Foundation Of Taxation Law System

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Foundation Of Taxation Law System

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Foundation Of Taxation Law System

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Question:
Discuss about the Foundation of Taxation Law System.

Answer:
Introduction:

The objective is to determine the taxable income for June based on the given information. The various cash inflows that June has received would be analysed to determine whether there would be any contribution to the assessable income or not.

Salary of $ 22,500 from Bo-tom University – This would be reflected as assessable income in line with s. 6(5) ITAA 1997 as salary would constitute ordinary income. Ordinary income is one of the sources to assessable income for the taxpayer (CCH, 2013).
Previous year salary paid this year – This would be reflected as assessable income in the previous year statement only and the same would not be considered as assessable income for the current year (Gilders et. al., 2016).
Four Tickets to the Opera- This would not be assessable income and would instead be termed as gift due to which no tax would be levied. The various conditions which make this gift are as follows (Barkoczy, 2017).
June has been actually given the tickets and hence ownership transfer is taking place.
June has not asked for the same which is apparent from the one-off and unexpected nature of the gift.
There are no reciprocal expectations in the present or future related to the given extension of ticket.
Further, the extension of tickets is an act of benefaction directed towards June.
Retainer income from CIY – With regards to assessing income, there are two methods namely the receipts method and the earnings method. For the retainer, assuming that the money paid is non-refundable, hence the receipt method is suitable for recognition of the same in line with tax ruling TR 98/1 (Sadiq et. al., 2016). Hence, the retainer income to the tune of $ 250,000 would be considered as assessable income for the year ending on June 30, 2016.
Fees revenue from CIY – Again, it needs to be determined as to which method would be found suitable for recognition of assessable income. Since the income in the given case is being derived on the basis of skills and not any capital goods, hence in line with TR 98/1, the receipt method would be found most suitable (Deutsch et. al., 2016). As a result, the total receipts in the given year would be recognised as assessable income which would stand at $2,920,000.
Compensation payment for CIY- In relation to compensation, the nature of the receipts is decided by the underlying purpose for which these are provided. In the given case, out of the total compensation of $ 400,000 about $63,000 was provided by the insurer for the loss of profit (Barkoczy, 2017). Hence, only $ 63,000 would be considered as revenue receipts and hence would contribute to assessable income while the remaining component would be capital receipts and hence non-taxable.

Hence, based on the above discussion, total assessable income for June (FY2016) = 22500 + 250000 + 2920000 + 63000 = $3,255,500

References
Barkoczy, S. (2017), Foundation of Taxation Law 2017, 9thed., North Ryde: CCH Publications
CCH (2013), Australian Master Tax Guide 2013, 51st ed., Sydney: Wolters Kluwer
Deutsch, R., Freizer, M., Fullerton, I., Hanley, P., and Snape, T. (2016), Australian tax handbook 8th ed., Pymont: Thomson Reuters,
Gilders, F., Taylor, J., Walpole, M., Burton, M. and Ciro, T. (2016), Understanding taxation law 2016, 9th ed., Sydney: LexisNexis/Butterworths.
Sadiq, K, Coleman, C, Hanegbi, R, Jogarajan, S, Krever, R, Obst, W, and Ting, A (2016) , Principles of Taxation Law 2016, 8th ed., Pymont:Thomson Reuters

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