Chapter 2.

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IDENTIFY THE ISSUE:

Is $xxxxxx received by Ms xxxxxxxx for xxxxxxxx income from
personal exertion assessable as ordinary income under Sec 6-
5(1) ???? SEE BELOW

Checklist: Your issue, should Identify:

 Name of taxpayer
 List the receipts (discuss in general) and their $ amount
 State the relevant law applicable

STEPS
Law: extracts 摘录 from the Income Tax Assessment
Following “criteria” Act
identified for income to
be personal exertion
income.

Refer to the law

Step 1. The definition of ‘income from personal exertion under Sec
6(1) ITAA 1936 refer to a list of receipts (see below) that are
“Income from personal considered to be income from personal exertion:
exertion” in S6(1) ITAA
Income from personal exertion means income consisting
of earnings, salaries, wages, commissions, fees,
If the receipt of
bonuses, pensions, superannuation allowances and
income is not listed in
retiring gratuities, allowances and gratuities received in
Sec 6(1) ???
the capacity of employee or in relation to any services
rendered, the proceeds of any business carried on by the
taxpayer either alone or as a partner with any other person,
any amount received as a bounty or subsidy in carrying on a
business, …
在经营业务时作为赏金或补贴收到的任何金额

If not refer to case

Students: refer to the above list. Are any of the
law in Step 2
receipts in question included in the above list ? If so
state that the income in question is a receipt from
personal exertion as listed in Sec 6(1).

§ Income from personal exertion is

defined underIs Sec 6(1) to include the
APPLY LAW TO SARA
salary paid of $70000; the car
allowance of $5,000 and the bonus of

Chapter 2. Steps - assessable income. . 1


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Step 2a,
Do you need to consider
CASE LAW? Consider if
receipt is unusual.
Hayes case: states
consider the character
of the receipt in the
hands of the recipient:
Hayes case. i.e. what
is it for? Can it be linked
to work performed?
Chapter 2. Steps - assessable income.
Chapter 2.
$2,000 received in capacity of
employee to her employer Landscapers
Worldwide
Refer to STEP 2a and determine if any of the
following case law apply to Sara?
Are the receipts paid under unusual
circumstances? Will the receipt be still be
‘ordinary income’ under Sec 6(1) 1936 ITAA?
For example: gratuitous gifts of shares;
 money paid by former employers or awards
given for “best and fairest” player;
Are these receipts still income from personal exertion?
It is a question of fact and degree. Do the following
principles of law apply:
Refer to case law - precedents
Are the characteristics of the receipt similar to the
following precedents:
 There needs to be a link between the amount and
an earning activity” Dixon
 Is the amount a product or incident of
employment or a reward for services rendered
提供服务的奖励: Dixon
 The amount could be for past or future services,
and could be from a one-off act of service: Dixon
 May be paid by a third party: Dixon
 It must be convertible to cash: Cooke and
Sherden
 Is it regularly received? Dixon
 Was it relied on ? Dixon
Student: Make sure you state the law and the precedent
as shown above and apply it to your facts.
Hayes Case or Scott’s case
 The receipts could
Characteristic: not be
is there linked
any to anymotive
personal service?
performed;
 Long relationship between payer and recipient;
 Unexpected
 Taxpayer had been properly remunerated 报酬;
 Personal relationship
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Step 2b.  Amateur sportsperson paid a lump sum to become

Not all receipts are
ordinary income.  receipt is a restrictive convenant ?
Is there a personal
relationship? Motive?
professional: Capital
Capital receipt is notJarrold v Boustead
ordinary income.
That is, the money is coming in, is a one-off payment
and is seen as a surrender of an asset – the right to
work. It is not a payment for services as such. In a sense
it is compensation for a lost right. Hence the receipt is
treated as capital. Higgs v Olivier; Beak v Robson.

 frequent flyer points held not to be income from

personal exertion as there is no employer employee
STEP 2(c) relationship: Payne 1996

 compensation for personal injury and the inability to

Receipt of a capital work in the future. 人身伤害和将来无法工作的赔偿
nature?

STEP 2 apply to Sara? Compensation for being off work for a month of $4,000 is
income from PE, as the nature of the income being
replacing is her salary, which is income from personal
exertion.

Refer to STEP 3
If the receipt does not fall within Step 1 or 2 i.e.
Income from Personal Exertion?

Refer back to the characteristics of “ordinary

income” and determine if any of the characteristics
or income apply to the facts.

Step 3. If the receipt does not fall within Step 1 or 2 ?

Common law For example

characteristics of Holiday incentive non convertible into cash was held not to
income: be ordinary income.(Cooke and Sherden 1990) A statutory
provision could apply? Refer to Sec 21A
If benefits cannot be Winnings from gambling or quiz shows, or gold lotto are

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converted into cash? windfall gains, not ordinary income.

Above receipts do not fall within the definition of “ordinary

income” under Scotts case (1935). However under the
ordinary concepts and usages of mankind and determine
the above receipts are not “ordinary income”.
Windfall gains?

Gold Lotto winning of $10,000 is a windfall

Will STEP 3 apply to
SARA? gains and not ordinary income.

Step 4. NON-ASSESSABLE under ITAA:

Fringe benefits exempt income: Sec 23L
Will a statutory Benefits received e.g company car or personal expenses paid
provision apply? by employer: known as “fringe benefits”. Assessed under the
FBTAA.

Reimbursements? Reimbursements 报销
Would be a non-assessable non-exempt income.

ASSESSABLE
Allowances? Section 15-2 will apply to value to you for allowances and
other things, such as gratuities, compensation, benefits,
bonuses and premiums provided to you in respect of any
employment or services rendered to you.

Sec 15-2(2) This is so whether the things are provided to or

in money or in any other form.

Read Division 15 for other provisions.

Will STEP 4 apply to The non-transferable holiday valued at

Sara? $4,000 to Hayman Island for her
outstanding performance in the 2019
financial year is a fringe benefit and
exempt as ordinary income under Sec
23L

Reimbursement of $150 for parking

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fees paid when working in the city is
non assessable non-exempt income: Sec
6-23
Step 5. Conclude after your analysis whether the items of
Conclude receipt is or is not assessable as ordinary income under
Sec 6-5(1)
 Don’t forget to quote the section.

Issue: Are the following receipts received by Sara

Greene, assessable as ordinary income under Sec
6-5(1)?

Ordinary income assessable under Sec 6-5 will

include:

Income from Personal Exertion?

§ Income from personal exertion is defined under Sec

6(1) to include the salary paid of $70000; the car
allowance of $5,000 and the bonus of $2,000
received in capacity of employee to her employer
Landscapers Worldwide;
§ Compensation for being off work for a month of
$4,000 is income from PE, as the nature of the
income is replacing her salary, which is income from
personal exertion.
Income from property?

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§ Income from property defined under Sec 6(1) ITAA
1936 includes“income from property” Rent $32,000;
unfranked dividend $8,000; Interest HK $2,000;
Ordinary income will not include:
§ Gold Lotto? $10,000 winning is a windfall gain
and not ordinary income.

Following statutory provisions apply to:

§ Reimbursement of $150 for parking fees paid
when working in the city is non assessable non-
exempt income; Sec 6-23
§ The non-transferable holiday valued at $4,000
to Hayman Island for her outstanding
performance in the 2019 financial year is a
fringe benefit and exempt as ordinary income
under Sec 23L

Chapter 2. Steps - assessable income. . 6