When the taxpayer receives any receipts through the occupation or from any rendering of personal services then the income will be taxable for the employee. As noted in “sec 6-5, ITA Act 1997” ordinary income is better understood on the basis of ordinary concepts. The taxation commissioner decision in “CT v Scott (1935)” stated that income must be interpreted in accordance with the ordinary conceptions. When a taxpayer has any nexus with the receipts of personal services then, sum received is held as ordinary income. Referring the decision made in “CT v Scott (1935)” receipt of cash salary by Jane is an ordinary income which is taxable under “sec 6-5, ITA Act 1997” since the gross salary has sufficient nexus with employment of Jane.
Unexpected or voluntary payments which is received by a person from the employment incidence then such receipts is held as ordinary income. As held in the case of “Laidler v Perry (1965)” receipt of Christmas bonus by the employees was held as income. A performance is an ordinary income within the ordinary concept of “sec 6-5, ITA Act 1997” because it is an outcome from the incidence of employment. The performance was however declared and paid on 5th July. In other words the performance was received following the end of income year of 30th June 2018 therefore it is not included for taxation purpose.
Under “sec 8-1, ITAA 1997” expenses on ordinary articles of clothing and conventional clothing is not allowed for deduction because they are private or domestic in nature. The decision in “Mansfield v FCT (1996)” held that the expenses occurred on ordinary articles of clothing was non-deductible notwithstanding whether the expense were essential in maintaining a look in a job or profession. In the current situation of Jane the outgoings occurred on formal office dress and jewellery is a non-deductible under the positive limbs of “sec 8-1, ITAA 1997”.
As held in “Moore v Griffiths (1972)” normal prize winnings by the taxpayers are not considered as income. But it should be noted that the prize winning will be held as income if the receipts is holding sufficient relation with the activities of the taxpayer. The decision of federal court in “FCT v Kelly (1980)” held that the receipt of prize for being the fairest and best footballer was has treated as income because the receipts was related to the skills and employment of the taxpayer in which it is current employed. The cash award received by Jane by ANZ for the best financial controller is an income because the receipt is related to her skills and employment in which she is current employed.
A non-cash benefits which is received by the taxpayer from the personal service and the same cannot be converted into cash then it will not be treated as ordinary income. The decision made in the case of “FC of T v Cook and Sherden, 80 ATC 4140” held that free overseas trip as prize winning is not held as income because it was non-convertible to cash. As the part of prize winnings Jane also received the HP computer. The computer is a non-cash benefit which cannot be converted into cash therefore it is not an income.
As given under “section 23L ITAA 1936”, when any fringe benefit is received by the employee from the employer then the benefits does not amount to taxable income for the employees. The employer of Jane here pays the membership fees. Citing “section 23L ITAA 1936”, the membership fees is the non-taxable fringe benefit and hence cannot be treated as income.
The Australian Taxation Office has stated that a taxpayer is permitted to claim deduction for the expenditure that is incurred in attending the business conferences, seminars and workshops that is related to work. Whereas the taxpayers are not allowed to claim an allowable deduction for the expenditure that are occurred for private purpose. The expenses relating to registration fees, accommodations and air fare on her part is allowed for income tax deduction. Whereas no deduction is allowed for the husband’s air fare and expenses incurred in places of historical importance as they are private in nature.
According to the statutory position of “section 25-100” a deduction is allowed to the taxpayers when the travelling is made in the course of work between the two places where the income producing activities are carried on by the taxpayers. The federal court in the case of “FCT v Wiener (1978)” permitted the taxpayer to claim deduction relating to travelling expenditure between two schools since the employment of the taxpayer was itinerant in nature. As evident in the current situation of Jane, she is allowed to claim an allowable deduction under “section 25-100” for the cost of travelling between her places of employment to her place of business places where the income producing activities are carried on by Jane.
According to the “Subsection 6-5(4), ITAA 1997” receipts method or cash basis of accounting includes when the income which is derived by the taxpayers is received either constructively or actually. The court in “FCT v Dunn (1989)” held that cash method of accounting helps in providing correct reflex of income for business and investment income. In the current situation of Jane, receipt method of accounting under “subsection 6-5(4), ITAA 1997” is followed to provide the correct reflex of her business and rental receipts. While the expenses occurred for business and rental investment has been allowed for deductions under “sec 8-1, ITAA 1997”.
During the year Jane also received dividends from CBA and BHP shares. The dividends along with the franking credits attached are included for assessment as statutory income under “section 44 (1), ITAA 1936” and “section 207-20(1), ITAA 1997” respectively. The franking credits can be claimed as tax offset by Jane. She also made capital gains from the disposal of shares. Quoting the decision in “FCT v McNeil” the capital gains made by Jane is included as ordinary income for assessment purpose. Jane made donation to the Cancer Council Australia and Sydney University. The donations made by her is allowed for deduction under “section 30-15 (2), subdivision 30c, ITAA 1997”. The total amount of taxable income and income tax payable by Jane is calculated below;
The case facts of “FCT v Cooke and Sherden (1980) ATC 4140” states that the taxpayers had received a benefit of free holidays in the form of sales incentives by the producer of soft drink. The case facts obtained states that the taxpayers were carrying on the retail business of soft drink delivery. The value of free holiday that was received by the taxpayer cannot be converted in cash since the travel was non-transferable. The federal court in its decision held that the benefit received by the taxpayers cannot be treated as income because it cannot be converted into money or money’s worth. The court also held that if the taxpayers receives any benefit that cannot be converted into the pecuniary account then no income is received within the term of ordinary concepts.
To support the taxation, an argument was formed that the value of free trip was chargeable under “section 25 (1), ITA Act” as income based on ordinary concepts. However, an alternative contention reached stated that the benefit was given to taxpayers for rendering services to the soft drink producer and “section 26 (2)” operated to treat the overseas holiday as the chargeable income.
By citing “section 25 (1)” the decision of federal court included that the benefits that are gratuitous in nature and cannot be turned into cash or any other form of property was not held as income based on the ordinary concepts. The court in its opinion held that the benefit of this will be only taxable if it is received as money or can be turned into money.
With respect to above thought an example of “Abbott v Philbin (1961)” was considered by federal court where even though the option was not granted but the right for calling of shares by taxpayer was held as having the worth of money because it can be used for borrowing money. Citing “section 26 (e)”, no services was given by taxpayers to manufacturer and the benefits received was not an income.
“FCT v Cooke and Sherden, (1980)” is yet considered as relevant case in the current world because it led to the adaption of “section 21A” where non-business benefits is held as income derived by taxpayer and will be treated as if it can be converted to cash. Similar decision was held in “Payne v FCT 96 ATC 4407” where frequent flyer points was not treated for taxation since it was not convertible to money and were subject to cancellation if it sold.
References:
Barkoczy, Stephen. “Foundations of taxation law 2016.” OUP Catalogue (2016).
Blakelock, Sarah, and Peter King. “Taxation law: The advance of ATO data matching.” Proctor, The 37.6 (2017): 18.
Braithwaite, Valerie, and Monika Reinhart. “The Taxpayers’ Charter: Does the Australian Tax Office comply and who benefits?.” (2019).
Burton, Mark. “A Review of Judicial References to the Dictum of Jordan CJ, Expressed in Scott v. Commissioner of Taxation, in Elaborating the Meaning of Income for the Purposes of the Australian Income Tax.” J. Austl. Tax’n 19 (2017): 50.
Grange, Janet, Geralyn A Jover-Ledesma and Gary L Maydew, 2014 Principles Of Business Taxation
James, Kieran. “The Australian Taxation Office perspective on work-related travel expense deductions for academics.” International Journal of Critical Accounting 8.5-6 (2016): 345-362.
Jover-Ledesma, Geralyn, Principles Of Business Taxation 2015 (Cch Incorporated, 2014)
Kenny, Paul, Australian Tax 2013 (LexisNexis Butterworths, 2013)
Krever, Richard E, Australian Taxation Law Cases 2013 (Thomson Reuters, 2013)
Sadiq, Kerrie. “Australian Tax Law Cases 2018.” (2018).
Woellner, R. H., et al. Australian Taxation Law Select: Legislation and Commentary 2016. Oxford University Press, 2016.
Woellner, Robin, et al. “Australian Taxation Law 2016.” OUP Catalogue (2016).
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