Taxation Law

TRUC TRAN THANH TRUONG

K140658

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Contents

Introduction________________________________________________________________2

Question 1_________________________________________________________________3

Question 2_________________________________________________________________6

References_________________________________________________________________9

Introduction

This assignment will examine which is ordinary income or statutory income a giving context under Australian Taxation Law and how to identify them. Moreover, this assignment also identifies and analyses the relevant information of deduction and how to make decision on tax payment under Australian Taxation Law from a given scenario.

Question 1:

This question is examining about the Income of a person who is Peta. It is told that Peta purchased a house in Kew two years ago. At the back of the house, there were two old tennis courts which are in very bad quality. Peta wanted to buy this house to make a place for her family. Moreover, she thought that she could rebuild the two tennis courts into three units for trading purpose. In that year, the tennis club next to her place would like to purchase the old tennis courts in the condition that Pete had to fix and make them in the good condition. Peta considered about that and decided to agree with the offer from the tennis club. She spent $100,000 for fixing and restoring the courts to sell them for the tennis club. The tennis courts needed to be resurfaced and surrounded by new fences. After the reconstruction, the tennis courts would be sold with $600,000 according to the current tax year.

According to Australian Taxation Office, a capital gain or a capital loss is the difference between what you have to pay for an asset and what you could gain on that asset when it is disposed. A capital gain is considered as a profit which is the results from a capital asset trading like stock, bond or real estate trading. This trading could bring profits to the sellers because the sale price exceeds the purchase price. However, in this situation, the question does not need to consider about capital gain. Defining the amount of $600,000 from the trading of the tennis courts is whether ordinary income or not which is the objective of this question.

Income tax is the most important revenue stream in Australia through the Australian Taxation Systems. There are three sources which could be considered as what the income tax is levied upon. Those three sources for an individual taxpayer are personal earnings such as salaries or wages, business income and capital gains. Besides, income is divided into two types which are ordinary income and statutory income in Australian Taxation Law.  In accordance with Income Tax Assessment Act 1997 under Section 6.5, the assessable income includes income according to ordinary concepts, which is called ordinary income. Section 6.5 (1) of the ITAA in 1997 shows that income according to ‘ordinary concepts’ is not defined but is considered as the amounts which is normally considered as the income by people. The ordinary incomes is generally the components of the income from personal exertion, for example: salary and wages; the income from property such as rent, dividends and interests; and the income from carrying on a business like trading on retail sales or doing a commercial activity.  However, these incomes above are included in assessable income, it is essential to make the distinction between them as some deductions which depend on the category of income.