3. An amount must be characterised as ordinary income in the hands of the recipient. 4. Ordinary income has sufficient connection with an earning activity 5. Ordinary income is money or moneys worth (able to be converted into cash) * Even if a receipt is connected with an income producing activity, it must either be money or something that is capable of being converted into cash in order to be ordinary income. 6. Compensation for an amount which wouldve been ordinary income has the character of income (compensation receipt principle)An amt received as compensation for lost income is itself income: Carapark; Heavy Minerals; Phillip * Compensation for loss of capital asset is not income: Glenboig; Californian Oil Products; Van Den Berghs
* Week 3 Residency
* Australian resident taxed on worldwide income.
* Non resident only taxed on Australian sourced income
* 1. Common law test reside in Australia
* 2. Statutory test domicile test
* 3. Statutory test 183 day test
* 4. Statutory test Commonwealth Superannuation fund test
* Facts Tp a resident of UK. Went o/s and only came back 5 mths per yr. whilst o/s, only lived in hotels. Gave up his home and only lived in hotels when came back to UK. Did this from 1919 to 1925. In 1925, finally leased a flat in Monte Carlo. * Held: Still a resident of UK until 1925 even though he was in UK for less than 6 mths. His o/s stay was only a temporary purpose. Looked at the dictionary meaning of reside To dwell permanently or for a considerable time, to have 1s settled or usual abode, to live in or at a particular place. * Behaviour: intention of coming to aus; family and business or employment ties(Peel); maintenance and location of asset; social and living arrangement( Gregory)
* 2. Permanent place of abode
* Place of abode the physical place where a person lives (Levene, Lysaght, Hammond) Permanent Doesnt mean everlasting or forever: Applegate”ä¸çŸ¥éåœ¨å›½å¤–å¤šä¹…ï¼Œnot resident; Jenkins:çŸ¥éå‘†å¤šä¹…ï¼Œpermanent place of abode * Australian resident if satisfy any of the following (see s 6(1)): * Incorporated in Aust. * Company resident
* Carry on business in Aust and central mgt and control in Aust.”-Koitaki * Carry on business in Aust and voting power controlled by Australian resident shareholders * A company is resident if it carries on business in Aust and central mgt and control is in Aust. * Central mgt and control means decisions about broad company policy and financing policy and business strategies made at directors meetings.
* Voting Right :
* If carrying on a business in Aust and voting power is controlled by Australian resident shareholders, the company is a resident. Control of voting power more than 50% Not resident in Aust in person consider: personal exertion incomeåªé‡Œç¾åˆåŒ(more important if special skill or knowledge is required Mitchum) ï¼›Place where performance occurs (most important-Cam&Sons); Place where payment is made * METHODS OF ACCOUNTING: Cash accounting (é è‡ªå·±-Carden); Accruals basis( é åˆ«äºº”Henderson) * Week 4 income from: Provision of service; business; property; compensation principle; periodic receipts * If an amount is not ordinary income, note s 15-2 (previously s 26(e)) which may still deem it to be statutory income: Smith; First Provincial Building Society v FCT.
* Issues that often arise from income from the provision of services are: * 1. Is the pmt sufficiently connected to the services so that it is income? This question often arises in the context of gift i.e. is it a gift (and therefore not assessable income) or is it a reward for service? * 2. is the pmt convertible to cash? If its not convertible, then not ordinary income but could still be statutory income under s 15-2. * 3. is the pmt capital because it is not a reward for working but is a reward for not working (and therefore treated as a sale of a capital asset)? * Dixon ”-they were periodic, regular and expected (Already saw this last wk); Tp relied on them for living;although it is a gift, it is truly caused by employment relationship. * It was a substitute for lost wages (revisit next wk)
* Scott”Not assessable under s6-5 or statutory income under s 15-2. It is a gift Friendship ; already been adequately paid; payment was unexpected * Payne(å¤šåé£žæœºçš„å¥–åŠ±) Not ordinary income under s 6-5 because it could not be converted into cash (but note that s 15-2 may still operate even if cannot be converted into cash). * Also not assessable under s 15-2 because Qantas provided the benefit because of the contractual relationship it had with the tp (through the frequently flyer program) not because of the tps employment with KPMG. * Sale of asset- Brent è®²è¯‰å¥¹ä¸ˆå¤«çš„æ•…äº‹-ä¸æ¯assets æ²¡æœ‰copyright åªæœ‰è¢«å†™å‡ºæ¥ä»¥åŽæ‰æœ‰copyright * Higgs v Olivier: pmts received for agreeing to restrict urself, not income for that it is not a reward for service. * Dickenson A lump sum pmt for a restriction of a petrol station and its owner to 1 brand of petrol for 10 yrs is a sale price for a substantial part of its existing rights. * Income property: Income from the use of property is ordinary income.
* Income from the sale of property generally not income. Its a capital receipt. But it may in certain circumstances be income if the tp actually gives up that capital amt for an income stream. * Interest æ¯ordinary income”Lomax v Peter Dixon & Son, å¦‚æžœåˆçŽ‡å¤§äºŽç‰äºŽsecurityçš„å•†ä¸šåˆçŽ‡ï¼Œé‚£è¿™ä¸ªdiscount å’Œpremiumå°±ä¸æ¯interest rateï¼›if no interest charged ,D &P æ¯interest * Discounts and premiums are not assessable income of the investors they are not interest. Here, they are just compensation to the investors for the credit risk i.e. compensation to them for taking the risk that the money may not be repaid. * Royalty: ä½¿ç”¨æƒ ç‰ˆç¨Ž ä¸åˆç¨Ž it is arise where a person has a right to use someone elses property and the obligation to pay occurs only if the right is exercised and the pmt is proportional to the level of use, it is assessable as ordinary income under S6-5.å¾—çš„è¶Šå¤šï¼Œä»ç»™åˆ«äººçš„ä¹Ÿè¶Šå¤š *
* McCauley Amt is assessable as royalty under s 15-20 because the amt is calculated by reference to the of quantity of timber cut or removed * Intellectual property receipts from granting non-exclusive license are income than that from an exclusive license: NETHERSOLE, Rustproff; Murray v ICI ; receipts from granting exclusive license(ä¸åˆæƒ) are generally capital (because it is similar to selling a capital asset), other circumstances may indicate that it is income (e.g. if it is part of a business): Mackenzie v Arnold * A person may sell a capital asset for a lump sum payable in installments such pmts are capital not income: Foley v Fletcher * A person may sell a capital asset for an annuity such pmts are income (an amt of capital has been converted into an income stream): Egerton-Warburton * Week 5 Income from business
* Factors relevant in determining whether business is carried on: * System and organization (organized in a systematic and businesslike manner); * Profit making intention business may exist even without an intention to make profit but business often found to exist where profit making intention exists; * Size & scale of activity note that it is also possible for a business to be carried on in a small scale. * Frequency of transaction although frequency is one indication of business, a single transaction could be business especially if its of a very large scale (Whitfords Beach); * Period of ownership a quick sale of assets regularly could indicate a business of trading in these assets; * Walker å…»å±±ç¾Š æ¯ç”Ÿæ„ intention
* When it comes to gambling, the courts are less likely to see it as a business (unless you are a bookmaker or the casino) even if you spend considerable time, effort and expertise because it is predominantly based on chance and closely associated with private recreation. ”””-Evans åœ¨TAB èµŒé¬ not business * Stone”-è¿åŠ¨å‘All amounts received were ordinary income because the taxpayer was carrying on a business * Myer Emporium Although the sale of interest income is not within the ordinary course of the tps business (i.e. it is an isolated business transaction), it is still income because it was entered with a profit making purpose and the transaction is a commercial one (i.e. the tp intended to lend money to its subsidiary and then sell the interest income).
* Westfield Amts are not assessable under s 6-5. Resale of land is not part of the ordinary course of the tps business. * If it is not part of the ordinary course of the tps business, then it is necessary to show that a profit making intention exists at the time of entering into the transaction. * The tps intention at the time of the acquisition of the land was to employ it in a business and receive ordinary income. * Cooling Facts A firm of solicitors was contemplating moving offices. Lessor pd the firm $162,000 as an incentive to move into their premises. é¼åŠ±æ¬è¿›åŽ» * Q Is the amount income from carrying on a business? Tp argued that it is in the business of providing services as a solicitor not in the business of moving offices to obtain these payments. * Held: Amts are assessable under s 6-5.
* The act of moving from one premises to another are acts in the course of carrying on the tps business. * Even if it was not in the ordinary course of the tps business, it was a commercial transaction and a profit making intention exists. Therefore the amt is income. * Rolls-Royce Amts are income. The tps business is to exploit the know-how (i.e. knowledge) to manufacture the engines. When it couldnt manufacture the engines in these countries, it merely exploits that know-how by imparting it for a fee (still exploiting the know-how). * Compensation principle and periodic receipts”compensation for the loss of future income * An amt received as compensation for lost income is itself income: Carapark; Heavy Minerals; Phillip * Compensation for loss of capital asset is not income: Glenboig; Californian Oil Products; Van Den Berghs * Periodic ””income lump sum””not income