Solution
Robert answered on
Dec 29 2021
Part 1
(a) „Income by ordinary concepts‟, as laid down in Sec 6.5 of the Income Tax Assessment
Act 1997 refers to all assessable income which includes ordinary income. It includes all
ordinary income derived by you directly or indirectly; and income is said to be derived when
the amount of income is applied with or dealt with in a manner as directed by you. Over the
years and based on several case laws, several positive and negative propositions have been
set which determine what income by ordinary concepts is and what income by ordinary
concepts is not. The positive propositions are –
- income must be beneficially derived
- income must be judged from the character it has in the hands of the recipient.
- income generally shows recu
ence, regularity and periodicity.
- income represents amounts derived from employment or provision of services.
- amounts derived from ca
ying on business and from property are income.
- amounts received as substitutes for or as compensation for lost income are also income.
The negative propositions which identify what items are not incomes by ordinary concepts
are –
- Mutual receipts are not income.
- Gifts are not income.
- Capital does not have the characteristic of income.
- Amounts not convertible into money.
- Gambling proceeds and windfall gains.
(b) In the given case, Schubert, Mahler and Tull are Australian resident seamen and are in
employment on fishing trawler MT Mt Cecila. Once on a routine fishing operation, the
captain got to know of an abandoned, holed and leaking oil tanker which was likely to cause
enormous environmental and economic consequences if it wrecked on the reef. On the call of
the captain, Schubert and Mahler who were experienced in operations of this type
volunteered to manually tow the tanker away from the coastline. This heroic feat was
ecorded by Tull on video. Schubert and Mahler received an award from the Australian
Government for this and $100,000 each from the Lloyds of London, the insurer of the tanker.
Pursuant to a contract of writing an article, Mahler received $20,000 and an additional
$10,000 for signing an agreement not to give interview. Schubert was offered $10,000 for his
medal which he accepted. Tull sold exclusive rights for the video recording made by him to
Channel 9 for $8,000. Further, he received $50,000 to travel to USA to provide technical
advice on a proposed telemovie. We need to determine the tax consequences of all these
payments received by the three of them. As per Sec 6-5 of the ITAA 1997, assessable
income includes the gross income derived by a taxpayer from all sources. Re case Squatting
Investment Co Pty Ltd v FCT (1954) 88 CLR 413, it was held that voluntary payments will
e treated as income if they are sufficiently related to income earning activities. When we
apply the decision in this case along with Sec 6-5 of the act, it is seen that the payments of
$100,000 each received by Schubert and Mahler, $10,000 received by Schubert for his
medal, is in the nature of income which is assessable and must be included in their taxable
income.( Re Kelly v FCT). Moreover, in case of Brent v FCT (1971) 125 CLR 418, it was
held that payment received for selling „exclusive rights‟ to one‟s life story are in the nature
of the income from personal services rendered. Applying the principle fo this case to $8,000
eceived by Tull from selling the...