Week 2 Tutorial Solution.
Week 2 Tutorial Solution
Question 1
During the current tax year Erin received the following amounts:
| Salary and wages income of $98,000. | Ordinary income from personal exertion: assessable under s 6-5 |
$98,000 |
| A car allowance of $1,000 from her employer. |
Ordinary income from personal exertion: assessable under s 6-5 |
$1,000 |
| $4,200 interest from a bank term deposit of $50,000. |
Ordinary income from property: assessable under s 6-5 |
4,200 |
| $500 per week for 50 weeks of the year from a rental property she owns. |
Ordinary income from property assessable under s 6-5 |
25,000 |
| Winnings of $10,000 on the poker machines. |
Windfall gain: not assessable (Evans v FCT) |
|
| $500 from selling eggs that her chickens laid to friends. |
Income from a hobby: not ordinary income and not assessable (Ferguson) |
|
| A holiday bonus of $1,000 from her employer. |
Ordinary income from personal exertion: assessable under s 6-5 |
1,000 |
| A watch worth $200 from a happy client. |
Unlikely to be income (Scott’s case). |
|
| Ordinary income | $129,200 |
Question 2
Consider the following situations and discuss whether or not they are income in ordinary
concepts:
| A cash prize for being the best student in income tax law received by a student who also receives a Youth Allowance from the government. |
Not ordinary income: no connection with a business or employment (Stone’s case) |
| A gratuity (not being superannuation) received by a widow from her husband’s former employer in recognition of her husband’s services. |
Not ordinary income, does not appear to have the requisite connection with business or employment |
| A bonus received by an employee for a suggestion adopted by the management. |
Connection with employment: assessable as ordinary income from personal exertion under s 6-5 |
Question 3
On 18 March 2020, Jane sustained a serious injury at work. On 1 June 2020 her employer
paid her the amount of $20,000 for the personal injury and suffering that she endured. This
payment consisted of the following components:
• A workers’ compensation payment for 8 weeks of lost income ($10,000)
• Damages awarded by a court for a personal injury claim ($10,000)
Answer:
Compensation payments take on the character of the thing that they are replacing. In other
words, if you replace an assessable amount (e.g. wages or trading stock) the amount that
replaces these items will also be assessable (since wages and proceeds from the sale of
trading stock are assessable income).
Compensation for personal injury or for pain and suffering are capital items and not
assessable.
Question 4
Indicate whether the following statement is true or false and include a brief explanation in
your answer:
Bar attendants must keep a tally of the tips they receive at work and declare them as
assessable income in their income tax returns.
Answer: True. The tips received by an employee bar attendant are a type of
ordinary income and are assessable under s 6-5 ITAA97. The tips have the
requisite nexus with the income producing activity.
Question 5
Indicate whether the following statement is true or false and include a brief explanation in
your answer:
Mutual receipts derived by a club are a type of assessable income.
Answer: False. Mutual receipts are not assessable income. A person cannot pay
‘income’ to themselves. Royal Automobile Club of Victoria v FCT [1974].
