A. Ordinary income: Overview
Ordinary
Income
B: Prerequisites
C: Characteristics
D: Application
Cash or convertible to cash Real Gain
Regular or periodic Flow
E: Income from property F: Personal services income
G: Business income Compensation
Ordinary income Ordinary income Ordinary income illegal transactions Statutory income Statutory income Statutory income Constructive receipts MLC301 – Topic 2
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F: Income from personal services:
Statutory income
6. Sec 15-2
Allowance, gratuity, compensation etc
1.
2.
3.
Very broad – cash or non-cash
Can include gifts – eg client gifts
Does this cover normal wages? Reimbursement?
Provided to you
In respect of …. employment or service
Smith (1987): Nexus easier to meet than s 6-5
Payne (1996)
Rowe (1997): Reimbursement of legal fees lacked nexus with
employment
What about Salary Sacrifice?
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1
F: Income from personal services:
Statutory income
7. Other statutory provisions
Sec 15-3 – Return to work payments
Sec 15-5 – Accrued leave transfer payments Div 82 – Termination of employment
Not covered in this unit
FBT – employer taxed, employee is not assessable on Fringe Benefit (Topic 7)
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G: Income from business
Ordinary income
Ordinary Income flows from business activities A hobby does not produce income
Two steps
1. Is a business carried on
2. Are receipts normal proceeds of that
business
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G: Income from business
Ordinary income
1. Is a business carried on
Sec 995-1 definition – little help
Ferguson (1979): s 995-1 - inclusive definition
Business vs Hobby
Not income from personal exertion (don’t confuse) Hobby is for pleasure or recreational purposes
If income from personal exertion
– hobby not relevant
Eg – income from sporting activities
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2
G: Income from business
Ordinary income
1. Is a business carried on
Decided on facts of each case
No general rule
No single determinative factor
Ferguson (1979) - Indicia of Business:
Whether profit motive
Size of operation – capital etc
Whether commercial approach used
compared to other similar business
Planning and how organised
Whether sustained activity
Type of business – Eg Gambling
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G: Income from business
Ordinary income
1. Is a business carried on: Gambling
Chance?
Part of business?
Higher test : associated with another business? Trautwein (1936)
Martin (1953)
Evans (1989)
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G: Income from business
Ordinary income
1. Is a business carried on: Sporting activities Part of business or personal exertion?
Degree of professionalism vs recreational
Stone (2005) – Business therefore prizes
and all receipts ordinary income
Spriggs & Riddell (2009) – Business as a full
time sports person
○ This effected deductions that could be claimed
(Topic 4)
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3
G: Income from business
Ordinary income
1. Is a business carried on: Other
Investment – eg shares
Income vs capital
AGC (1992)
Property sales
Income vs Capital
St Hubert’s Island (1978)
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G: Income from business
Ordinary income
2. Normal proceeds of the business
Depends on nature of business
Broad or narrow characterisation of the business
Merv Brown (1985)
G P International Pipecoaters (1988)
NEXUS to business activity
Memorex (1987) – connected with core business
activity
Non-cash business benefits
Cooke and Sherden (1980)
Sec 21 and 21A ITAA 36 – not covered
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G: Income from business
Ordinary income
3. Extraordinary and isolated transactions
Extraordinary transaction of an existing business – Myer Emporium (1987)
Isolated transaction not connected to an existing business – Whitfords Beach
