General concepts of income Ordinary Income ...
Structural features of tax systems: 1. Taxpayers: income tax – receiver; GST – resisted entity; FBT – employer 2. Tax base: income tax – taxable income; GST – taxable apply; FBT – non‐cash benefit 3. Tax periods: income tax – 1/7~30/6; GST – quarterly 3/6/9/12 ; FBT – 1/4~30/3 4. Tax rates: income tax – individual/company(30%); GST – 10%; FBT – 46.5%
General concepts of income Income tax is payable each year by each individual and company, and certain other entities【 s3‐5 ITAA97】 Income tax payable= (taxable income*rate)‐tax offsets 【S4‐10 ITAA 97】 Taxable Income = Assessable Income – Deductions 【S4‐15 ITAA 97】 Assessable income=ordinary income+ statutory income 【Div 6】 Deductions= general deductions + specific deductions 【Div 8】 Total liability=income tax+ Medicare levy+ Medicare levy surcharge +HELP repayments Medicare levy Medicare levy=taxable income*1.5% Exempt from the Medicare levy, examples include: (1)Foreign residents; (2) Persons not entitled to Medicare benefits in respect of services, treatment or care (exemption certificate required). (3)Low income earners may be fully or partially exempt. Medicare levy surcharge Medicare levy surcharge=taxable income include whole rage * surcharge rate Help repayments Help repayments=taxable income include whole rage * rate Tax offsets 1. Taxes already paid: double taxation 2. Concessional tax offsets: tapered as taxpayer’s income increase. Refundable (health insurance)= offsets ‐ income tax payable Adjusted taxable income= whole benefit and loss (true economic position)‐ child support
Ordinary Income [S6‐5 ITAA 97] 2 Prerequisites 全满足 1. Receipts must be cash or cash convertible 【 Tennant v Smith(accommodation); FCT v Cooke and Sherden(holiday, now can be assessable as statutory income under s21A)】 – If illegal to sell the good can’t be regarded as cash convertible【Payne v FCT】 2. Real gain to taxpayer – Receipt is genuine gain【Hochstrasser v Mayes】 – reimbursements‐S51AH not ordinary income unless for private expenses Tennant v Smith (1892) – bank supplied taxpayer free accommodation, it was not taxable as it was neither cash nor cash convertible. (free tax return) Cooke and Sherden v FCT (1980) – received free holiday which was not transferrable so not cash convertible thus not ordinary income. S21A ITAA36 was subsequently inserted. 2 Characteristics 任一 (if neither that's capital gain): 1. Regular/periodical receipts:【FCT v Blake(regular); FCT v Harris(one‐off)】 – Receipts that are regular, expected and depended upon for support can constitute ordinary income, even if they do not flow from an earnings source【Keily v FCT(Government aged pension); FCT v Dixon(“Top‐up” payments)】 Blake v FCT (1984) – Regular receipts considered ordinary income Harris v FCT (1990) – Lump sum considered capital Keily v FCT (1983) – Pensions are considered income as it is regular, expected and relied upon 2. The flow concept 全满足: expressed in terms of ‘fruit’ and ‘tree’【Eisner v Macomber 252 US 189】 a. Nexus (a connection) with the earning source b. Severable from its earning source (the gain can be extracted without the affecting the underlying earnings) Other
1. Compensation for loss of salary is ordinary income – Dixon v FCT (1952). Compensation for loss of income earning ability (capital) is capital. Mixed Receipts that cannot be dissected have the character of capital – McLaurin v FCT (1981) 2. Receipts from illegal activities still income, can still be ordinary income. Partridge v mallandaine (1886) 3. Constructive receipts: doesn’t have to be paid directly to you (can give to your wife or relatives) ‐ Federal Coke Co Pty Ltd v FCT (1977) 4. Principle of Mutuality (cannot pay oneself income) ‐ Bohemians Club v Acting FCT (1918) –Refund of funds given to a club/association from its members back to the members are not assessable as there is no real gain. (S6‐23 ITAA97 “non‐assessable and non‐exempt income”) 5. Capital gains are not ordinary income (statutory): Also if it is relied upon, expected and periodic (Keily v FCT) Non‐cash benefit: Receipts not convertible into cash are NOT OI. Could be assessable under FBT or s15‐2! — Redemption of frequent flyer points that were accrued from work‐related travel: 【Payne v FCT】(still not assessable under s15‐2 because not satisfied 2&3)
Statutory income[s 15‐2 and s21A]全满足: 1. Broadly, there is an “allowance, gratuity, compensation, benefit, bonus or premium” 2. The above is “provided to you” (being the taxpayer) 3. There is a nexus with employment or services rendered Not apply if its under s6‐5 or FBT(s23L (1))
Income from personal exertion: (分辨 income or capital receipts) Ordinary income receipts: 3 issues: 讨论 personal income 是不是 OI 时一定要讨论！！！应该放在开头 1. Is there a sufficient nexus btw the service & payment received (salaries, wages, commissions) 【Hayes v FCT (1956); Scott v FCT(1966)】? 2. Incidental of employment 【Hayes v FCT (1956)】? 3. Reward for service 【Hayes v FCT (1956)】?( Can be lump sum or one off【Brent v FCT】)
1. Voluntary payments: — Constitutes ordinary income: received is an incidence of employment【Calvert v Wainwright(Tips received by a taxi driver)】 — possible ordinary income: based on the nature of payment (income characteristics), rather than nexus【FCT v Dixon(Additional periodic payments as a substitute for wages that were relied upon by the taxpayer)】
2. Price: — non‐assessable: gain derived by luck【Case 37(Winnings of a casual participant on a TV show)】 — ordinary income: derived by exercising degree of skill (personal exertion) that sufficiently outweighs “luck”. 【Kelly v FCT(Professional sporting people)】
3. Gift: — Not ordinary income: For personal qualities — Recipient has been fully remunerated for services【Scott v FCT; Hayes v FCT】 — There was a personal relationship between donor and recipient【Scott v FCT; Hayes v FCT】 — ordinary income: Arising from the taxpayer’s ability to work and/or the employment contract (employment or commercial connection) — Expected gift【Scott v FCT】 — Consists of a lump sum or regular payment【FCT v Blake】 — Donor intends the gift to be a reward of service【Scott v FCT】 Scott v FCT (1966) – A gift of $10,000 paid by a client was a personal gift thus not OI. Hayes v FCT (1956) – transfer of shares considered a gift. Both parties developed a relationship, recipient had been renumerated for his services thus shares were not additional reward for his work or incidental of employment.
General concepts of income Income tax is payable each year by each individual and company, and certain other entities【 s3‐5 ITAA97】 Income tax payable= (taxable income*rate)‐tax offsets 【S4‐10 ITAA 97】 Taxable Income = Assessable Income – Deductions 【S4‐15 ITAA 97】 Assessable income=ordinary income+ statutory income 【Div 6】 Deductions= general deductions + specific deductions 【Div 8】 Total liability=income tax+ Medicare levy+ Medicare levy surcharge +HELP repayments Medicare levy Medicare levy=taxable income*1.5% Exempt from the Medicare levy, examples include: (1)Foreign residents; (2) Persons not entitled to Medicare benefits in respect of services, treatment or care (exemption certificate required). (3)Low income earners may be fully or partially exempt. Medicare levy surcharge Medicare levy surcharge=taxable income include whole rage * surcharge rate Help repayments Help repayments=taxable income include whole rage * rate Tax offsets 1. Taxes already paid: double taxation 2. Concessional tax offsets: tapered as taxpayer’s income increase. Refundable (health insurance)= offsets ‐ income tax payable Adjusted taxable income= whole benefit and loss (true economic position)‐ child support
Ordinary Income [S6‐5 ITAA 97] 2 Prerequisites 全满足 1. Receipts must be cash or cash convertible 【 Tennant v Smith(accommodation); FCT v Cooke and Sherden(holiday, now can be assessable as statutory income under s21A)】 – If illegal to sell the good can’t be regarded as cash convertible【Payne v FCT】 2. Real gain to taxpayer – Receipt is genuine gain【Hochstrasser v Mayes】 – reimbursements‐S51AH not ordinary income unless for private expenses Tennant v Smith (1892) – bank supplied taxpayer free accommodation, it was not taxable as it was neither cash nor cash convertible. (free tax return) Cooke and Sherden v FCT (1980) – received free holiday which was not transferrable so not cash convertible thus not ordinary income. S21A ITAA36 was subsequently inserted. 2 Characteristics 任一 (if neither that's capital gain): 1. Regular/periodical receipts:【FCT v Blake(regular); FCT v Harris(one‐off)】 – Receipts that are regular, expected and depended upon for support can constitute ordinary income, even if they do not flow from an earnings source【Keily v FCT(Government aged pension); FCT v Dixon(“Top‐up” payments)】 Blake v FCT (1984) – Regular receipts considered ordinary income Harris v FCT (1990) – Lump sum considered capital Keily v FCT (1983) – Pensions are considered income as it is regular, expected and relied upon 2. The flow concept 全满足: expressed in terms of ‘fruit’ and ‘tree’【Eisner v Macomber 252 US 189】 a. Nexus (a connection) with the earning source b. Severable from its earning source (the gain can be extracted without the affecting the underlying earnings) Other
1. Compensation for loss of salary is ordinary income – Dixon v FCT (1952). Compensation for loss of income earning ability (capital) is capital. Mixed Receipts that cannot be dissected have the character of capital – McLaurin v FCT (1981) 2. Receipts from illegal activities still income, can still be ordinary income. Partridge v mallandaine (1886) 3. Constructive receipts: doesn’t have to be paid directly to you (can give to your wife or relatives) ‐ Federal Coke Co Pty Ltd v FCT (1977) 4. Principle of Mutuality (cannot pay oneself income) ‐ Bohemians Club v Acting FCT (1918) –Refund of funds given to a club/association from its members back to the members are not assessable as there is no real gain. (S6‐23 ITAA97 “non‐assessable and non‐exempt income”) 5. Capital gains are not ordinary income (statutory): Also if it is relied upon, expected and periodic (Keily v FCT) Non‐cash benefit: Receipts not convertible into cash are NOT OI. Could be assessable under FBT or s15‐2! — Redemption of frequent flyer points that were accrued from work‐related travel: 【Payne v FCT】(still not assessable under s15‐2 because not satisfied 2&3)
Statutory income[s 15‐2 and s21A]全满足: 1. Broadly, there is an “allowance, gratuity, compensation, benefit, bonus or premium” 2. The above is “provided to you” (being the taxpayer) 3. There is a nexus with employment or services rendered Not apply if its under s6‐5 or FBT(s23L (1))
Income from personal exertion: (分辨 income or capital receipts) Ordinary income receipts: 3 issues: 讨论 personal income 是不是 OI 时一定要讨论！！！应该放在开头 1. Is there a sufficient nexus btw the service & payment received (salaries, wages, commissions) 【Hayes v FCT (1956); Scott v FCT(1966)】? 2. Incidental of employment 【Hayes v FCT (1956)】? 3. Reward for service 【Hayes v FCT (1956)】?( Can be lump sum or one off【Brent v FCT】)
1. Voluntary payments: — Constitutes ordinary income: received is an incidence of employment【Calvert v Wainwright(Tips received by a taxi driver)】 — possible ordinary income: based on the nature of payment (income characteristics), rather than nexus【FCT v Dixon(Additional periodic payments as a substitute for wages that were relied upon by the taxpayer)】
2. Price: — non‐assessable: gain derived by luck【Case 37(Winnings of a casual participant on a TV show)】 — ordinary income: derived by exercising degree of skill (personal exertion) that sufficiently outweighs “luck”. 【Kelly v FCT(Professional sporting people)】
3. Gift: — Not ordinary income: For personal qualities — Recipient has been fully remunerated for services【Scott v FCT; Hayes v FCT】 — There was a personal relationship between donor and recipient【Scott v FCT; Hayes v FCT】 — ordinary income: Arising from the taxpayer’s ability to work and/or the employment contract (employment or commercial connection) — Expected gift【Scott v FCT】 — Consists of a lump sum or regular payment【FCT v Blake】 — Donor intends the gift to be a reward of service【Scott v FCT】 Scott v FCT (1966) – A gift of $10,000 paid by a client was a personal gift thus not OI. Hayes v FCT (1956) – transfer of shares considered a gift. Both parties developed a relationship, recipient had been renumerated for his services thus shares were not additional reward for his work or incidental of employment.
