MLC301 Law Taxation - Assignment Solution

Answer 1

1. Harvey receives a phone from his employer for doing a great job at work. This would be considered as ordinary income as the mobile phone is locked to him and only he can use the device. The device is an unexpected payment recovered as a reward for services that Harvey provides and, therefore, is considered ordinary income as the benefit is an incident of employment.
2. Claire won $2000 in prize money by betting on horses in Melbourne Cup. This would be categorized as ordinary income as according to the Income Tax Assessment Act 1997 section 26 AJ, investment-related lottery earnings to be included in assessable income if the chance to participate in the betting, lottery, gambling or game was provided. 

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. 

Answer 3

Sam has assessable income of $5000 as she has sold 100 hats this year after restoring them. Although Sam is a doctor and she sells her used hats from the last year to purchase new one. This can be considered as a hobby. However, when she invested in setting up a small storage for old hats bought from op-shop, then she is considering to sell those hats as a part time business. Therefore, any income that she would earn by selling those restored hats, and after deducting expenses, would be considered as assessable income. The profit made after selling those hats is assessable income and although it is low, Sam is not taking this activity as a hobby only. According to Income Tax Act 1997 – s 6.5, assessable income comprises of ordinary income and according to s 6.10, it also includes statutory income or the other amounts which are not ordinary income but which are “included in your assessable income by provisions [in Tax Law] about assessable income” (Income Tax Act 1997).