Summary of Taxation Law Part 1

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