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S 6.5 of the Income Tax Assessment Act of 1997 provides that the accessible income
includes all ordinary income derived, directly or indirectly, from all sources. This means that as
long as there is a flow of wealth, other than a mere return of capital, such flow of wealth is
assessable. Unless there is a special law which expressly and explicitly declares an activity as
Under the personal exertion income rule, income may be received as a result of one’s
who pursues a trade or professional activity, then such income is assessable. However, if the
from the assessable income. To be considered as income from personal exertion, the earner
should have performed the activity with the intent of a pecuniary benefit. Absent that intent of
gain, such as when income is derived purely by reason of one’s attributes or another’s
generosity, the income earned is not considered as income from personal exertion.
In the case of Stone vs FCT, the Court said that even payments derived from sources
outside an individual’s trade or occupation may be considered income if the activity that
produced it was particularly sought to result in the acquisition of money. Thus, when a hobby is
pursued to earn money, it is tantamount to doing business, even if such activity is merely
isolated. The determining factor is the intent that is concomitant with the income-earning
activity.
As discussed in the foregoing, the three payments are included in the assessable income
for they are derived through personal exertion. Hillary’s act of writing her story with the intent of
gaining from it clearly constitutes income from personal exertion. Her sale of the story, the
manuscript, and the photographs is the main activity which produces the flow of wealth. Such
sale is considered a personal exertion on her part, notwithstanding that the items sold were
connected to her hobby of mountain-climbing. It is her act of selling which is at issue and not her
mountain-climbing activities. In other words, if Hillary did not sell the items, she would have not
Anent the second question, my answer would be no different. The income earned under
this circumstance is still considered as derived from personal exertion. As mentioned earlier, the
activity which is at issue is not the mountain-climbing activities, nor the writing of the story, but
the eventual sale of the items. It is the sale that produces the income. Hillary’s positive act of
However, if Hillary did not do any selling and was granted the money out of another’s
pure generosity and recognition of her skill and personal attributes, then it would be considered a
2. A Fringe Benefits Tax (FBT) is a tax paid by employers for certain benefits paid to their
employee/s which are different from salaries or wages. FBT is separate from income tax and is
S 9 of the Fringe Benefits Tax Assessment Act of 1986 provides for the statutory formula
where
DU = number of days during that year of tax on which the car fringe benefits were provided by
the employer;
The taxable value is actually the gross taxable value of the benefits less the employee
contribution and the value of reduction. The gross taxable value consists of the first part of the
formula – the product of the statutory percentage, the base value of the car, and the ratio of the
The distance travelled by the car is actually irrelevant in computing the taxable value of
Replacing the variables in the formula with the values in the problem gives us
TV = 5013.70 – 1000
TV = 4013.70
Note that the statutory percentage is a flat 20%, except when there is a pre-existing
3. As discussed in the answer to Question 1, S 6.5 of the Income Tax Assessment Act of
1997 provides that assessable income includes the ordinary income received directly or indirectly
from all sources. Thus, even passive income derived from interests on loan payments should be
Passive income includes interest amounts, dividends, rents, capital gains, and any amount
received other than a mere return of capital which does not constitute personal exertion income.
Thus, any payment received as an interest in the loan is considered passive income and should be
In this case, the mother earned a 5% pa interest on the amount loaned which was paid to
her on the second year. Hence, the profit earned, which is the interest paid, should be included on
the assessable income and declared on the second year where the income was realized. Since
there was no gain or profit on the first year, the mother need not declare any interest income on
Although there was an agreement that the son pay $50,000 at the end of five years which
would effectively give a $10,000 profit to the mother on the fifth year, such income is merely
presumptive. In fact, it never materialized. The mother only ought to declare income that is
actually realized. Accordingly, she need not report and declare any passive income on the first,
third, fourth or fifth year, but only on the second year where the income was actually paid and
realized.
It is also of no moment that there is no formal agreement on the loan or that no security was
provided. Additionally, even if the mother told her son that the latter need not pay interest, this
was of no consequence to the tax implications on the income derived from the loan. The law
clearly includes income from whatever source, whether the sum received was legally
demandable or not. Evidently, there was a flow of wealth. Ultimately, the profit earned by the
mother when the loan was paid should be included in the assessable income.
On the second year when the mother should declare the profit, the total assessable income
should be considered in determining the thresholds of the taxable income. Consequently, if the
taxable income for the second year exceeds $18,200, then the mother would be subject to income
a. Capital gains happen when you realized a gain for a capital asset you disposed. This
means you sold it at a price higher than what you paid to acquire it. Capital assets are those
S 104.10 of the Income Tax Assessment Act of 1997 provides that a capital gain is
disregarded if you acquired the asset before 20 September 1985. In this case, since the land was
acquired in October 1980 (which is nearly five years before the CGT law took effect), it is a pre-
CGT asset which is exempt from the capital gains tax. The building, however, is subject to the
capital gains tax. Thus, any gain from the sale of the building should be included in the
determination of the capital gains tax, subject to a 50% deduction for individuals who holds the
In this particular scenario, since the whole property was sold at an auction for $800,000,
the value of the land should be deducted from that amount since it is a separate pre-CGT asset
exempt from capital gains tax. Assuming the land is still valued at $90,000, that amount should
be deducted and the building, which is subject to capital gains tax, is deemed to have been sold at
$710,000 (thereby translating to a gain of $650,000). Applying the 50% discount for individuals
will give us a tax base of $325,000. This will be included in Scott’s assessable income when he
b. The answer would not change if Scott sold the property to his daughter for $ 200,000. In
this case, it is not the selling price that would determine if there was a capital gain. The market
value of the property will be considered in computing capital gains/loss. In this case, since the
market value of the property is $800,000, there is a presumptive gain involved. Thus, even if
Scott sold the property for an insufficient consideration which is $200,000, this would not affect
the tax implications and the amount that would be added to his assessable income.
c. If the owner of the property was a company, then the answer would be different. Under
the law, a company does not enjoy a 50% capital gains discount. Consequently, the company will
be paying a 30% tax on any net capital gains. A company is subject to different rules from
individuals. The pre-CGT asset is still exempt from capital gains tax. The rules on valuation
discussed in (b) also apply. The main difference is the 50% discount provided by law.
Moreover if the company’s trade involves selling real estate, then the property may be
considered as an ordinary asset and not a capital asset. In such instance, the sale will not be a
References:
https://www.nab.com.au/personal/learn/managing-your-debts/capital-gains-tax .