Tax Law
Ordinary income
Tennant v Smith, (money or convertible into money)
An employee was given accommodation rent free by his employer. Was this ordinary income? • The employee could not sublet the accommodation to anyone else, therefore could not turn this accommodation into cash. • The Court said it was not ordinary income under s. 25(1) (now s.6-5) since the accommodation was not convertible into money. • Not ordinary income under s.6-5.
FCT v Cooke & Sherden. (money or convertible into money)
Soft drink retailers were given holidays by wholesalers/manufacturers for selling a certain number of soft drinks. Was this ordinary income? The holidays could not be cashed in or transferred to anyone else. The holidays were not convertible into cash, therefore the first characteristic was not met, and therefore the holidays were not ordinary income under s. 25(1). There is a further principle from this case. If the holidays were a substitute for income, rather than a voluntary reward, then the holiday would assume the character of the income it replaced. Not a binding principle from this case (Obiter Dicta).
FCT v Dixon, Periodicity, recurrence and regularity/substitution principal
Taxpayer left his job to enlist in the armed forces, but the army did not pay as much as his old job. Former employer topped up his pay on a regular basis to make up the difference. 2 of the 5 judges said the payments were judged to be incidental to the army service. Therefore ordinary income. 1 judge said that the payments were a substitute for salary from the taxpayer’s former employment, therefore were ordinary income. The other two judges said there was no connection to an earning activity and concluded that it was not ordinary income. But the case was decided on a 3-2 majority of the High Court that the receipt was ordinary income.
FCT v Harris, Periodicity, recurrence and regularity
Ex-gratia payment (voluntary) made to a retired bank manager to offset the effects of inflation
Tennant v Smith, (money or convertible into money)
An employee was given accommodation rent free by his employer. Was this ordinary income? • The employee could not sublet the accommodation to anyone else, therefore could not turn this accommodation into cash. • The Court said it was not ordinary income under s. 25(1) (now s.6-5) since the accommodation was not convertible into money. • Not ordinary income under s.6-5.
FCT v Cooke & Sherden. (money or convertible into money)
Soft drink retailers were given holidays by wholesalers/manufacturers for selling a certain number of soft drinks. Was this ordinary income? The holidays could not be cashed in or transferred to anyone else. The holidays were not convertible into cash, therefore the first characteristic was not met, and therefore the holidays were not ordinary income under s. 25(1). There is a further principle from this case. If the holidays were a substitute for income, rather than a voluntary reward, then the holiday would assume the character of the income it replaced. Not a binding principle from this case (Obiter Dicta).
FCT v Dixon, Periodicity, recurrence and regularity/substitution principal
Taxpayer left his job to enlist in the armed forces, but the army did not pay as much as his old job. Former employer topped up his pay on a regular basis to make up the difference. 2 of the 5 judges said the payments were judged to be incidental to the army service. Therefore ordinary income. 1 judge said that the payments were a substitute for salary from the taxpayer’s former employment, therefore were ordinary income. The other two judges said there was no connection to an earning activity and concluded that it was not ordinary income. But the case was decided on a 3-2 majority of the High Court that the receipt was ordinary income.
FCT v Harris, Periodicity, recurrence and regularity
Ex-gratia payment (voluntary) made to a retired bank manager to offset the effects of inflation