Objectives of Lecture : At the end of this lecture, you should be able to: understand the ordinary concepts of income; | |
THE ORDINARY CONCEPTS OF INCOME
What is Income?
The assessable income of an entity for a year of income includes the ordinary income of an entity and the statutory income of the entity for that year (Section 6-1 ITAA (1997)). Ordinary income is income according to ordinary concepts.
The courts have had to determine what is income according to ordinary concepts as there is no definition in the act.
Section 6-5 ITAA (1997) is the general provision capturing assessable income. This section includes the term “income according to ordinary concepts”. Section 6-5 contains rules for “resident” and “non-residents”. The rules are:
Resident - gross income derived from all sources in or out of Australia;
Non resident - gross income derived from all sources in Australia only.
In examining whether an amount is income according to ordinary concepts, the courts have tended to weigh up of a number of factors which are considered to characterise income. These concepts are discussed below:
As mentioned above, Section 6-5 is the most important section in bringing ordinary income to account as assessable income. It brings to account income in terms of the common law. There are a number of common law features that help determine whether an amount is income. They are as follows:
(a)Ordinary income “comes in” to the recipient
Income is a form of financial gain. A gain or receipt can only be ordinary income if it has “come in” (been realised) during that year. An unrealised gain is not ordinary income. If an amount does not come to the taxpayer, it will not be ordinary income. In the terminology of Section 6-5 of the ITAA (1997), an amount has come in to an entity if it has been “derived” by the taxpayer.
It is not necessary that money actually be paid over to...