Summary of Taxation Law Part 1

Topics: Business, Insurance, Asset Pages: 15 (4894 words) Published: October 9, 2014
Lecture 2
1.0 Section 6-5 Ordinary Income
2.0 Residency
Sections
Detail
Tax on
Page
6-5 (2)
Resident Test
Worldwide Income
4
6-5 (3)
Non-Resident Test
Australia sources only
4,5
6 (1) of ITAA 1936

TR 98/17
Determining Residency Status
Four Tests:
i. The Resides Test (Common Law test)
ii. The Domicile Test (1st Statutory test)
iii. The 183 day Test (2nd Statutory test)
iv. The Superannuation Fund Test (3rd Statutory test)

IN
OUT
IN
OUT
6

7-9
10-13
14
14
3.0 Derivation of income (TIMING – WHEN??)
Cash Basis vs Accrual Basis
Cash Basis
Accrual Basis
Recognises income when a taxpayer actually RECEIVES CASH.
Recognises income when a taxpayer ACCRUES THE RIGHT TO RECEIVE INCOME. Normally when the goods are delivered / the services have been performed & the invoice has been issued to the client.
Type of income
Derivation Rule
Case Law
Page
Income from Personal Exertion
Cash
Brent v FCT 71 ATC 4195
17
Trading (Business) Income
Accrual
Henderson v FCT (1970) 119 CLR 612
18
Revenue Received in Advance
Refundable = Accrual ;

Non-Refundable = Cash
Arthur Murray (NSW) Pty Ltd v FCT (1965) 114 CLR 314
TR 95/7
19-20
Income from Professional Practices (TR 98/1)
Size of Pro. Practice
Number of employees
Number of clients
Degree of pursues unpaid invoices
Involve in acquisition & sale of trading stock?
Small = Cash ;

Large = Accrual
C of T (SA) v Executor Trustee and Agency Co of South Australia (Carden's case) (1938) 63 CLR 108 FCT v Firstenberg 76 ATC 4141

Henderson v FCT (1970) 119 CLR 612
Barratt v FCT (1992) 92 ATC 4275
20-22
Income from Property
(a) Rent
(b) Interest
(c) Dividends

Cash
Cr into bank a/c = Cash
Cash

*Carrying biz of money lending = accrual
Section 44(1) of ITAA (1936)
22
#Cheques = derived the income when the cheque is PHYSICALLY RECEIVED, NOT the date of the cheque itself or even the date the cheque is banked.

4.0 Source (WHERE??)
Type of Income
Source Rule
Case Law
Income from Personal Services
Places where work performed

Places where the contract was entered into
-French v FCT (1957) 98 CLR 398
-C of T (NSW) v Cam & Sons Ltd (1936) 36 SR (NSW) 544.
FCT v Mitchum (1965) 113 CLR 401 (ACTOR)
*If taxpayer being paid to undertake work under a normal contract of employment or contract for services, the source is generally PLACE WHERE THE WORK IS UNDERTAKEN. *Conversely, If creative power or special knowledge is involved, then the dominant source may be PLACE WHERE THE CONTRACT WAS MADE. Trading (Business) Income

Place of Business Profits
Tariff Reinsurance Ltd v C of T (1938) 59 CLR 194
*Conversely, where business profits are derived predominantly from the making of contracts and performance is relatively unimportant, the PLACE WHERE THE CONTRACT IS MADE is usually the major factor in determining source. Rent

Place of Rental Property
-
Interest
Location of Bank Account
Place where the loan contract is made
FCT v Spotless Services Ltd (1996) 186 CLR 404
Dividends
Place of Business Profits
Esquire Nominees Ltd v FCT 72 ATC 4076
Royalties
Place where Intellectual Property is registered
-
*Specific statutory rules contained in Section 6C of the ITAA (1936) deem certain royalties derived by non-residents to have an Australian source to the extent that the payment is an outgoing of an Australian business

Lecture 3
1.0INCOME FROM PERSONAL EXERTION
Sections / Case Law

A/NA
D/ND
Page
6-5 of ITAA (1997)
Salaries and Wages, Overtime, Commissions

3
15-2 of ITAA (1997)
(a) Tips
A

3

(b) Allowances(Get $$ BEFORE expenses incur)
A
D (kept receipt 5 yrs)
3

(c) Expense Reimbursement (Get $$ After)
NA
ND
4
15-70 of ITAA (1997)
(d) Reimbursements for Mileage
A
D (LEC 5)
4

FCT v Inkster 89 ATC 5142
(e) Compensation (Insurance)
Loss of wages
Capital Asset
Personal Injury

A
NA
NA

4
TR 1992/15
Reimbursements v Allowances
- Allowances are...
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