Wood Press Machinery - Is the Payment of $45,000 over 12 Months to the Owner of the New Building Is Classified as an Ordinary Assessable Income?

[pic 1]Question 1

Is the payment of $45,000 over 12 months to the owner of the new building is classified as an ordinary assessable income?

Assessable income is defined as consisting of ordinary income and statutory income, but does not include ordinary income or statutory income which is exempt income or non-assessable non-exempt income (S6-1,S6-15 ITAA97)^[1]

The money $45,000 over the next 12 months received by the new owner of the new building is held to be an ordinary assessable income as it can be explained in lease incentives where it is found to be their business activities. This can be explained in the case of FC of T v Cooling 90 ATC 4472^[2] where the court held that the payment received by the land lord are assessable as they induce the client to move to new business premises, these payments are also found to be received in the ordinary cause of their business activities. Under Section 15.7 Income from property^[3] , Section 15.2^[4] the flow concept is used to support section 15.7 where the money received from the exploitation of the asset is ordinary income in nature which relates to the fruit and tree metaphor. This can be explained in the case of Adelaide fruit and produce exchange Co Ltd v DFC of T (1932) 2 ATD 1^[5]. The rent received by the lessor from the lease of property is income where the fruit is the rent and the tree is the asset which relates to the fruit and tree metaphor.

In conclusion, the amount of money $45,000 over the 12 months received by the land lord is ordinary assessable income as it has been justified under lease incentives, Section 15.2 , section 15.7 and the fruit and tree metaphor.

Question 2

Is the additional $2000 given to Roger by the client accepted as ordinary assessable income?

Assessable income is defined as consisting of ordinary income and statutory income, but does not include ordinary income or statutory income which is exempt income or non-assessable non-exempt income (S6-1,S6-15 ITAA97)^[6]

As in the case of the client gave an additional $2000 besides the $7000 that was paid to roger for his tax advice. Under section 15.4 income from personal exertion^[7], it can be explained under reward for services in the case of Eisner v Macomber (1920) 252 US 189^[8]. It was held that income can be defined as gain deriving from capital, labor or combined of both. The income of $7000 received by Roger is also known as the flow from capital asset, and also the effort of a tax payer personal exertion and efforts.

The additional $2000 that was received by Roger from the client is classified as payments that are personal gifts. This is because personal gifts such as the payment of $2000 is generally not income in nature and can be connected to some personal relationship between the payer and the recipient. These payments categorized as personal gifts rather than remuneration. This can be explained in the case of Scott v FC of T (1966) 117 CLR 514^[9]. The solicitor had acted for Mr Frestone for many years, prior after his death, the wife paid the solicitor from the sale of the estate as he had acted for her husband, it was held that the payment was made out of friendship where the amount was too indirect to be classified as the exertion of his service. As in the case of Mr Roger the additional $2000 received was due to the tax saving advice he had given, is known as an unsolicited gift as it is not part of an income of the recipient because generosity is cultivated by the goodwill of the personal exertion.

In conclusion, the $7000 received by Mr Roger is classified as ordinary assessable income under Section 15.4 which can be taxed. The additional $2000 is not classified as an income but as personal gifts arising from personal relationship which is not taxable.

Question 3

Is the income obtained from the sale of cars which are 8 years old categorized as ordinary assessable income?

Assessable income is defined as consisting of ordinary income and statutory income, but does not include ordinary income or statutory income which is exempt income or non-assessable non-exempt income (S6-1,S6-15 ITAA97)^[10].

As in the case where the income received from the sale of leased vehicle which are 8 years old can be explained in section 15.5 income from business, leasing^[11]. This can be explained in the case of FC of T v GKN Kwikform Services Pty Ltd 91 ATC 4336^[12]. Where the company is having a business on leasing scaffolding, the income it generated from the compensation payments for non-returned or lost scaffolding from its customer was categorized as assessable. It was held that profit gained from this activity is regular in the business it carried out. As in the case of the sale of leased cars any car more than 8 years will be sold, which income will be received on a regular basis.

As in the case of FC of T v Hyteco Hiring Pty Ltd 92 ATC 4694^[13]. Where the company made a profit from the sale of forklifts that were previously leased. It was held that there is evidence present which showed that the leased equipment is not required for the purpose of resale. Any profit arising from the sale of the equipment will be capital in nature. As in the case of the sale of leased cars, its sale of cars defeat its main purpose of the business it is carrying on, thus any profit arising from the sale of vehicle will be capital in nature which will be taxable.