Queensland University of Technology QUT Business School School of Accountancy

INCOME FROM PERSONAL EXERTION INCOME FROM BUSINESS & PROPERTY TRADING STOCK

1.0 INCOME FROM PERSONAL EXERTION

1.1 Income from Personal Services
1.2 Gifts v Income
1.3 Income of Sportspersons
1.4 Windfall Gains and Prizes Won

2.0 INCOME FROM BUSINESS

2.1 Importance of Determining the Existence of a Business 2.2 What Constitutes Carrying on a Business? 2.3 Mere Realisation of Capital Assets and Profits from Isolated Transactions

3.0 INCOME FROM PROPERTY

3.1 Rental Income 3.2 Interest Income 3.3 Dividend Income

4.0 TRADING STOCK

4.1 What is Trading Stock?
4.2 Meaning of Stock on Hand
4.3 Determining what is Assessable or Deductible? 4.4 Valuation of Trading Stock 4.4.1 Cost Price 4.4.2 Market Selling Value 4.4.3 Replacement Value
4.5 Special Value in Case of Obsolescence
4.6 Disposals of Stock outside the Ordinary Course of Business
4.7 Stock Taken by the owner for their own Personal Use 4.8 Small Business Entities and Trading Stock

5.0 SUMMARY AND CONCLUSIONS

Objectives of Lecture 3:

At the end of this lecture, you should be able to:

determine when income from personal exertion will be assessable; ascertain whether a business is being carried on for taxation purposes; evaluate the criteria to determine if a taxpayer is carrying on a business; determine when income from property will be assessable; and apply the tax provisions relating to trading stock.

Week 3 Reading:

1. 2015 CCH Australian Master Tax Guide: Chapter 10 "Assessable Income", paragraphs 10-040 to 10-076, 10-110 to 10-114, 10-430 to 10-450, 10-470, 10-490 to 10-510.

2. 2015 CCH Australian Master Tax Guide: Chapter 9 "Tax Accounting", paragraphs 9-150 to 9-240, 9-290.

3. 2015 CCH Australian Master Tax Guide: Chapter 4 "Dividends, Imputation System”, paragraphs 4-100 to 4-120.

4. 2015 CCH Australian Master Tax Guide: Chapter 7 "Small Business Concessions", paragraph 7-550.

5. Taxation Ruling IT 167: Treatment for Income Tax Purposes of Radio and Television Competition Prizes (available on the AYN 438 Blackboard site).

6. Taxation Ruling TR 1999/17: Sportspeople: Receipts and Other Benefits Obtained from Involvement in Sport (available on the AYN 438 Blackboard site).

7. Taxation Ruling TR 1997/11: Am I Carrying on a Business of Primary Production? (available on the AYN 438 Blackboard site).

1.0 INCOME FROM PERSONAL EXERTION

1.1 Income from Personal Services

All income from personal services, whether received in the capacity as an employee or as an independent consultant, constitutes ordinary income under Section 6-5(1) of the ITAA (1997).

Income from personal exertion represents a reward to the taxpayer as a result of his/her exertion/services. Income from personal exertion typically includes:

salary and wages; overtime payments; commissions; tips; allowances; retrospective award increases; back pay; lump sum workers compensation payments; and bonuses. Most of these items are assessable under Section 6-5 of the ITAA (1997). However, some payments will be specifically assessable under Section 15-2(1) of the ITAA (1997). That section provides:

”Your assessable income includes the value to you of all allowances, gratuities (tips), compensations, benefits, bonuses and premiums provided to you in respect of, or for or in relation directly or indirectly, to any employment of or services rendered by you”.

(a) Tips

Tips (or gratuities) received from customers are specifically made assessable under Section 15-2 because they are a by-product of employment or represent a reward for services rendered. It is irrelevant whether the payer is the employer or a customer.

(b) Allowances

Allowances are also specially made assessable under Section 15-2. An allowance is an up-front payment made by an employer to an employee at a predetermined amount to cover an estimated expense (for example, a meal, travel allowance