Assessable income=ordinary income + statutory income. Ordinary income: income deriving from the courts (s6-5) Negative propositions: items that are not income by ordinary concepts: 1.Amounts not convertible into money :In Tennant v Smith (1892) free accommodation provided to a bank manager was held not to be ordinary income because building could not be sub-let and the benefit thereby converted to money. In FCT v Cooke & Sherden (1980) an incentive prize offered by a manufacturer was not income of the winning retailers because it was not transferable and so not convertible into money.
2.Capital does not have the character of income: For tax law purposes we need to distinguishing income and capital for several reasons: a) ordinary concepts notion of income does not include capital; [see below] b).general deductions [and some specific deductions, eg: repairs] specifically excludes deductions for capital outlays c) capital receipts may generate capital gains CGT; concessional tax treatment; the gain might be discounted by 50%. d) trust distribution of corpus [capital] is not assessable income • In general terms it may be stated that capital receipts and profits arising from the mere realisation of a capital asset are not income but where what is done is truly the carrying on of a business, the proceeds will be on revenue account: California Copper Syndicate Ltd v Harris (Surveyor of Taxes) (1904) 5 TC 159; Commr of Taxation v Myer Emporium Ltd (1987) 163 CLR 199; 87 ATC 4363.
3Mere gifts : This proposition is grounded in Hayes v FCT (1956): a voluntary payment from A to B prima facie is not income; but that presumption will not apply when the payment is in substance a product of services
4.Proceeds of gambling and windfall gains : Punting: Martin’s case, a ‘keen punter’ not carrying on a business as might be the case with an owner/breeder of racing stock and would be for a bookmaker. So, a successful punter not assessable on winnings - Evans – an unsuccessful punter not entitled to a deduction - Brajkovich. The weight of Australian authority is against a conclusion that punting and gambling gains are income. But: horse racing may amount to a business activity; prizes: may be income when they are incidental to commercial activity
5.Mutual receipts The essence of the ‘mutuality principle’ is that persons cannot profit through dealings with themselves. Mutuality implies a non-profit orgainsation in pursuit of a common objective generating funds from its members to be applied to the common cause. Funds generated externally (interest on deposits, dealings with the public etc) fall outside of mutuality principle.
Positive propositions: characteristics of income by ordinary concepts
6. An amount must be beneficially derived Constable’s case is authority for the non-assessability of employers’ contributions to superannuations funds. The payments are not fringe benefits either. In the present context, Constable’s case is also authority for saying that an amount that would have been income had the necessary derivation existed at some earlier period of time, does not become income at some later time when it is derived unless in the circumstances of the later derivation it has an income character. The employer’s contributions to the fund were not allowed, given or granted to the taxpayer. When the benefits were paid out at a later time, they were not income. An amount has to be characterised at the point of its derivation
7. Income is to be judged from the character it has in the hand of the recipient The decision in Just v FCT (1949) provides an insight to this proposition: the Just brothers sold property for consideration that included a percentage of profits for 50 yrs from the redeveloped site. Normally, such a sale would be a ‘mere realisation’ in terms of the California Copper principle. The HCA held the payments were income because the payments were for an indefinite amount and took the form of an annuity....
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