科技进步策略课件

CO5120

TaxationLaw

Module2DerivationofTaxableIncomeCO5120

TaxationLaw

Module2DModuleObjectivesApplyconceptsofordinaryandstatutoryincome.Understandtheconceptof“derivation”ofincome.Understandthegenerallawprinciplesfordeterminingincome–andtheirstatutorymodifications.Understandthedifferencesbetweenincome,capitalreceipts,windfallgainsandmutualpayments.Understandtherulesgoverningnon-cashreceipts.Understandtherulesgoverningincomesubstitutionandcompensationpayments.Understandthetaxeffectofreceiptsfromillegalactivity.ModuleObjectivesApplyconceptTheAustralianTaxSystemThreeCriticalQuestions:Whodowetax?Whatdowetax?Howmuchdowetax?TheAustralianTaxSystemThreeTheTaxationEquationsAssessableIncome=Grossincome–(Exemptincome+Non-assessablenon-exemptincome)(sees6-1).

TaxableIncome=Assessableincome-Deductions(sees4-15).

TaxPayable=(TaxableincomexRate)-TaxOffsets(sees4-10(3)).

TheTaxationEquationsAssessabGrossincome=Allincome(fromanysource)

“Allincome”includesboth:‘exemptincome’;and‘non-assessable,non-exemptincome’.Grossincome=Allincome(froTherefore(becauseofs6-15)

AssessableIncome=

All“ordinaryincome”

PLUS

All“statutoryincome”

LESS

Any“exemptincome”

AND Any“non-assessable non-exemptincome”.Therefore(becauseofs6-15)

OrdinaryandStatutoryIncomeSections6-5(1):“ordinaryincome”is“incomeaccordingtoordinaryconcepts”.Section6-10(2)“statutoryincome”includes“amountsthatarenotordinaryincomebutareincludedinyourassessableincomebyprovisions[intheAct]aboutassessableincome”.

OrdinaryandStatutoryIncomeSTherefore:WhetheraparticularreceiptisINCOMEthatistaxableinthehandsofataxpayerdependsonwhetheritis:

a. INCOMEONORDINARYCONCEPTS (‘Ordinaryincome’);or

b. IncomeundersomeSPECIFICSTATUTORY PROVISION(‘Statutoryincome’).ANDWhetherithasbeenderivedTherefore:WhetheraparticularIncomeonOrdinaryConceptsTheITAAdoesnotdefinetheterm“income”;Section6(1)(ITAA1936)doesdefine:incomefrompersonalexertion;Incomefromproperty;Incomefromcarryingonabusiness.TheITAAalsodeemssomereceiptstobe“income”fortaxationpurposes(egnon-cashbusinessbenefits,tipsandgratuities,post-1985capitalgainsetc).Thesereceiptsarecalled‘statutoryincome’;BUT,apartfromthosereceipts,determiningwhetheraparticularreceiptis“income”hasbeenlargelydeterminedbythecourts.IncomeonOrdinaryConceptsTheSection6(1)ITAA1936Defines:Incomefrompersonalexertion;Incomefromproperty;andIncomefromcarryingonabusiness.SOsuchreceiptsare‘ORDINARYINCOME’.Section6(1)ITAA1936DefinesStatutoryIncomeReceiptsthatwouldnotbeincomeunderordinaryconceptsbutwhichareincludedinincomebecausesomeprovisionofataxingstatutemakethemincome.Majorexamplesinclude:s21A(non-cashbusinessbenefits)s15-2(allowances,gratuitiesetc);s15-15(incomefromprofitmakingundertakingsorplans)Otherexamplesinclude:Capitalgains(s102-5);Deemeddividends(varioussections-inclDiv7A);Balancingadjustments(Div40);Recoupments(s20-20);SomeETPs(‘employmentterminationpayments’).StatutoryIncomeReceiptsthat“Derivation”ofIncome

Incomebecomesassessablewhenitis“derived”–ss6-5(2)and(3)You“derive”incomewhenyoureceiveitorwhen“itisappliedordealtwithinanywayonyourbehalforasyoudirect”–s6-5(4)ands6-10(3).

“Derivation”ofIncomeIncomeTaxableIncome=AssessableincomeLESSDeductionsTaxableIncome=AssessableinDeductionsLossesandoutgoingsincurredingainingorproducingassessableincome–s8-1(1)(a)ORNecessarilyincurredincarryingonabusinessforthepurposeofgainingorproducingassessableincome–s8-1(1)(b)OROtheramountstheITAAallowsyoutodeduct(specificdeductions)-s8-5DeductionsLossesandoutgoingQuestion:

Giveanexampleofthe

difference

between“assessableincome”and“taxableincome”inthecontextof:

a. Wageandsalaryincome;

b.

Interestincome;

c.

Rentalincome;

d. Businessincome.

Question:

GiveanexampleofQuestion:

Arethefollowingreceipts“income”–and,ifso,aretheyincomefrompersonalexertionorincomefromproperty?

a. awagereceivedbyanemployee;

b. acommissionreceivedbyasalesman;

c. asign-onfeereceivedbyaprofessionalfootballer;

d. abonusreceivedforbeingthefirm’s‘TopSalesman’;

e. ashareinprofitsreceivedbya‘silentpartner’;

f. gamblingwinnings;

g. aredundancypayment;

h. apension;

i. acapitalgainfromsellingablockofland;

j. royaltypaymentsreceivedforatechnologylicence;

k. aloanfromaprivatecompanytoitsmanagingdirector;

l. ‘keymoney’paidtoalandlordforalease.Question:

ArethefollowingrIncome-GeneralLawPrinciplesItmust“comein”tothetaxpayer(Cooke&Sherden).Itmustbemoneyorsomethingreadilyconvertibletomoney.Noteverythingwhichcomesinisnecessarilyincome:CapitalreceiptsWindfallgains(the“NormalProceeds”ofpersonalexertion,propertyorbusinessareincome-WindfallGainsarenot.)“Mutualpayments”.4. Itmustbereceivedbythetaxpayerasincome;Isitincomeinthehandsofthistaxpayer?-FederalCokeHasitbeen“received”?-Brent5. Itoftenexhibitscharacteristicsofperiodicity,regularityandrecurrence.6. “IncomeSubstitution”orcompensationpaymentsmaybeincome.7. Illegal,immoralandultraviresreceiptsmaybeincome.

Income-GeneralLawPrincipleItMust“ComeIn”Atgenerallawameresavingofexpenditureisnotenoughtoconstituteincome(TennantvSmith;CookeandSherden);Thishasbeenstatutorilymodifiedunder:

s15-2(theformer26(e))-whichtaxesthe“valuetoyou”(subjecttotheFBTlegislation–sees23L);ands21(whichdeemsamoneyequivalent);ands21A(whichdealswith“non-cashbusinessbenefits).ItMust“ComeIn”AtgenerallaQuestion:

Which,ifany,ofthefollowingamountsareassessableincomeundertheITAA?

a. aholidayvaluedat$5,000awardedbya firmtoits“SalesmanoftheMonth”;

b. thesameholidayawardedtoitsbest performingnon-employeeagent?

Question:

Which,ifany,oftTheReceiptShouldBeMoney

1. Linkedtotherequirementthat,tobeincome,thereceiptshould‘comein’andnotbeameresavingofexpenditure.Thishasbeensubstantiallymodifiedbystatuteanditcannolongerbeseenasacharacteristicof“income”.See,againinparticular:Section15-2;Section21;andSection21A(thoughnotes23L(2)).

TheReceiptShouldBeMoney

1NotEverythingThatComesInisNecessarilyIncomeCapitalreceipts;Windfallgains(the“NormalProceeds”ofpersonalexertion,propertyorbusinessareincome-WindfallGainsarenot);“Mutualpayments”.NotEverythingThatComesIniCapitalReceipts

Oursystemwasdesignedtotax“income”.Theconceptwasbasedonthetrustlawdistinctionbetweencapitalandincome(the“tree”andthe“fruitofthetree”analogy)

.Capitalreceiptswerenottaxed(andstillarenottaxed)UNLESSthearecoveredbytheCGTprovisionsCapitalReceiptsOursystemwaWindfallGainsWindfallgainsfallintotwomaincategories:Gamblingwinnings;andGifts.Theyaregenerallynottaxableunless(inthecaseofgamblingproceeds)theyaretheresultofincomeearningrelatedactivity(ega“businessofgambling”).WindfallGainsWindfallgainsfRuleswithGratuitiesAgiftisnotordinarily“income”;somethingreceivedforservicesrenderedprobably

is;2. Incharacterisingagift,lookatthewholeofthecircumstancessurroundingit;

3. Theregularity,recurrenceandperiodicityofthereceiptmaybeimportant;

4. Ifthetaxpayerreliesuponthereceiptitismorelikelytobeincome;

5. Ifthetaxpayer“expects”thepayment(egasamoralright),itismorelikelytobeincome;

6. Themotivesofthedonormayberelevantbutareseldomdecisive;

7. Iftherecipienthasalreadybeenadequatelyrewarded,thegiftislesslikelytobeincome;

8. Paymentbyathirdpartydoesnotpreventthepaymentbeingincome.

RuleswithGratuitiesAgiftisMutualPaymentsTheUnderlyingPrinciple:Ataxpayercannotderivetaxableincomefrompaymentstohimself/herself.Itappliesparticularlytoincomereceivedbyclubsandsocietiesfromdealingwiththeirmembers.Ifthereis“completeidentity”betweenthosewhocontributeandthosewhobenefit(takenasaclass)thereceiptsarenotincome.Incomefrombusinessactivitiesaimedatproducingaprofit(asopposedtoa‘surplus’)andfromnon-membersistaxable.MutualPaymentsTheUnderlyingIncomeofClubs

1. Isthereceiptexemptincome?Ifnot,the"MutualityPrinciple"producesthree(3)possibilities:thereceiptiswhollyexemptbecauseitcomesfrommembers;thereceiptiswhollytaxablebecauseitcomesfromsourcesoutsidetheclub;thereceiptispartlyassessablebecauseitcomesfromthegeneraltradingactivitiesoftheclubwhichcannotbesourcedtomembersalone.

IncomeofClubs

1. IstherecQuestion:

TheCardwellQuoitsClubwasestablishedin1980topromotequoitsintheupperHerbert.Memberspayanannualfeewhichwasusedtorentpremisesandfinancetheclub’sactivities.Toallow‘fellowship’

afterpracticeorcompetitionmatchesarefrigeratorwasboughtandtheclubsolddrinksandsnackfoodstomembersandguests.

Asquoitsgainedinpopularity,membershipincreased,theclubpurchasednewpremises,installedabarand(later)arestaurant–againformembersandguests.Therestaurantwasalsorentedoutforweddingsandotherfunctions.Withitsincreasedsizetheclubalsoinstalledpokermachinesandadded10motelunits.

TheclubnowhasamembershipinthethousandsandregularlyservesadiverserangeofvisitorsfromalloverAustralia.

Whatisitstaxposition?

Question:

TheCardwellQuoitsShouldBeReceivedbytheTaxpayerasIncome

Twopoints:1. Thereceiptmustbean“incomereceipt”inthehandsofthetaxpayer;Thetaxpayermust“derive”itintermsofs6-5ors6-10.ShouldBeReceivedbytheTaxpCommonCharacteristicsPeriodicity;Regularity;andRecurrence.CommonCharacteristicsPeriodicIncomeSubstitutionandCompensationPayments

1. Incomesubstitutionpayments(keymoneyinsteadofrent,sign-onfeesinsteadofsalary)areregardedasincome;Compensationpaymentstakethecharacterofthereceipttheyreplace(seeFCTvMeeks).Div20-Aspecificallymakescertain“recoupments”assessable(ieasstatutoryincome).IncomeSubstitutionandCompenQuestion:

ArethefollowingreceiptsbyanAustralianresidenttaxpayerpartofhisorherassessableincome?

a. lumpsumdamagesforpersonalinjuries sufferedinamotorvehicleaccident;

b. workers’compensationpaymentsforlossof income;

c. anhonorariumreceivedbythesecretaryofa club;

d. tipsreceivedbyawaitress;

e. $1millionprizeinGoldLotto.

Question:

ArethefollowingrQuestion:

Whatrecoupmentsaremadeassessableunder:

a. s20-30(1);

b. s20-30(2).

Question:

WhatrecoupmentsarIncomefromIllegalActivities

1. Assessabilityofreceipts.Deductionsforoutgoings:Underthegenerallaw;Unders26-54ands110-38–illegalactivityoutgoings;Unders26-5–Finesandpenalties;Unders26-52and26-53–Bribes.IncomefromIllegalActivitiesCO5120

TaxationLaw

Module2DerivationofTaxableIncomeCO5120

TaxationLaw

Module2DModuleObjectivesApplyconceptsofordinaryandstatutoryincome.Understandtheconceptof“derivation”ofincome.Understandthegenerallawprinciplesfordeterminingincome–andtheirstatutorymodifications.Understandthedifferencesbetweenincome,capitalreceipts,windfallgainsandmutualpayments.Understandtherulesgoverningnon-cashreceipts.Understandtherulesgoverningincomesubstitutionandcompensationpayments.Understandthetaxeffectofreceiptsfromillegalactivity.ModuleObjectivesApplyconceptTheAustralianTaxSystemThreeCriticalQuestions:Whodowetax?Whatdowetax?Howmuchdowetax?TheAustralianTaxSystemThreeTheTaxationEquationsAssessableIncome=Grossincome–(Exemptincome+Non-assessablenon-exemptincome)(sees6-1).

TaxableIncome=Assessableincome-Deductions(sees4-15).

TaxPayable=(TaxableincomexRate)-TaxOffsets(sees4-10(3)).

TheTaxationEquationsAssessabGrossincome=Allincome(fromanysource)

“Allincome”includesboth:‘exemptincome’;and‘non-assessable,non-exemptincome’.Grossincome=Allincome(froTherefore(becauseofs6-15)

AssessableIncome=

All“ordinaryincome”

PLUS

All“statutoryincome”

LESS

Any“exemptincome”

AND Any“non-assessable non-exemptincome”.Therefore(becauseofs6-15)

OrdinaryandStatutoryIncomeSections6-5(1):“ordinaryincome”is“incomeaccordingtoordinaryconcepts”.Section6-10(2)“statutoryincome”includes“amountsthatarenotordinaryincomebutareincludedinyourassessableincomebyprovisions[intheAct]aboutassessableincome”.

OrdinaryandStatutoryIncomeSTherefore:WhetheraparticularreceiptisINCOMEthatistaxableinthehandsofataxpayerdependsonwhetheritis:

a. INCOMEONORDINARYCONCEPTS (‘Ordinaryincome’);or

b. IncomeundersomeSPECIFICSTATUTORY PROVISION(‘Statutoryincome’).ANDWhetherithasbeenderivedTherefore:WhetheraparticularIncomeonOrdinaryConceptsTheITAAdoesnotdefinetheterm“income”;Section6(1)(ITAA1936)doesdefine:incomefrompersonalexertion;Incomefromproperty;Incomefromcarryingonabusiness.TheITAAalsodeemssomereceiptstobe“income”fortaxationpurposes(egnon-cashbusinessbenefits,tipsandgratuities,post-1985capitalgainsetc).Thesereceiptsarecalled‘statutoryincome’;BUT,apartfromthosereceipts,determiningwhetheraparticularreceiptis“income”hasbeenlargelydeterminedbythecourts.IncomeonOrdinaryConceptsTheSection6(1)ITAA1936Defines:Incomefrompersonalexertion;Incomefromproperty;andIncomefromcarryingonabusiness.SOsuchreceiptsare‘ORDINARYINCOME’.Section6(1)ITAA1936DefinesStatutoryIncomeReceiptsthatwouldnotbeincomeunderordinaryconceptsbutwhichareincludedinincomebecausesomeprovisionofataxingstatutemakethemincome.Majorexamplesinclude:s21A(non-cashbusinessbenefits)s15-2(allowances,gratuitiesetc);s15-15(incomefromprofitmakingundertakingsorplans)Otherexamplesinclude:Capitalgains(s102-5);Deemeddividends(varioussections-inclDiv7A);Balancingadjustments(Div40);Recoupments(s20-20);SomeETPs(‘employmentterminationpayments’).StatutoryIncomeReceiptsthat“Derivation”ofIncome

Incomebecomesassessablewhenitis“derived”–ss6-5(2)and(3)You“derive”incomewhenyoureceiveitorwhen“itisappliedordealtwithinanywayonyourbehalforasyoudirect”–s6-5(4)ands6-10(3).

“Derivation”ofIncomeIncomeTaxableIncome=AssessableincomeLESSDeductionsTaxableIncome=AssessableinDeductionsLossesandoutgoingsincurredingainingorproducingassessableincome–s8-1(1)(a)ORNecessarilyincurredincarryingonabusinessforthepurposeofgainingorproducingassessableincome–s8-1(1)(b)OROtheramountstheITAAallowsyoutodeduct(specificdeductions)-s8-5DeductionsLossesandoutgoingQuestion:

Giveanexampleofthe

difference

between“assessableincome”and“taxableincome”inthecontextof:

a. Wageandsalaryincome;

b.

Interestincome;

c.

Rentalincome;

d. Businessincome.

Question:

GiveanexampleofQuestion:

Arethefollowingreceipts“income”–and,ifso,aretheyincomefrompersonalexertionorincomefromproperty?

a. awagereceivedbyanemployee;

b. acommissionreceivedbyasalesman;

c. asign-onfeereceivedbyaprofessionalfootballer;

d. abonusreceivedforbeingthefirm’s‘TopSalesman’;

e. ashareinprofitsreceivedbya‘silentpartner’;

f. gamblingwinnings;

g. aredundancypayment;

h. apension;

i. acapitalgainfromsellingablockofland;

j. royaltypaymentsreceivedforatechnologylicence;

k. aloanfromaprivatecompanytoitsmanagingdirector;

l. ‘keymoney’paidtoalandlordforalease.Question:

ArethefollowingrIncome-GeneralLawPrinciplesItmust“comein”tothetaxpayer(Cooke&Sherden).Itmustbemoneyorsomethingreadilyconvertibletomoney.Noteverythingwhichcomesinisnecessarilyincome:CapitalreceiptsWindfallgains(the“NormalProceeds”ofpersonalexertion,propertyorbusinessareincome-WindfallGainsarenot.)“Mutualpayments”.4. Itmustbereceivedbythetaxpayerasincome;Isitincomeinthehandsofthistaxpayer?-FederalCokeHasitbeen“received”?-Brent5. Itoftenexhibitscharacteristicsofperiodicity,regularityandrecurrence.6. “IncomeSubstitution”orcompensationpaymentsmaybeincome.7. Illegal,immoralandultraviresreceiptsmaybeincome.

Income-GeneralLawPrincipleItMust“ComeIn”Atgenerallawameresavingofexpenditureisnotenoughtoconstituteincome(TennantvSmith;CookeandSherden);Thishasbeenstatutorilymodifiedunder:

s15-2(theformer26(e))-whichtaxesthe“valuetoyou”(subjecttotheFBTlegislation–sees23L);ands21(whichdeemsamoneyequivalent);ands21A(whichdealswith“non-cashbusinessbenefits).ItMust“ComeIn”AtgenerallaQuestion:

Which,ifany,ofthefollowingamountsareassessableincomeundertheITAA?

a. aholidayvaluedat$5,000awardedbya firmtoits“SalesmanoftheMonth”;

b. thesameholidayawardedtoitsbest performingnon-employeeagent?

Question:

Which,ifany,oftTheReceiptShouldBeMoney

1. Linkedtotherequirementthat,tobeincome,thereceiptshould‘comein’andnotbeameresavingofexpenditure.Thishasbeensubstantiallymodifiedbystatuteanditcannolongerbeseenasacharacteristicof“income”.See,againinparticular:Section15-2;Section21;andSection21A(thoughnotes23L(2)).

TheReceiptShouldBeMoney

1NotEverythingThatComesInisNecessarilyIncomeCapitalreceipts;Windfallgains(the“NormalProceeds”ofpersonalexertion,propertyorbusinessareincome-WindfallGainsarenot);“Mutualpayments”.NotEverythingThatComesIniCapitalReceipts

Oursystemwasdesignedtotax“income”.Theconceptwasbasedonthetrustlawdistinctionbetweencapitalandincome(the“tree”andthe“fruitofthetree”analogy)

.Capitalreceiptswerenottaxed(andstillarenottaxed)UNLESSthearecoveredbytheCGTprovisionsCapitalReceiptsOursystemwaWindfallGainsWindfallgainsfallintotwomaincategories:Gamblingwinnings;andGifts.Theyaregenerallynottaxableunless(inthecaseofgamblingproceeds)theyaretheresultofincomeearningrelatedactivity(ega“businessofgambling”).WindfallGainsWindfallgainsfRuleswithGratuitiesAgiftisnotordinarily“income”;somethingreceivedforservicesrenderedprobably

is;2. Incharacterisingagift,lookatthewholeofthecircumstancessurroundingit;

3. Theregularity,recurrenceandperiodicityofthereceiptmaybeimportant;

4. Ifthetaxpayerreliesuponthereceiptitismorelikelytobeincome;

5. Ifthetaxpayer“expects”thepayment(egasamoralright),itismorelikelytobeincome;

6. Themotivesofthedonormayberelevantbutareseldomdecisive;

7. Iftherecipienthasalreadybeenadequatelyrewarded,thegiftislesslikelytobeincome;

8. Paymentbyathirdpartydoesnotpreventthepaymentbeingincome.

RuleswithGratuitiesAgiftisMutualPaymentsTheUnderlyingPrinciple:Ataxpayercannotderivetaxableincomefrompaymentstohimself/herself.Itappliesparticularlytoincomereceivedbyclubsandsocietiesfromdealingwiththeirmembers.Ifthereis“completeidentity”betweenthosewhocontributeandthosewhobenefit(takenasaclass)thereceiptsarenotincome.Incomefrombusinessactivitiesaimedatproducingaprofit(asopposedtoa‘surplus’)andfromnon-membersistaxable.MutualPaymentsTheUnderlyingIncomeofClubs

1. Isthereceiptexemptincome?Ifnot,the"MutualityPrinciple"producesthree(3)possibilities:thereceiptiswhollyexemptbecauseitcomesfrommembers;thereceiptiswhollytaxablebecauseitcomesfromsourcesoutsidetheclub;thereceiptispartlyassessablebecauseitcomesfromthegeneraltradingactivitiesoftheclubwhichcannotbesourcedtomembersalone.

IncomeofClubs

1. Isthe