Reimbursement of deductible truck repairs  $                                          14,000
Demurrage (compensation for loss of income)                                         16,000
Proceeds for disposal of Truck (equal to book value)                                 75,000

(m) Sandy operates a general food store. During the year, his store was subject to two armed robberies. He received the following amounts from his insurance company (exclusive of GST):

Loss of cash sales from robberies $                            21,000
Loss of Trading Stock                                                    7,800
Reimbursement of deductible shop repairs                  3,200
Reimbursement of Medical Expenses                            2,000

(n) Troy operates an advertising agency. During the year, he has a “contra” transaction with his solicitor to the value of $25,000.

(o) Harrison derives business income as a barrister. He instructs one of his clients to pay his fee of $19,000 direct to Commonwealth Bank with whom his wife has a mortgage.

(p) Karl conducts business as a contract plumber. He completes a subcontract job for a large construction company in return for airfares and accommodation to the value of $8,000 rather than a cash fee.

(q) Rob conducts business as a lawyer. He drafts some changes to a Will for one of his clients and does not charge a fee but receives a $250 pair of cufflinks.

(r) Petros conducts business as a property developer. As a result of extensive travel throughout the year, Petros receives 178,000 frequent flyer points which he is able to redeem in the form of air tickets to the value of $3,280.

(s) Len trades as a carpet retailer. During the year, he receives cash subsidies and incentives from a supplier for selling over 2 kilometres of their carpet. This amounted to $36,000.

(t) Shelley operates a coffee shop. Fiasca, a coffee supplier gives her an espresso machine as an incentive to use their coffee. The machine is worth $12,000. They also provide her with some outdoor umbrellas and furniture with the name of their coffee. These are valued at $8,000 but must be returned to Fiasca if she ceases to buy their coffee.  

Answers

a. Weekly wages constitutes as ordinary income drawn from employment within Section 6(5), ITAA 1997. Total amount contributed to Nicks’ assessable amount = $78,000 + $19,000 = $ 97,000.

b. Christmas bonus is derived not on account of personal equation but on account of professional relationship with the employer. Thus, this also amounts to payment linked with employment covered under Section 6(5) and hence $ 10,200 would be contributed to assessable income (Barkoczy, 2015).

c. The payment of reimbursement is dependent on the actual out of pocket travel expenses borne by employee. Hence, due to irregular nature and dependence on proof, as per TR 92/15, these would not add up to the assessable income (CCH, 2013).v>

d. Allowances are fixed and definite payments that would be derived by the employees irrespective of the actual expense being incurred. Further, the employer typically does not ask for any proof in regard to the payment. Thus, as per TR92/15, the allowance would contribute $ 2800 to Nick’s assessable income (Gilders et. al., 2016).

e. By payment of health insurance premiums for employee and associate, the employer is paying for an expense of personal nature. Thus, this amounts to extension of expense fringe benefit which as per relevant provisions of FBTAA 1986 would be taxable only on employer’s end. Hence, no contribution to Nick’s assessable income (Wilmot, 2012).

f. In accordance with ATO ID 2014/31, the superannuation contribution from employer for Nick’s part may be treated in the same manner as an allowance. This is because it is regular and has a fixed amount which could be predicted beforehand and also related to employment. Hence, this would be ordinary income and add $ 10,000 to the total assessable income (Sadiq et. al., 2016).

g. $ 50,000 has been received because of income loss during the injury period. As per TR 2016/D1, this has revenue nature even though the payment is lump sum and thus woud constitute as ordinary income under the ambit of Section 6(5). Hence a total of $ 50,000 would be added to Nick’s assessable income (Deutsch et. al., 2015).

h. Insurance proceeds are not for loss in income but on account of operation and related rehabilitation and hence could not be considered as revenue nature payments which qualifies them as capital receipts and hence output the ambit of assessable income (CCH, 2013).

i. Here, the proceeds given by insurance policy do not relate to loss of income but impairment of earning capacity which is taken to be a capital asset. This is as advocated in TR 2016/D1and thereby the proceeds would not contribute to assessable income (Barkoczy, 2015).

j. Long service leave is created only on account of the employment service that underlying employee offers to the employer (SGR 2009/2). As a result, this would be categorised as ordinary income under Section 6(5) and assessable income for the given taxpayer would increase by $ 5,400 + $1,600 = $7,000 (Nethercott, Richardson and Devos, 2016).

k. Income derived from one’s profession is ordinary income under Section 6(5). Hence, a total amount of 79000+ 154000 = $ 233,000 would be reflected in the assessable income of Quention who is a medical practitioner by profession and the payments derived may be attributed to the same (Deutsch et. al., 2015).

l. Tax Ruling 95/35 along with TR 95/18 could be used to analyse the given situation (Sadiq et. al., 2016).

• As truck is a capital asset, hence proceeds on disposal of the same would be capital receipts. Also, since the selling is same as book value , hence no capital gains also and thereby does not increase the assessable income.
• Any compensation for income loss has revenue nature and is computed by considering the actual income loss due to truck being damaged. Thus, assessable income of the taxpayer increases by $ 16,000
• Reimbursement of most business expenses that are deductible and thus attributed to business contribute to assessable income and this case is no different. This leads to an addition of $ 11,000 to the overall assessable income.

m. Again deploying the understanding drawn from TR 95/35, compensation on account of making up for lost cash sales adds to taxpayer’s assessable income. This amounts to $ 21,000 as GST is not included in assessable income. Besides, trading stock is deployed for generation of revenue and therefore any compensation in the regard would enhance the overall assessable income (CCH, 2013). In the given case, this amount is $ 7,800. The reimbursement of shop expenses which are of business nature will also lead to increase of assessable income by $ 3,200 in line with Section 6(5). However, the reimbursement of medical expenses will not impact the assessable income as the nature of these expenses is personal (barkocy, 2015).

n. In accordance with IT 2668A, the amount in case of contra transactions and those involving bargain would fully contribute i.e. $ 25,000 to the assessable income and considered as ordinary income under Section 6(5) (Sadiq et. al., 2016).

o. Irrespective of the beneficiary in which the proceeds may be diverted, this needs to be reported for tax purpose as ordinary income (Section 6(5)) derived from profession by Harrison and would tend to increase the overall assessable income by $ 19,000 (Nethercott, Richardson and Devos, 2016).

p. The money derived in the form of airfare and accommodation is primarily linked to the service provided as a plumber. Hence, in accordance with TR 2005/13, the non-cash benefits amounting to $ 8,000 would contribute to assessable income as it would be termed as statutory income (CCH, 2013).

q. The cufflinks with an estimated value of $ 250 have been given not as a gift but in return of the services provided by Rob. Since, this exchange is essentially business linked; hence Bob’s assessable income would rise by $ 250 (Gilders et. al., 2016).

r. The money spent on travelling by Petros is essentially a business expense for which he would claim a tax reduction.  Therefore, acting on TD 1999/6, it is fair to conclude that any benefit arising from any customer loyalty program, would lead to increased assessable income by $ 3,280 (Sadiq et. al., 2016).

s. The trade incentives extended to Len by the supplier tend to cause no decrease in the trading stock cost. This is apparent from the fact that the extension is contingent on criteria being met with regards to sales of carpet. As per TR 2009/5, this leads to increase in Len’s assessable income by $ 30,000 (Deutsch et. al., 2015).

t. TR 2009/5 states that any incentives that are extended as promotional material by the supplier for sales enhancement in the future is to be assumed as trade incentive of taxable nature if the continuation of presentation of this is dependent on achievement of sales target. However, based on the information given, Shelley does not need to return the promotional material even if she quits the business. Thus, no assessable income arises in this case (Barkoczy, 2015).

References

Barkoczy, S. 2015, Foundation of Taxation Law 2015, 7^th ed., North Ryde: CCH Publications

CCH 2013, Australian Master Tax Guide 2013, 51^st ed., Sydney: Wolters Kluwer

Deutsch, R., Freizer, M., Fullerton, I., Hanley, P., and Snape, T. 2015, Australian tax handbook 8th ed., Pymont: Thomson Reuters,

Gilders, F., Taylor, J., Walpole, M., Burton, M. and Ciro, T. 2016, Understanding taxation law 2016, 9^th ed., Sydney: LexisNexis/Butterworths.

Nethercott, L., Richardson, G. and Devos, K. 2016, Australian Taxation Study Manual 2016, 4^th ed., Sydney: Oxford University Press

Sadiq, K, Coleman, C, Hanegbi, R, Jogarajan, S, Krever, R, Obst, W, and Ting, A 2016 , Principles of Taxation Law 2016, 8^th ed., Pymont:Thomson Reuters

Wilmot, C 2012,  FBT Compliance guide, 6^th ed., North Ryde: CCH Australia Limited