Law Taxation Questions - Assignment Solution

Answer 1

1. This would
2. Claire won $2000 in prize money by betting on horses in Melbourne Cup. This would be categorized as ordinary income as

Answer 2

1. Geoff runs a business buying and selling stolen property and he made $50,000 from the sale of stolen televisions. Any income which he will earn from stolen property or products is considered as ordinary income. However, the income from stolen property or stolen products do not give the right to Geoff to earn income on it, therefore, a claim of right, rather than legal right may be sufficient for derivation of income. According to the Australia Tax Ruling 93/25 (1993), Earnings from a regular activity where the elements of a business are present are income irrespective of whether the activities are legal or illegal. This Ruling considers whether the earnings of certain illegal activities will be treated as assessable income under subsection 25(1) of the Income Tax Assessment Act 1936 (ITAA). When a taxpayer’s business has elements of  repetition, regularity, view to a profit and organisation, then the incomes from the activity have an income character.
2. Dividends received from bank are considered as the ordinary income because it is the amount of dividends which Craig received from investing in the shares. S 44 – 1 of the Income Tax Assessment Act 1936 states that the dividends that are paid to the shareholder by the company from the profits earned by it from any source are a part of assessable income of that shareholder (Income Tax Assessment Act 1936).
3. As Mark purchases some bulk office supplies for his boss and he is then paid back for this cost and $300 is transferred into his account, therefore, this unexpected or voluntary payment recovered is considered as a reward for the service he provided and known as ordinary income as the benefit is due to the employment: Laidler v Perry (1965).
4. The taxpayer receipts in Bennett v FCT (1947) are considered ordinary income. According to s 21 of the Income Assessment Act (1936), “any transaction, any consideration is paid or given otherwise than in cash, the money value of that consideration shall, for the purposes of this Act, be deemed to have been paid or given”. S 26 d of the Income Tax Assessment Act (1936) states that receipts that would not be income according to ordinary concepts but the Commissioner submits that the paragraph includes only receipts of a capital nature. All amount of the taxpayer’s receipt is not considered as ordinary income and is considered as capital in nature.