticed that the loan was repaid by the son inside the span of two years and also paid the parent with the interest amount.
Referring to the explanation stated in the case of “Federal Commissioner of Taxation v McNeil (2007)” it is necessary to determine the nature of interest that is received by the parent. Citing the decision that has been made in the case of “Hochsrasser v Mayes (1960)” the interest derived from the loan by the parent was regarded as having the character of income (De Wispelaere and Pacolet 2015). The interest income that was received by the mother had the nature of gain for the taxpayer since it was derived beneficially. Therefore, the amount that was derived by the mother was regarded as income under the ordinary concepts which is taxable under “section 6-5 of the ITAA 1997”. However, the loan principle cannot be classified as having the nature of income since it was capital in nature.
The amount of interest will be considered taxable under “section 6-5 of the ITAA 1997” since it constituted gain. The amount would be held as income derived from the ordinary concepts.
Land is one of the separate CGT assets. Considering the situation of Scott, it is understood that the land was purchased by him during the year 1980. However, the land during that time was regarded as the Pre-CGT assets. Later construction was carried out on the land by Scott in 1986 to finally sale the land in the current income year. Referring to the “section 105-55 (2) of the ITAA 1997” construction that was carried out by Scott resulted the land to be classified as the post CGT assets (Lang 2014). Referring to the definition that was stated in the “section 104-10(1) of the ITAA 1997” selling the land leads to the CGT event A1. A calculation has been represented to support the statement.
Given an alternative decision is undertaken by Scott to dispose the property to the daughter then the sum that would be received is considered as capital gains;
In an alternative it is understood that if it was company rather than individual, the amount relating to the amortization and payment should be detached.
Reference List:
Barkoczy, S., 2016. Foundations of taxation law 2016. OUP Catalogue.
Basu, S., 2017. International Direct Taxation and E-Commerce: A Catalyst for Reform. NUJS L. Rev., 10, p.19.
Christie, M., 2015. Principles of Taxation Law 2015.
De Wispelaere, F. and Pacolet, J., 2015. Posting of workers: the impact of social security coordination and income taxation law on welfare states.
Fleurbaey, M. and Maniquet, F., 2017. Optimal income taxation theory and principles of fairness. Journal of Economic Literature.
Herdegen, M., 2016. Principles of international economic law. Oxford University Press.
Jones, S. and Rhoades-Catanach, S., 2015. Principles of Taxation for Business and Investment Planning. McGraw-Hill Higher Education.
Lang, M., 2014. Introduction to the law of double taxation conventions. Linde Verlag GmbH.
Mumford, A., 2017. Taxing culture: towards a theory of tax collection law. Routledge.
Pogge, T. and Mehta, K. eds., 2016. Global tax fairness. Oxford University Press.
Sharkey, N. and Murray, I., 2016. Reinventing administrative leadership in Australian taxation: beware the fine balance of social psychological and rule of law principles. Austl. Tax F., 31, p.63.
Woellner, R., Barkoczy, S., Murphy, S., Evans, C. and Pinto, D., 2016. Australian Taxation Law 2016. OUP Catalogue.
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