Key Principles of Australian Taxation Law

A receipts that a taxpayer receives from the employment and from giving any personal services is subjected to taxation on income for the employee. As defined in “sec 6-5, ITA Act 1997” ordinary income refers income on the bass of ordinary concepts. The commissioner in “CT v Scoot (1935)” held that interpretation of income must be made on the basis of the ordinary concepts (Barkoczy 2014). A nexus of connection with the receipts of the taxpayers from the personal services is treated as ordinary income. Citing “CT v Scoot (1935)” the gross cash salary received by Jane is a taxable income under “sec 6-5, ITA Act 1997” because the receipts has the nexus with the Jane’s employment.  

Unanticipated or voluntary payments that is received by the taxpayer as the incidence of employment is regarded as ordinary income. Similarly, in “Laidler v Perry (1965)” Christmas bonus given to the employees was treated as income (Grange, Jover-Ledesma and Maydew 2014). The performance bonus constitutes an income for Jane since it results from the incidence of employment. As the bonus is declared and received after the end of income year of 30^th June 2018, it is not included for assessment purpose.

Conventional clothing is non-deductible under “sec 8-1, ITAA 1997”since the outgoing are not incurred in gaining taxable income and it is held as private or domestic expenses. In “Mansfield v FCT (1996)” outlays on ordinary clothing apparels was not allowed for deduction irrespective whether it is necessary to maintain a property look at work (Jover-Ledesma 2014). The expenses on jewellery and formal office dress by Jane is not allowed for deduction under “sec 8-1, ITAA 1997”.

In “Moore v Griffiths (1972)” simple winnings from prize was not held as income. However, the prize winnings may be an income given the receipts holds connection with the income producing activities of the taxpayer. In “FCT v Kelly (1980)”prize for best football was held as income for the reason that it was related to taxpayer’s skill and employment (Krever 2013). The receipt of cash $5,000 for best financial controller in Australia is held as income for Jane because it is related to her employment.

A non-cash benefits that is having nexus with the personal service given it is non-convertible to cash then it is not an ordinary income. Similarly in “FC of T v Cook and Sherden, 80 ATC 4140” prize winnings of free overseas trips was not held as income since it cannot be converted to cash (Morgan, Mortimer and Pinto 2013). The HP computer received by Jane is not an ordinary income since it is not convertible to cash.

Taxation of Fringe Benefits

Denoting the explanation in “section 23L ITAA 1936”, when the employer gives a fringe benefit to employees then the benefit is not taxable as income for employees. The membership fees of Jane was paid by Milton Hotels Ltd, therefore under “section 23L ITAA 1936”, it is not an income.

The description of ATO explains that a deduction is allowed to taxpayers up to the business portion of expenses on attending business conferences, seminars and workshops associated to work. Any private portion of such expenses is non-deductible. The registration fees, accommodation and air tickets only for Jane’s part is tax deductible here. While the air fares for husband and visiting places of historical importance is non-deductible for the reason that it is private outgoings.

The statutory standing of “section 25-100” allows deduction for travelling directly between two places of work where a person is involved in generating income. As held in “FCT v Wiener (1978)” the commissioner allowed deduction for traveling between schools because the employment was itinerant in nature (Sadiq et al. 2014). Jane can claim deduction under “section 25-100” for travelling between Milton Hotels and her taxation practice business since she carries income producing activities in both the places.

“Subsection 6-5(4), ITAA 1997” defines receipts basis as the method when the income that is derived is received either actually or constructively. As held in “FCT v Dunn (1989)” the receipts or cash basis is appropriate for business and investment income (Woellner 2013). With reference to “subsection 6-5(4), ITAA 1997”receipts methods is followed to provide the true reflex of Jane business and rental property income.

The dividends and franking credits related to dividends received by Jane constitutes statutory income under “section 44 (1), ITAA 1936” and “section 207-20(1), ITAA 1997”. However, the franking credits has been claimed as tax offset. Citing “FCT v McNeil” the capital gains of $2,500 made from the sale of shares by Jane is ordinary income. The donation that is made by Jane to Cancer Council Australia and Sydney University is an allowable deduction under “section 30-15 (2), subdivision 30c, ITAA 1997”. The total taxable income and tax payable by Jane is computed below.

The case facts obtained from “FC of T v Cook and Sherden, 80 ATC 4140” explains that the taxpayers here were husband and wife under partnership of separately distributing the soft drinks to each door of customers based on the contract of franchise that produces soft drinks. The producer of soft drink also sponsored the scheme of incentives to provide their distributors with the overseas holiday as prize winnings (Morgan, Mortimer and Pinto 2013). The trips sponsored by the producers was completely non-transferable and cannot be converted into cash. If the winners opt out to take trips then they were not given any other trips. The taxpayer here won the free overseas trips. Value equivalent to the price of trips was treated by the commissioner of taxation as the taxable income for the taxpayers. A unanimous decision of the court it was held that no part of the value of trips was taxable.  

Taxation of Income from Employment and Personal Services

As the support of assessment the argument was that the free overseas trip value was taxable based on the “section 25 (1), ITA Act” in the form of income under the ordinary meaning (Grange, Jover-Ledesma and Maydew 2014). But an alternative contention was that the benefits as free holiday was provided and received just because taxpayer rendered service to manufacturers and the “section 26 (2)” functioned to consider the value of overseas holiday as the taxable income.

Referring to “section 25 (1)” the federal court of law held the gratuitous benefits of kind which is not convertible in cash or any other type of property cannot be declared as income according to the ordinary meaning. The opinion of court ruled that benefits of such kind is only taxable if the same is received in the form of money or converted into the worth of money. The federal court also held that it was irrelevant that the taxpayers were able to save the outgoings which may have occurred given the taxpayers have themselves paid for the holidays.

In response to above reasoning, the federal court through example of “Abbott v Philbin (1961)” conversed the decisions of purchase of shares. Even though the options to was not given, the right undertaken by taxpayer for calling of shares was regarded as having money’s worth since it can be used as the means of security for borrowing money (Barkoczy 2014). Referring to “section 26 (e)”, the federal court decision included that no services were rendered by the taxpayers to manufactures. Based on this facts the benefits received here by taxpayers was not an income and hence cannot be converted into money.  

The case of “FCT v Cooke and Sherden, (1980)” is considered to be relevant today because it gave rise to “section 21A” where the business benefits of non-cash types which cannot be turned into cash would be treated as if they can be converted to cash. A similar decision was followed in the case of “Payne v FCT 96 ATC 4407” where the frequent flyer points was not held as income since they were not the money and non-converted to cash (Kenny 2013). The flyer points was the subject of cancellation if it was sold off.

References:

Barkoczy, S. 2014. Foundations of taxation law.

Grange, J., Jover-Ledesma, G. and Maydew, G. 2014. principles of business taxation.

Jover-Ledesma, G. 2014. Principles of business taxation: Cch Incorporated.

Kenny, P. 2013. Australian tax. Chatswood, N.S.W.: LexisNexis Butterworths.

Krever, R. 2013. Australian taxation law cases. Pyrmont, N.S.W.: Thomson Reuters.

Morgan, A., Mortimer, C. and Pinto, D. 2013. A practical introduction to Australian taxation law. North Ryde [N.S.W.]: CCH Australia.

Sadiq, K., Coleman, C., Hanegbi, R., Jogarajan, S., Krever, R., Obst, W. and Ting, A. 2014. Principles of taxation law.

Woellner, R. 2013. Australian taxation law 2012. North Ryde [N.S.W.]: CCH Australia.