Jan works for an airline which is under financial strain due to continuing strike action by employees. Jan is offered a $10,000 voucher which gives her the right to purchase airline tickets for any person including herself provided she agrees to work four days a week instead of five days a week so she can spend more time with her family. The voucher is (select on or more of the following options):
a. Not assessable under s 6-5(1) as it is not money or monies worth following the decision in Cooke and Sherden.
b. May be income under s 6-5(1) according to the Myer Emporium doctrine, as the agreement was entered into with the intention to make a profit.
c. Maybe income under s 6-5(1) as it could be compensation for her lost income following the compensation rule that compensation takes the form of what it replaces.
d. Maybe a capital receipt for varying her contractual rights and therefore not assessable under s 6-5(1) as in Bennett's case.
2. Which of the following sections do not have precedent over s 6-5 (select on or more of the following options)?
a. s 15-2 ITAA 97.
b. s 15-10 ITAA 97.
c. s 15-20 ITAA 97.
d. s 44 ITAA 36.
3. James works as an employee auditor at a large multinational accounting firm and has responsibility for the firm's biggest client. James is having an affair with Julie one of the client's directors. James becomes aware that the client's accounts are incorrect and tells Julie about the problem. Julie is shocked at the seriousness of the problem and she suggested to James that it would be worth his while if this was fixed. Two days later James finds that an amount of $20,000 has been deposited into his account from Julie's personal account. The next time that James meets Julie he tells her that the problem has been fixed.
Which of the following factors is/are relevant in determining if the $20,000 is ordinary income for James? (Select one or more of the following options):
a. was paid for personal reasons?
b. is part of a business transaction?
c. is an illegal transaction?
d. shows a nexus with personal services?
4. Jason is a former professional footballer retired from competition. However, Jason has now been asked to play veterans football with a local football club. In order to tempt Jason to join the veteran's club they offer him the sum of $175 per match, together with $50 petrol money to attend training sessions. The petrol money is paid regardless of whether he spends any money on travel. What is/are the taxation implications of these payments should he accept the offer (select one or more of the following options)?
a. Neither receipt would be assessable income under s 6-5 as Jason is pursuing a hobby.
b. Both receipts are assessable income under s 6-5 because they are payments for services.
c. The match payments only would be assessable income under s 6-5 because the petrol allowance is a reimbursement.
d. The match payments are not assessable as they are derived from a hobby but the petrol money is assessable income under s 6-5 because it is a refund.
5. Which of the following statements is/are incorrect (select one or more of the following options)?
a. A non-cash convertible item given to an employee that is assessable under s 15-2 will not constitute ordinary income.
b. Section 15-2 makes a Christmas bonus from your employer assessable as statutory income because it is a reward for services.
c. Frequent Flyer points gained on the employee's account from business travel are assessable under s 15-2 if the points are used for private travel.
d. The nexus between the gain and the service provided may be easier to prove for s 15-2 than s 6-5.
6. Which of the following statements is/are correct (select one or more of the options)?
a. The case of FC of T v JR Walker is authority for the fact that volume of operation is relevant in deciding if a taxpayer is carrying on a business or a hobby.
b. A taxpayer that attends horse race meeting every week and bets large amounts on most races is carrying on a business of gambling.
c. An intention to profit makes it more likely that a taxpayer's operation is a business, even if the taxpayer is not successful in making a profit.
d. Taxpayers that employ a manager to make all decisions for their activities will not show the necessary commercial approach which is one of the indicia of a business.
7. Which of the following statements is/are correct (select one or more of the following options)?
a. A business that won a contract to construct a new rail link between two towns receives a Government grant of $4mil as part of the contract. The $4 is to build a manufacturing plant to make the steel rails used in the project. This grant of $4 is not part of the normal proceeds of the business for tax purposes.
b. U Hire Pty Ltd is a business that hires small handyman equipment such as power saws, drills etc. With each hire arrangement U Hire requires the client to pay a deposit equal to the replacement cost of the hired item. Frequently the goods are not returned and U Hire retains the deposit. The amounts retained in this manner are not assessable income as they are not part of the normal proceeds of the business.
c. FCT v Merv Brown is authority for the principle that the normal proceeds of a business will be determined by first deciding the scope of the business and then determining whether the transaction under consideration is within the scope of that business.
d. Spriggs v FCT is authority for the principle that where a professional sports person is paid to play as part of a team, the sports person is treated as an employee of the club, and is not carrying a business for any of the activities associated with this sporting endeavour.
8. Fifteen years ago Outback Pty Ltd purchased some land with beautiful river frontage. The shareholders of the company original formed the entity to purchase the land so that they could spend their holidays camping by the river. However, they had also talked about it being a great investment. During the current tax year the Outback Pty Ltd decided to subdivide and sell the land after developing all the necessary roads and infrastructure. The company arranged for all the planning, development and sale of the 100 house lots.
Proceeds from the sale of the blocks will (select one or more of the following options):
a. generate ordinary income of the company because Outback Pty Ltd has started a business of property development as in Whitfords Beach case.
b. generate ordinary income under Myer as this is a commercial transaction undertaken with the intention to profit.
c. not generate ordinary income as it is a mere realisation of an asset of the company as in Westfield's case.
d. not generate ordinary income under Whitfords Beach because an essential element of the majority decision was that the shares in Whitfords Beach had been sold to a new owner.
9. Which one of the following statements is/are correct (select one or more of the following options)?
a. In the case of Henry Jones (IXL) Ltd, the profit on the sale of the right to use trademarks was assessable under the second strand of Myer because the firm did not have a profit making intention at the time of selling the rights.
b. In the case of Cooling, the reason the lease incentive was ordinary income under the first strand of Myer was because the payment was deductible to the landlord.
c. In the case of Westfield, it was clarified that the first strand of Myer will not necessarily apply just because there was a possibility in the purchaser's mind that the land could later be sold at a profit.
d. In the case of Cooling, the court stated that the first strand of Myer can apply even though the profit making intention was not the only intention present upon entering the transaction.
10. Which of the following statements is/are correct (select one or more of the following options)?
a. Rent that is in the form of a non-cash convertible receipt is assessable under s 15-2 ITAA 97.
b. If the facts of Federal Wharf v DCT were to occur today, the interest on the compensation would not be assessable because of s 51-57.
c. Under case law, the full amount of annuity receipts constitutes ordinary income.
d. Bill sells the copyright in a book to a publisher in exchange for the publisher agreeing to pay Bill royalties of $2 per book sold. The royalties will not be assessable under s 15-20.
11. Which of the following statements is/are correct (select one or more of the following options)?
a. Regular receipts are not necessarily ordinary income just because they are regular.
b. An employee asks her employer to reduce her salary by $1000 a month for the next 6 months, and have that money placed into the employee's superannuation account. The employee will not be assessable for that $1000 that has been diverted into their superannuation account.
c. For a gain to constitute ordinary income it must flow from business, employment or personal exertion.
d. A sporting club collects a total of $1000 from its members to pay for its annual Christmas lunch. Unless the receipt of $1000 is exempt by legislation, the money collected by the club will be assessable income.
12. John teaches business law at a major university. He writes a new textbook called "Business Law for Beginners". Rather than have a publisher sell it, he decides to self-publish this book and prescribe it to his students. This is despite the fact that self-publishing a prescribed textbook is against his University's rules. The self-publication process involves John going to a commercial printer and getting them to print 2000 copies of the book. The printer charges John $10 per book in printing costs. John then gets the university bookshop to sell them for $80 each. After the bookshop's margin, John receives $60 per book. Which of the following statements is/are correct (select one or more of the following options)?
a. The money generated could be ordinary income despite the fact that what John did was against University rules.
b. The money generated from the sale of each book is ordinary income due to being a royalty.
c. The money generated from the sale of each book is ordinary income because it is a reward for John's work in writing the book.
d. The money generated from the sale of each book is ordinary income because it is in a sense a reward for his lecturing, just as in the case of Kelly v FCT the prize was a reward for the taxpayer's football playing abilities.
13. Which of the following statements is/are incorrect (select one or more of the following options)?
a. An engineering firm promises to pay for an employee's losses that the employee makes in his share trading business. Such payments will not constitute ordinary income.
b. An employer is short of cash one week and so pays one of his employee's with 30 bottles of Vodka worth $900. This would not constitute ordinary income.
c. An Owners' Corporation for a block of units with a swimming pool rents out the pool for a day to the local school for $500. This $500 would constitute ordinary income.
d. A person receiving the age pension receives regular fortnightly payments of $500 for rent assistance. The $500 would be assessable as ordinary income.
14. Which of the following statements is/are correct (select one or more of the following options)?
a. Compensation received by a second hand car dealer for cars that were destroyed by fire in its display room will be capital because the cars are of a capital nature
b. Compensation paid to an employee in the form of a lump sum to compensate them for 6 months of lost salary will be capital.
c. Due to a lawyer's negligence a company's trademark becomes ineffectual. The lawyer compensates the company for the loss of its trademark, and the compensation is calculated on how much profit the company would have made had the trademark being able to continue to be used. The compensation received is capital.
d. An importer sells shoes and socks. Shoes constitute 80% of its business and socks constitute 20% of its business. The contract to buy shoes from its supplier is cancelled (it had 5 years to run) and the importer receives $70,000 in compensation. The compensation received is capital.
15. Which of the following is/are exempt under the ITAA's (select one or more of the following options)?
a. Income of the Church of Scientology.
b. Salary of the Governor of Victoria.
c. A scholarship given to a full time university student for their football abilities so as to help them further develop their sporting abilities.
d. Fees collected by the National Tertiary Education Union.