Tax Law

http://www.iknow.cch.com.au/#!/document/atagUio2412704sl510693953/riley-v-fc-of-t-administrative-appeals-tribunal-of-australia-12-september-2014

Receipt 1 ($80,000 ordinary income)

Issue

Is the receipt received by the client from the Worker’s Compensation Commission assessable as ordinary income under s 6-5 ITAA 1997?

Relevant Law

S6-1(1) ITAA97 Assessable Income = Ordinary income + Statutory Income

S6-5(1) ITAA97 | Ordinary income: your assessable income includes income according to ordinary concepts.

These ordinary concepts can be summarised into

1. Prerequisites of ordinary income
2. Characteristics of ordinary income

If a receipt does not fulfil these requirements, it is not ordinary income.

Prerequisites

1. cash or cash convertible

FCT v Cooke and Sherden

1. there must be a real gain

Hochstrasser v Mayes

Both prerequisites must be met for a receipt to be ordinary income

Main characteristics of ordinary income

1. regular or periodic receipt, including lump sums
2. income flows from capital
3. some gains are ordinary income despite having no earnings source
4. constructive receipt
5. compensation takes on the character of the loss being compensated

• compensation for loss of income, ordinary income
• FCT v Dixon
• Sommer v FCT

1. Nexus to either personal exertion (providing labour or services), property and business

At least 1 characteristics must be met for a receipt to be ordinary income.

Application

S 60AA subs (1) in addition to any other compensation under this Act. It is clear that what is being given here is compensation. In ordinary income, compensation takes on the character of the loss being compensated. 1) Compensation for loss of income is generally ordinary income. FCT v Dixon 2) compensation for loss of income earning ability, generally capital that are not ordinary income.

In this case, my client’s husband was injured when he was white water rafting during a team building exercise organised by his employer. As a result, he suffered significant physical impairment and was therefore unable to work. My client gave up full time work to become a carer to her husband, this means that she has “lost income or forgone employment” as a result of providing the assistance to her husband.  My client’ husband lodged a claim for compensation for domestic assistance my client provided her husband during the period March 2010 to June 2015. This means that the payment is made directly to my client, not her husband. This compensation is in accordance with the characteristics of ordinary income, which is compensation for loss of income.