Nature of payments

The commission of lottery is seen to conduct an instant lottery known as ‘Set for Life’. This system is based on distributing the winning amount of the lottery in three repayments for a tenure of 20 years. It needs to be discerned whether the payment for the outstanding amount needs to be included as an annual income.

As per the rulings of Australian Federal Government, ordinary income is characterised based on the elements such as nature of the payment, recurrence, regularity, periodicity and recurrence. This law also suggests the consideration of ordinary income as any items which resembles cash or cash convertible elements. The law applicable for the character of payment is seen with “Federal Coke Co Pty Ltd v FCT 77 ATC 4255”, “Just v FCT (1949) 4 AITR 185” and “CML Society Ltd v FCT (1953) 89 CLR 428”. The depictions for regularity, periodicity and recurrence can be extracted from “FCT v Blake (1984) 84 ATC 4661” and “FCT v Dixon (1952) 86 CLR 540”. Some of the important legislations for the demonstrating the element of income pertaining to cash convertibles can be referred in “FCT v Cooke & Sherden (1980) 80 ATC 4140”.  It is also important to refer to legislations such as “Scott v C of T (NSW) (1935) 35 SR (NSW) 215” and “Kelly v FC of T” (Burkhauser, Hahn . and Wilkins 2015).

The legislations pertaining to character of payment as per “Federal Coke Co Pty Ltd v FCT 77 ATC 4255”, “Just v FCT (1949) 4 AITR 185”. This applies to the long-term sales contract as a result of decision to purchase coke from Bellambi. However, Le Nickel paid a release fee to Federal Coke rather than Bellami for getting out of the contract.  The contract was held as federal coke received a payment as gift. The application of “FCT v Blake (1984)” and “CML Society Ltd v FCT (1953)” changed the nature of the contract and land was deemed as income. This is similar to repayment made by the lottery commission in three repayments on the outstanding amount (Aktaev et al. 2015).

The recurrence element was evident as per the “FCT v Blake (1984) 84 ATC 4661” and “FCT v Dixon (1952) 86 CLR 540” shows that the bank employee who retired to pay the additional top payment for the pension. This amount was further held as ordinary income for the bank employees who considered this to be an ordinary income. Moreover, as per the application of “FCT v Dixon (1952) 86 CLR”, the taxpayers voluntarily list for the military services which are offered in the time period of 5 years. This is similar to the case commission of lottery in which is based on distributing the winning amount of the lottery in three repayments for a tenure of 20 years. The application of “FCT v Cooke & Sherden (1980), shows that the tax payer was provided a free holiday pertaining to the employer. Moreover, this amount was not a result of tax payers themselves. The consideration of “Scott v C of T” shows that court held the payment as there was no connection with the earning activity still it was included under ordinary income. Similarly, even in case of death, outstanding amount to the deceased’s estate needs to be considered as an ordinary income even if it is not seen with earning activity (Steen and Peel 2015).

Regularity, periodicity, and recurrence

Conclusion

It can be said that as per the application of the relevant case laws which defines the elements such as nature of the payment, recurrence, regularity, periodicity and recurrence the annual payment is an income. This is relevant with the cases which shows that when there is a recurrence of payments factor, this will be included under annual income. Moreover, such an income will be considered as taxable as per the Australian Federal Government.

3. The event under the “IRC v. Duke of Westminster [1935]”, are enumerated as follows:

It needs to be discerned that execution of the deeds was seen with the employ of the covenant which was to be paid to them in weekly amounts for a certain period for a duration of seven years. The deeds further recited that the payments were made as per the recognition of the previous services which were rendered to Duke (McGregor-Lowndes and Crittall 2017). Duke claimed that individuals not withstanding such event may still continue to work under the services offered by him. However, in this event Duke will be entitled to the remuneration as per the future services. The letter of explanation further suggested every employee was needed to inform about the claiming of the remuneration for the future work which was to be practiced in the future work for claiming of the revenue (Argent 2018).

The payments made by Duke as remuneration were not deductible as per employment tax of the employees nor it was included under assessment for taxation for Duke’s liability for surtax. However, as per legislation of Australian Government the amounts of annual payments are seen to be deductible in nature for the a. This was seen to cause a major issue whether to consider the payments for the deeds as per services or not. In addition to this, the it was seen to be inconvertible for the deeds to be brought in existence to permit Duke for reducing the liability surtax (Cherry 2016).

The assertions made from the case inferred that the payments were not to be regarded under remuneration for services. It was depicted that three Lords out of five depicted that the letter was not be considered as a contract of expression. Four of the five Lords showed that in case it was considered as a contract then also it was not to be to be regarded as anything more than an agreement for remuneration related to the future services and not as a full remuneration (McGee 2014). The statement of the fifth lord further showed that the deed and the letter were to be viewed as a contract for maintaining the existing services instead of making changes in it. Furthermore, all the Lords disallowed proposition of the revenues. In case there was a doctrine, the court may also do the same as a matter of legal subject. This is concerned with the results pertaining to the legal rights and obligations of the parties which are agreed on some certain legal principles (Mangioni 2015).

Cash convertibles

The issues of the case are needed to be considered with the event of Joseph and Jane borrowing money for rental property as a joint tenant. The entering of the agreement was considered with written contract which suggested that Joseph was eligible for 20% profits whereas rest of the share was entitled for Jane. It was also agreed that if the business suffered any loss Joseph was to bear the entire portion of it. There was a loss of loss of $40,000 in the purpose. The main issue is concerned with how these losses should be included for taxation and consideration of CG or CL (Picciotto 2017).

The characterisation of partnership is defined as the relation which is present among the persons conducting a business as per common motive of earning of earning profit. The creation of partnership needs to be considered with “TR94/8”. The joint tenancy rulings need to be referred to the case of “FCT v McDonald”. Additionally, the decision of including the taxation income on the partnership needs to be applied as per “Div 5 of Pt III ITAA36”. The individual interest needs to be applied with the amounts considered under “s.92 ITAA36” (Ball, Dorling, Robinson and Tanter 2015).

The application of “TR94/8” considers that there may be partnership contract even with absence of any formal agreement, intent of the parties and joint ownership related to the business assets. This law also states that partnership contract is possible with the entitlements related to the sharing of the net profits drawn upon the parties irrespective of the profits which are shared. The power of the partners needs to be also assessed as per the operations of the partnership account, records of business and sharing of the contributions pertaining to the assets and capital (Alabede 2014). The various types of the inference from the “FCT v McDonald” shows that tax payers held for the two rental properties were considered for taxation even if there was agreement for partnership at general law level. Moreover, the act of every partner is discerned with the act of carrying the partnership unless there is no authority to act on behalf of the firm and the individual who he/she is dealing. Moreover, all the partners are required to jointly support the obligations of the partners with the debts and obligations pertaining to the partnership agreement. The law also states that all the partners are liable for debt obligations in case there has been no instance of partnership incurred. Lastly, the interest of the partnership property and duties are seen in relation with the partnership determined in accordance with the terms of the partnership agreement. Therefore, it needs to be discerned that irrespective of any formal agreement made for the sharing of losses, both Joseph and Jane need to bear the loss as per 50:50 basis (Lavermicocca and Buchan 2015).

The ‘IRC v. Duke of Westminster [1935]’ case

This is similar to the case of “FCT v McDonald” which suggests that as the wife and husband owned the asset in equal shares, they were accountable for 50% interest on the net income and net losses as per the partnership agreement and sharing of the losses in terms of the varying proportions was depicted to be ineffective. The application of “Div 5 of Pt III ITAA36” has been able to identify that partnership is required to be calculated as per net income on partnership, losses for partnership and exemption of income of the partnership. This is similar to the case of Joseph and Jane (Reimer, Schmid and Orell 2018).

As per “s.92 ITAA36” the partners are needed to be held accountable for individual interest pertaining to the net income of partnership. This is also applicable even in case the partnership loss is deductible for individual interest in the loss. This shows that if agreement made between Joseph and Jane for share of loss in ratio of 20:80 ratio, the tax borne by both husband and wife should be considered on 50:50 basis (Martin et al. 2015).

Conclusion

It needs to be discerned that irrespective of the personal agreement made between Joseph and Jane, at the time of taxation assessment both needs to be considered for the deductions as per the equal proportionality.

Reference

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