Sadiq, K. et al., 2019. Principles of taxation law 2019, Thomson Reuters (Professional) Australia Ltd.QuestionsCHAPTER 5 – ASSESSABLE ORDINARY INCOMEQuestion 5.1Using the general principles discussed in this chapter, discuss whether the following are likely to be“ordinary” income:(a) Salary received by an employee.(b) Compensation received by an injured worker for loss of salary because he was unable towork for four weeks.(c) A Christmas present received by a daughter from her mother.(d) Proceeds from selling the copyright to a book. The recipient was an employee accountantwho wrote a novel in her spare time over a number of years.(e) Proceeds from selling the copyright to a book, where the recipient is in the business ofwriting books and selling his copyright.(f ) Profit realised on the sale of shares that have been held for a number of years, primarily fortheir capital growth.(g) Unemployment benefits from the Government to an unemployed person.Question 5.2Look up some English dictionary definitions of “income”. In what respects are these definitions ofincome similar to what tax law regards as “ordinary income”? Why is there a similarity?QuestionsCHAPTER 6 – INCOME FROM PERSONAL SERVICES AND EMPLOYMENTQuestion 6.1During the current tax year Erin received the following amounts: Salary and wages income of $98,000. $4,200 interest from a bank term deposit of $50,000. $500 per week for 50 weeks of the year from a rental property she owns. Winnings of $10,000 on the poker machines. $500 from selling eggs that her chickens laid to friends. A holiday bonus of $1,000 from her employer. A watch worth $200 from a happy client.What is Erin’s ordinary income for the current tax year?Question 6.2Jane and Sally are employed school teachers who have a very wide general knowledge. Both decideto enter a television quiz program called “Lease of the Decade”. Under the rules, contestants receive$100 for each appearance, but if questions are answered correctly, they receive substantial cash2prizes and other prizes, such as household items and holiday packages. The holiday packages cannotbe transferred or redeemed, but the organisers of the program allow them to be converted intoalternative venues and accommodation.Jane and Sally go on the show but Jane is eliminated in the first contest and receives her $100. Sally,however, makes 10 appearances. She wins cash prizes of $50,000, household appliances worth$20,000 and a trip to Europe with her family valued at $30,000.Discuss the assessability of these prizes.Question 6.3Hilary is a well‐known mountain climber. The Daily Terror newspaper offers her $10,000 for her lifestory, if she will write it. Without the assistance of a ghost writer, she writes a story and assigns allher right, title and interest in the copyright for $10,000 to the Daily Terror. The story is publishedand she is paid. She has never written a story before. She also sells the manuscript to the MitchellLibrary for $5,000 and several photographs that she took while mountain climbing for which shereceives $2,000.Discuss whether or not the three payments are income from personal services. Would your answerdiffer if she wrote the story for her own satisfaction and only decided to sell it later?Question 6.4George is manager of Newcastle Steel Ltd. His contract is for 10 years. In the third year Georgeenters into a restrictive covenant which provides that during the remainder of his contract he mustnot reveal or use confidential information other than to his employer. It further provides that hemust not work for a competitor during the remainder of the employment agreement. Considerationfor entering into the agreement is $40,000. Is this capital or income in George’s hands?Question 6.5A well‐known television personality was paid a lump sum of $400,000 to encourage her to join a newtelevision network. She accepted the offer and received an annual salary of $100,000 in addition tothe lump sum payment.Discuss whether both the $400,000 and the $100,000 receipts are assessable income.Question 6.6Consider the following situations and discuss whether or not they are income in ordinary concepts: A cash prize for being the best student in income tax law received by a student who also receivesa Youth Allowance from the government. A gratuity (not being superannuation) received by a widow from her husband’s former employerin recognition of her husband’s services. An honorarium received by a student for acting as honorary secretary of a small country townfootball club. A bonus received by an employee for a suggestion adopted by the management.3Question 6.7Jane teaches company law at a regional university. For many years she has had a passionate interestin amateur theatricals. She has performed with several local groups. On 30 December Arthur askedJane if she would be interested in performing in the next production of the group with which heperforms. Jane, who has several weeks free from performing, eagerly agrees. Jane has only workedwith this group once before, six years ago. After the last performance, Charles, the producer of theplay, handed Jane an envelope which she assumes contains a thank‐you card for performing in theplay. Jane opened the envelope late the next morning and discovered that, in addition to a thank‐you card, there is a cheque for $49.28 for participating in the production. Jane has never beforebeen paid for appearing in any of the 60 productions in which she has been involved. Jane endorsedthe cheque to her landlord as part‐payment of her rent. Advise Jane of her income tax liability withrespect to $49.28.Question 6.8Frederick has been out of work for the past five years, and he has been using the Findjobs Ltdemployment agency for the past twelve months to find employment. In April of this year a new casemanager, Albert, was given the task of finding Frederick a job. In a matter of ten days Albert hadfound Frederick a permanent job. In gratitude Frederick bought a $1,000 gold watch (it was a verygood job he landed) and gave it to Albert as a mark of his appreciation.Advise Albert as to whether this gift is assessable income.Question 6.9Nadia is an accountant in a large accounting firm. She is on a three year contract, which still has twoyears to go. Her official job title is “Manager” and under her contract she is entitled to her ownprivate office.Nadia is offered $6,000 if she changes her job title to “Senior Accountant”, with no change in pay orlength of the contract. She is also offered $4,000 by her employer if she agrees to give up her privateoffice. She agrees to this.Advise Nadia as to her income tax liability with respect to the $6,000 and $4,000 payments.
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