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Ordinary income
Section 6-5(2), { 25(1)(a)} - If you are an Australian resident, your assessable income includes the ordinary income you derived directly or indirectly from all sources, whether in or out of Australia during the income year. Section 6-5(3), { 25(1)(b)} - If you are not an Australian resident, your assessable income includes: (a) the ordinary income you derived directly or indirectly from all Australian sources during the income year: and (b) other ordinary income that a provision includes in your assessable income for the income year on some other basis other than having an Australian source.
Statutory income
Section 6-10(4), { 25(1)(a)} - If you are an Australian resident, your assessable income includes your statutory income from all sources, whether in or out of Australia. Section 6-10(5), { 25(1)(b)} - If you are not an Australian resident, your assessable income includes: (a) your statutory income from all Australian sources; and (b) other statutory income that a provision includes in your assessable income on some other basis other than having an Australian source.
Exempt income
S. 6-15-2 if an amount is exempt income it is not assessable income S. 6-20(1) - an amount of ordinary income or statutory income is exempt income if it is made exempt from income tax by a provision of this Act. Exempt income reduces a tax loss. Division 11A provides a list of classes of exempt income. These include section 23L(2) ITAA36, non-cash business benefits under section 21(A) ITAA36 not in excess of $300.
Levies
A taxpayer may be liable for a levy, for example, a Medicare levy, gun levy, East Timor levy.
General provisions capturing assessable income Sections 6-5(1-3), 6-10(1-5), {25(1)} Section 6-5(2-3) and section 6-10(4-5) - assessable income of a taxpayer includes where the taxpayer is a (a) Resident ordinary and statutory income derived from all sources in or out of Australia (b) Non resident - ordinary and statutory income derived from all sources in Australia Section 6-5(2-3) and section 6-10(4-5) {25(1)} include various terms that shall be examined in this course. These are: derivation (unit 1) residence (unit 2) source of income (unit 2) income (unit 3) Section 6-5(2-3) {S.25(1)} employs the general common law concept of income, ie income according to ordinary concepts - which is based on principles provided by cases relevant to determining whether gains from certain activities are gains in the nature of income or gains of a capital nature. These include gains from: employment; rendering services; carrying on a business; speculative activity or profit-making schemes; property including rent, interest, dividends, royalties; There is no single test for determining whether a gain is of an income nature or a capital nature but numerous tests depending upon the circumstances. Starting point - what is income? There is no definition of "income" in the ITAA. On the other hand, many provisions in the ITAA make use of the concept of 'income.' Section 6(1) (1936) - distinguished between: (1) Income from personal exertion which means: "income consisting of earnings, salaries, wages, commissions, fees, bonuses, pensions, allowances and gratuities received in the capacity of employee or in relation to services rendered", "income consisting of the proceeds of any business carried on by the taxpayer", 3
"income consisting of any profit arising from the sale by the taxpayer of any property acquired by him for the purpose of profit-making by sale or from the carrying on or carrying out of any profit-making undertaking or scheme" (2) Income from property which means "all income which is not income from personal exertion. Note that the definitions in section 6(1){1936} do not define income but are circular definitions, that is, the word income appears on both sides of the equation: "Income from personal exertion, property" means "income" consisting of ... wages, allowances, gratuities.... While the definitions differentiate between different aspects on an undivided whole, they do not actually define the word "income." It is still necessary to show that a particular gain is of an income nature. It is necessary to look to the cases as to the meaning of the word "income" in respect of any particular gain. But the definitions in section 6(1) {1936} are an aid to strengthen a conclusion independently reached that a particular gain is income.
(b) Non-income gains made assessable income by statutory extension s. 6-10 Certain gains, though not income at common law, are made specifically assessable under the ITAA - section 10-5 .These include: Capital gains Division 100ff. though not of an ordinary income nature and therefore not caught as "income" by section 6-5(2-3) are treated as "assessable income" by section 6-10 Non-cash, non-convertible to cash benefits - section 15-2, ITAA97, includes as assessable income gains, the value to the taxpayer of all allowances, benefits, etc, provided in relation, directly or indirectly to any employment or services whether provided in money or any other form. Unlike the old s. 26, but under s. 23L(1), ITAA36, fringe benefits are non-assessable non-exempt income. Non-cash business benefits received in relation to business relations - section 21A {1936} Non-cash, non- convertible to cash benefits include: rent-free accommodation, low interest loans, free use of employer's vehicle. Section 15-15 includes in assessable income profits made on the disposal of property acquired before 20 September 1985 if the property was purchased for the purpose of profitmaking by resale or from carrying on a profit-making scheme. Section 20-110 where lease charges in respect of a leased motor vehicle are wholly or partly deductible, any profit on the sale of the leased vehicle is assessable to the lessee. 4
(c) Amounts that may be income according to ordinary concepts but which are taxed under specific provisions of the ITAA
For example: Section 26AC {1936} - includes as assessable income - amounts received on retirement or termination of employment in lieu of annual leave; Section 26AD {1936} - includes as assessable income - amounts received on retirement or termination of employment in lieu of long service leave; Section 27A-27J {1936} - includes as assessable income - superannuation and eligible termination payments received on termination of employment.
Role of Income Tax Rulings Income Tax Rulings indicate the Commissioner's policy and interpretation of legislation and cases. Such rulings do not bind taxpayers although they are binding upon the Commissioner. It is possible to obtain a private ruling from the Commissioner that is binding on the Commissioner in relation to a particular arrangement implemented on of after 1 July 1992 where the ruling is favourable to the taxpayer.
Tax formula
Assessable income (s. 6, ITAA97) Less: Deductions (s. 8 ITAA97) Equals Taxable income (s. 4 ITAA97) Taxable income X tax rates Equals gross tax payable Less: rebates (tax offset in 1997 act), credits (tax offset in 1997 act), prepaid tax Add: medicare levy, hecs liability Equals: refund or net tax payable