MLC301 Topic 2 Week 3 1 1 Essay

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Pages: 5

Topic 2 – Assessable
Income

2. Categories of Income
& Statutory Income

1. Ordinary Income

Assessable Income

4. Relationships

3. Exempt

MLC301 – Topic 2

1

A. Ordinary income: Overview
Ordinary
Income
B: Prerequisites
C: Characteristics

D: Application

Cash or
convertible to
cash

Real Gain

Regular or
periodic

Flow

E: Income from
property

F: Personal
services income

G: Business
income

Compensation

Ordinary
income

Ordinary
income

Ordinary
income

illegal
transactions

Statutory
income

Statutory
income

Statutory
income

Constructive
receipts
MLC301 – Topic 2

8

F: Income from personal services:
Statutory income
6. Sec 15-2
Allowance, gratuity, compensation etc

1.




2.
3.

Very broad – cash or non-cash
Can include gifts – eg client gifts
Does this cover normal wages? Reimbursement?

Provided to you
In respect of …. employment or service
 Smith (1987): Nexus easier to meet than s 6-5
 Payne (1996)
 Rowe (1997): Reimbursement of legal fees lacked nexus with

employment
 What about Salary Sacrifice?
MLC301 – Topic 2

32

1

F: Income from personal services:
Statutory income
7. Other statutory provisions
 Sec 15-3 – Return to work payments
 Sec 15-5 – Accrued leave transfer
payments
 Div 82 – Termination of employment
 Not covered in this unit



FBT – employer taxed, employee is not
assessable on Fringe Benefit (Topic 7)

MLC301 – Topic 2

33

G: Income from business
Ordinary income
Ordinary Income flows from business
activities
 A hobby does not produce income
 Two steps


1. Is a business carried on
2. Are receipts normal proceeds of that

business

MLC301 – Topic 2

34

G: Income from business
Ordinary income
1. Is a business carried on
 Sec 995-1 definition – little help
 Ferguson (1979): s 995-1 - inclusive definition



Business vs Hobby



Not income from personal exertion (don’t
confuse)

 Hobby is for pleasure or recreational purposes

 If income from personal exertion

– hobby not relevant

 Eg – income from sporting activities
MLC301 – Topic 2

35

2

G: Income from business
Ordinary income
1. Is a business carried on


Decided on facts of each case
 No general rule
 No single determinative factor



Ferguson (1979) - Indicia of Business:
 Whether profit motive
 Size of operation – capital etc
 Whether commercial approach used

compared to other similar business

 Planning and how organised
 Whether sustained activity
 Type of business – Eg Gambling
MLC301 – Topic 2

36

G: Income from business
Ordinary income
1. Is a business carried on: Gambling
 Chance?
 Part of business?
 Higher test : associated with another
business?
 Trautwein (1936)
 Martin (1953)
 Evans (1989)

MLC301 – Topic 2

37

G: Income from business
Ordinary income
1. Is a business carried on: Sporting
activities
 Part of business or personal exertion?
 Degree of professionalism vs recreational
 Stone (2005) – Business therefore prizes

and all receipts ordinary income

 Spriggs & Riddell (2009) – Business as a full

time sports person

○ This effected deductions that could be claimed

(Topic 4)

MLC301 – Topic 2

38

3

G: Income from business
Ordinary income
1. Is a business carried on: Other
 Investment – eg shares
 Income vs capital
 AGC (1992)



Property sales
 Income vs Capital
 St Hubert’s Island (1978)

MLC301 – Topic 2

39

G: Income from business
Ordinary income
2. Normal proceeds of the business
 Depends on nature of business
 Broad or narrow characterisation of the business
 Merv Brown (1985)
 G P International Pipecoaters (1988)



NEXUS to business activity
 Memorex (1987) – connected with core business

activity



Non-cash business benefits
 Cooke and Sherden (1980)
 Sec 21 and 21A ITAA 36 – not covered

MLC301 – Topic 2

40

G: Income from business
Ordinary income
3. Extraordinary and isolated transactions
 Extraordinary transaction of an existing
business – Myer Emporium (1987)
 Isolated transaction not connected to an
existing business – Whitfords Beach…