Ass Income.Pass.
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School
Griffith University *
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Course
2150AFE
Subject
Law
Date
Nov 24, 2024
Type
Pages
2
Uploaded by goodeven
Griffith University
Case Study 1 – 2150AFE Taxation Law
Question A
The definition of income is of fundamental importance as it not only determines an individual or entity's tax liability but also upholds fairness and equity within the Australian taxation system. In my assessment of James Lucas, I will make evaluations and analyses based on the Income Tax Assessment Act 1997 (ITAA97). Section 6-5 of the ITAA97 defines ordinary income as income derived from ordinary sources, involving income from personal exertion, income from property, and income from business. The classification of income is determined by various factors, such as the characteristics of the receipt, source, and relationship to personal exertion, property, or business activities.
The $3, 000 Gambling winnings from Blackjack, are commonly considered income from personal exertion as there is an element of personal involvement and skill required. In support of this former precedence of the case FCT v. Finn (1961), 106 CLR 60 can be referred to, where the High Court held that winnings from a lottery constituted income from personal exertion. The $160,000 wages James received from the Brisbane Roar, originated from his professional football career, this supports the definition of income from personal exertion. This is consistent with Section 6-5 of the ITAA97 and has been maintained in various tax cases involving professional athletes, an example of this can be seen from FCT v. Dixon (1952) 86 CLR 540. Payments for coaching services, such as the $1,800 from the Olympic Football Club, are recognized as income from personal exertion. This is evident in Section 6-
5 of the ITAA97, as this is derived from personal exertion within the scope of ordinary income. The $20,000 compensation received from the insurance provider of the Brisbane Roar is indirectly regarded as income from personal exertion. Section 6-5 of the ITAA97 encompasses compensation for lost income due to personal exertion, this is similarly represented in the case of FCT v. Rowe (1971) 125 CLR 137. A Reimbursement of $20 from the Brisbane Roar relating to parking fees is not classified as ordinary income. As this Is a reimbursement of an expense incurred during employment it is not a gain or benefit within itself, therefore this does not meet the criteria outlined in Sections 6-5 of the ITAA97. The contract incentive payment of $30, 000 received from the Spanish football club is a direct outcome of James's professional football career, therefore qualifying as income from personal exertion under Section 6-5 of the ITAA97. The $2,000 awarded to James for being the player of the match in a Brisbane Roar game is categorically ordinary income, as this Is directly linked to personal exertion and performance. The travel allowance of $2800 provided for games outside of Brisbane is considered ordinary income as it is closely tied to James's professional football activities, aligning with the definition in Section 6-5 of the ITAA97. The $35 interest from the bank is recognized as ordinary income from the property. This categorization is consistent with Section 6-5 of the ITAA97, which encompasses income from property. The cash payment of $15, 000 from Nike, for radio advertising is a clear example of income from personal exertion, aligning with Section 6-5 of the ITAA97. Similarly, Nike's $4,000 worth of clothing is considered ordinary income from personal exertion, following the same principles as the cash payment mentioned above. However, the $250 Rebel Sport voucher from parents of the under-8 elite team is not ordinary income. This is due to it being a gift of gratitude that is unrelated to James's income-earning activities.
Pass: Grade 4
Griffith University
From my investigation above I can conclude the items received by James Lucas can be classified as follows:
Ordinary Income (Income from Personal Exertion):
•
$3,000 winnings from playing Blackjack at the Treasury casino
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$160,000 wages from Brisbane Roar
•
$1,800 payment from Olympic Football Club for the 9-week elite program
•
$20,000 received from the income insurance provider of Brisbane Roar
•
$30,000 contract incentive payment from the Spanish football club
•
$2,000 for winning player of the match in the Brisbane Roar game
•
$2,800 travel allowance for games outside of Brisbane
•
$15,000 in cash from Nike as his sponsor
•
$4,000 worth of clothing from Nike
Ordinary Income (Income from Property):
•
$35 interest from the bank
Not Ordinary Income:
•
$20 reimbursement from Brisbane Roar for parking fee
•
$250 Rebel Sport voucher from parents of the under 8 elite team
It is clear there is a vital significance when categorizing sources of income accurately to ensure compliance with the law and transparency within the taxation system. Each classification carries diverse outcomes for tax obligations, pointing out the vital role and importance of accurate classification within the field of taxation.
Question B
Including work-related gifts in taxable income is essential for fairness and equity in the Australian tax system. It upholds Income Tax Equity by ensuring individuals are taxed on their overall economic benefits, this prevents potential tax-free non-cash benefits and ensures fairness. Secondly, it is fundamental when Preventing Tax Avoidance, as excluding such gifts could encourage individuals and employers to structure compensation as a non-cash incentive, undermining revenue collection. Thirdly, Consistency is vital as it promotes consistent management of all income types, whether it is cash it is creating a level playing field. Revenue Generation is strengthened by taxing gifts, supporting public services, and preventing revenue shortfalls. Lastly, Transparency is enhanced by including gifts in taxable income, encouraging trust in the tax system's fairness. In conclusion, incorporating work-
related gifts into taxable income is pivotal for maintaining fairness, equity, and the effectiveness of the Australian tax system by deterring tax avoidance, safeguarding consistency, increasing revenue, and enhancing transparency in taxation.
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