Accounting

Ordinary concept of Income

Section 6-5 (ITAA 1997): assessable income includes:

1. Amount come to (realized/derived) during year

Paragraph 4: derived when it is received in any way direct or on behalf.

2. Amount that has nexus with income producing activity

Kelly v FCT (1985)16 ATR 478: prize won not O.I.

Hayes v FCT (1956) and Scott v FCT (1966): gifts not O.I.

Evans v FCT (1989): gambling winnings not O.I.

3. Money/Money’s worth

Income Tax Ruling IT 2668: bartering transaction is A.I.

Payne v FCT (1996): reward tickets not O.I.

FCT v Cooke & Sherden 80 ATC 4140: holiday not O.I because not redeemable

Section 21A (ITAA 1936): arm’s length value of non-cash property/service benefits is A.I.

Section 23L(2) (ITAA 1936): non-cash property/service benefits < $300 not A.I

4. Mutuality principle

ATO ID 2005/98: subscriptions are not O.I.

5. Periodicity, Recurrence and Regularity

FCT v Harris, 80 ATC 4238: unsolicited lump sum not O.I.

Myer Emporium Ltd v FCT, 87 ATC 4363: lump sum received from isolated transaction is A.I.

6. Normal Proceeds of Personal Exertion, Property or Business: wages, salaries, allowances, bonuses, tips for personals; interest, dividends and rent for others.

7. Compensation receipts

Higgs v Oliver (1951), TC 899: compensation for loss, surrender or impairment is capitalized.

8. Illegal, Immoral or Ultra Vires

9. Income does not include Capital Gains

10. Income does not include Winfall Gains: lottery winnings and payments not related to service provided

Section 11-15 (ITAA 1997): Ordinary or statutory income which is exempt.

Section 52-10 (ITAA 1997): How much of a social security payment is exempt.

Section 5-25 (ITAA 1997): prevents tax being paid twice, an amount is included only once.

DERIVATION, SOURCE AND RESIDENCY

Derivation of income under Section 6-5 includes:

1. Timing concept

2. Cash vs Accrual basis: depends on types of income, not types of accounting basis...