Business Law

Question 1

(1 ) Issue:

whether $250,000 payment from the insurer on 30 September 2012 is assessable income or not under relevant law and case?

Fact: The client is an Australian resident

The VAI on behalf of him to sign the contract on the license insurance

His air transport license was cancelled due to medical reasons.

He had acquire the 250,000 payment from the insurer

Relevant law:

S6-1(1) ITAA97 Assessable Income consists of Ordinary income and Statutory Income

s6-5 ITAA97Your assessable income includes income according to ordinary concept which is called ordinary income.

S15-30 ITAA97 Your assessable income includes an amount you receive by way of insurance or indemnity for the loss of an amount (the lost amount ) if:

(a)  the lost amount would have been included in your assessable income; and

(b)  the amount you receive is not assessable as ordinary income under section 6-5.

Section 10-5 ITAA97 contains a list of the specific provisions about assessable income which are belong to statutory income.

Application of Law:

According to the case, the main objective of the contract is that, if a pilot’s air transport licence was cancelled due to medical reasons,the pilots employed by VAI will gain a lump sum capital benefit and the $250,000 is the lump sum capital benefit for the client to enable him to navigate the difficult financial times. Hence, the $250,000 is not the compensation of the loss of income under s6-5 and it should not treated as ordinary income.

Referring to section 10-5, insurance is a kind of assessable income. Compensation received by ways of insurance or indemnity which is not assessable income may still be assessable income under section 15-30. The $250,000 is a kind of loss of licence insurance provided by VAI with a lump sum capital benefit, it is a compensation by ways of insurance, therefore, it is a statutory income.

Conclusion: 250,000 is a kind of statutory income and it is...