LAW EXTENSION COMMITTEE UNIVERSITY OF SYDNEY

12 TAXATION AND REVENUE LAW SUMMER SESSION 2005-06

Course Description and Objectives 1Teacher 1Assessment 1March 2006 Examination 1Lecture Program 2Weekend Schools 1 and 2 3Texts and Materials 4Assignments 4Assignment Questions 5Prescribed Topics and Course Outline 6Weekend School Questions 11Supplementary Materials 20

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LAW EXTENSION COMMITTEE SUMMER 2005-0612 TAXATION AND REVENUE LAW COURSE DESCRIPTION AND OBJECTIVES The Taxation and Revenue Law course is an overview of the Income Tax Assessment Act and related legislation. General principles concerning the assessability and deductibility of different types of receipts and items of expenditure are considered, along with more recent developments in relation to the tax treatment of fringe benefits and capital gains. The differing tax consequences in respect of various legal entities, such as partnerships, trusts and companies, are also considered. The last part of the course deals with the collection and recovery of tax, and the procedures to be followed by a taxpayer in disputing a tax assessment with the Commissioner of Taxation. The objective of the course is to provide an overview of the structure of the tax legislation which will enable students to determine, at least in broad terms, the tax consequences that flow from particular factual situations. This is achieved through a study of the legislation and decided cases, and the consideration of hypothetical factual situations that would commonly be encountered in practice. TEACHER Mr A J O'Brien, B Ec, LLM (Syd), CA Tony O'Brien is a member of the New South Wales Bar and a Chartered Accountant. He holds the degrees of Bachelor of Laws, Bachelor of Economics and Master of Laws from the University of Sydney. Mr O'Brien was previously a Solicitor of the Supreme Court, and has worked in the tax divisions of large law and accounting firms. ASSESSMENT To be eligible to sit for the Board’s examinations, all students must complete the LEC teaching and learning program, the first step of which is to ensure that you have registered online with the LEC in each subject for which you have enrolled with the Board. This gives you access to the full range of learning resources offered by the LEC. Then, students must achieve a satisfactory result (at least 50%) in each subject where a compulsory component is prescribed. To register with the LEC, go to www.usyd.edu.au/lec and click on the WEBCAMPUS link and follow the instructions. Detailed guides to the Webcampus are contained in the material distributed by the LEC, in the Course Information Handbook, and on the Webcampus. MARCH 2006 EXAMINATION Candidates will be expected to have a detailed knowledge of the prescribed topics: General principles; Income from personal services; Income from property; Income from a business; Capital gains tax; Allowable deductions; Taxation of companies and shareholders; Taxation of partnerships; Taxation of trusts; Returns, assessments, objections and appeals; Collection and recovery and General anti-avoidance provisions. Candidates will be expected to have studied the prescribed materials in relation to these topics, and to have analysed the cases contained in the Law Extension Committee's course outline. All enquiries in relation to examinations should be directed to the Legal Profession Admission Board. Examination Prize The "CCH Prize" ($100 publication voucher) has been donated by CCH Australia Ltd for the best examination mark in Taxation.

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LECTURE PROGRAM Lectures in Taxation and Revenue Law will be given by Mr O'Brien and will be held on Tuesdays commencing at 6.00pm in the Law School Lecture Theatre 1 (LSLT 1). Please note that this program is a general guide and may be varied according to need. Readings are suggested to introduce you to the material to be covered in the lecture, to enhance your understanding of the topic, and to encourage further reading. You should not rely on them alone. WEEK DATE TOPIC KEY READING

1

15 Nov

General principles

Chapter 6: Australian Tax Law (“ATL”)

2

22 Nov

General principles

Chapter 6: ATL FCT v Cooke and Sherden

3

29 Nov

Income from personal services

FCT v Dixon Smith v FCT

4

6 Dec

Income from property

IRC v Ramsay Stanton v FCT

5

13 Dec

Income from business

FCT v Whitfords Beach Westfield v FCT

6

20 Dec

Income from business

FCT v Whitfords Beach Westfield v FCT

Study Break: Saturday 24 December 2005 – Sunday 8 January 2006

7 10 Jan

Capital gains tax

Chapter 10: ATL

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17 Jan

Capital gains tax

Chapter 10: ATL

9

24 Jan

Allowable deductions

Herald and Weekly Times v FCT Sun Newspapers and Associated Newspapers v FCT

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31 Jan

Taxation of companies and shareholders

20-020 – 20-135 ATL 20-300 – 20-370 ATL 20-600 – 20-630 ATL

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7 Feb

Taxation of partnerships Taxation of trusts

18-010 – 18-300 ATL 19-010 – 19-260 ATL 19-400 – 19-490 ATL

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14 Feb

Returns Collection and recovery Anti-avoidance provisions

DFCT v Richard Walter FCT v Citibank 31-400 – 31-500 ATL

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WEEKEND SCHOOLS 1 AND 2 There are two weekend schools principally for external students. Lecture students may attend on the understanding that weekend school classes aim to cover the same material provided in weekly lectures and are primarily for the assistance of external students.

It may not be possible to cover the entire course at the weekend schools. These programs are a general guide and may be varied according to need. Readings are suggested to introduce you to the material to be covered in the lecture, to enhance your understanding of the topic and to encourage further reading. You should not rely on them alone. Weekend School 1 TIME MAJOR TOPICS KEY READING Friday 2 December 2005- in Carslaw Lecture Theatre 275 (CLT 275) 5.10pm-6.20pm General principles Chapter 6: Australian Tax Law (“ATL”)

6.30pm-7.35pm

General principles Chapter 6: ATL FCT v Cooke and Sherden

7.45pm-9.00pm

Income from personal services

FCT v Dixon Smith v FCT

Saturday 3 December 2005- in Carslaw Lecture Theatre 175 (CLT 175)

4.10pm-5.20pm

Income from property IRC v Ramsay Stanton v FCT

5.30pm-6.35pm

Income from a business FCT v Whitfords Beach Westfield v FCT

6.45pm-8.00pm Capital gains tax Chapter 10: ATL

Weekend School 2 TIME MAJOR TOPICS KEY READING Friday 3 February 2006- in Carslaw Lecture Room 351 (CLT 351) 5.10pm-6.20pm

Capital gains tax Chapter 10: ATL

6.30pm-7.35pm

Allowable deductions Herald and Weekly Times v FCT Sun Newspapers and Associated Newspapers v FCT

7.45pm-9.00pm

Allowable deductions Herald and Weekly Times v FCT Sun Newspapers and Associated Newspapers v FCT

Saturday 4 February 2006- in Carslaw Lecture Theatre 157 (CLT 157) 4.10pm-5.20pm

Taxation of companies and shareholders

20-020 – 20-135 ATL 20-300 – 20-370 ATL 20-600 – 20-630 ATL

5.30pm-6.35pm

Taxation of partnerships Taxation of trusts

18-010 – 18-300 ATL 19-010 – 19-260 ATL 19-400 – 19-490 ATL

6.45pm-8.00pm

Returns Collective and recovery Anti-avoidance provisions

DFCT v Richard Walter FCT v Citibank 31-400 – 31-500 ATL

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TEXTS AND MATERIALS Course Materials • Guide to the Presentation and Submission of Assignments (available on the LEC Webcampus) Prescribed Materials • Barkoczy, Core Tax Legislation & Study Guide – most recent edition available • Woellner, Barkoczy, Murphy & Evans, Australian Taxation Law – most recent edition available • Cooper, Krever and Vann, Income Taxation – Commentary Materials, 4th ed. Thomson Lawbook

ATP, 2005 Reference Materials • Australian Tax Practice, Thomson Lawbook ATP • Australian Tax Handbook, Thomson Lawbook ATP, 2005 • Australian Federal Tax Reporter, CCH • Australian Master Tax Guide, CCH LEC Webcampus Once you have registered online with the LEC, you will have full access to the facilities on the LEC Webcampus including links to relevant cases and legislation on the Course Materials section. ASSIGNMENTS In Taxation and Revenue Law, Assignment 1 is compulsory. Students must submit the assignment by the due date, and achieve a grade of at least 50%. The maximum word limit for each assignment is 1500 words (inclusive of all footnotes but not bibliography). The rules regarding the presentation of assignments and instructions how to submit an assignment are set out in the LEC Guide to the Presentation and Submission of Assignments which can be accessed on the LEC Webcampus. Please read this guide carefully before completing and submitting an assignment. If you do not achieve 50% or more in the compulsory assignment, you must complete a second assignment and attain a mark of 50% or more for the second assignment to be eligible to sit the examination. Completed assignments should be lodged through the LEC Webcampus by 9.00am on the following dates: Compulsory Assignment Wednesday 14 December 2005 (Week 5)

Assignment 2 Wednesday 19 January 2006 (Week 8) Markers will attempt to mark the assignments as quickly as possible. However, please note that many of the markers are busy practitioners or academics. Do not wait for the return of one assignment before commencing the next assignment, even if it is not compulsory.

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ASSIGNMENT QUESTIONS To obtain copies of the Taxation and Revenue Law assignment questions for the Summer Session 2005-06, please follow the instructions below:

1. Register online with the LEC (see page 27 of the Course Information Handbook for detailed instructions). Once you have registered, you will have full access to all the facilities on the LEC Webcampus.

2. Then go into the Webcampus, select the Course Materials section and click on the link to

the Assignment questions for this subject.

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PRESCRIBED TOPICS AND COURSE OUTLINE 1. GENERAL PRINCIPLES (1) Legislative framework Income Tax Assessment Act 1997, Chapter 1

(a) Constitutional aspects of taxation

(b) Structure of the Income Tax Assessment Act 1997 and relationship to the Income Tax Assessment Act 1936

(c) Direct versus indirect taxation

(2) Concept of income Income Tax Assessment Act 1997, Division 6 Income Tax Assessment Act 1936, ss 6, 21, 21A, 26(e)

(a) Common law concept of income (b) Receipt of money or money's worth

Tennant v Smith [1892] AC 150 FCT v Cooke and Sherden (1980) 80 ATC 4140 (3) Residence Income Tax Assessment Act 1997, s 995-1 Income Tax Assessment Act 1936, s 6(1) (a) Individuals

(aa) Ordinary meaning of "resident"

IRC v Lysaght [1936] AC 234 Gregory v DFCT (1937) 57 CLR 774

(ab) Extended definition of "resident" FCT v Applegate (1979) 79 ATC 4307 FCT v Jenkins (1982) 82 ATC 4098 (b) Companies Koitaki Para Rubber Estates v FCT (1940) 64 CLR 15 Unit Construction Co v Bullock [1960] AC 351 Malayan Shipping Co v FCT (1946) 71 CLR 156 (4) Source Income Tax Assessment Act 1997, s 995-1

Income Tax Assessment Act 1936, ss 6C, 25(2)

(a) Sale of goods

(b) Provision of services FCT v French (1957) 98 CLR 398 FCT v Mitchum (1965) 113 CLR 401

(c) Interest

(d) Dividends Esquire Nominees v FCT (1973) 73 ATC 4114

(e) Royalties FCT v United Aircraft Corporation (1943) 68 CLR 525 (5) Derivation Income Tax Assessment Act 1997, ss 6-5, 6-10

(a) Appropriate method of recognition of income: cash/accruals

C of T (SA) v Executor Trustee (Carden's Case) (1938) 63 CLR 108

(b) Salary and wages (c) Trading income

J Rowe and Sons v FCT (1971) 124 CLR 421

(d) Income from professional practice Henderson v FCT (1970) 119 CLR 412 FCT v Firstenberg (1976) 76 ATC 4141

(e) Prepaid income Arthur Murray (NSW) v FCT (1965) 114 CLR 314 (6) Exempt income Income Tax Assessment Act 1997, Divisions 11, 50, 51 2. INCOME FROM PERSONAL SERVICES (1) Income according to ordinary concepts

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Income Tax Assessment Act 1997, s 6-5 FCT v Dixon (1952) 86 CLR 540 Hayes v FCT (1956) 96 CLR 47 Scott v FCT (1966) 117 CLR 514 (2) Relevant statutory provisions Income Tax Assessment Act 1997, s 10-5 Income Tax Assessment Act 1936, ss 26(e), 27A-27J

(a) Elements of s 26(e) Smith v FCT (1988) 164 CLR 513

(b) Eligible termination payments Reseck v FCT (1975) 75 ATC 4213 McIntosh v FCT (1979) 79 ATC 4325 (3) Fringe Benefits Tax Assessment Act

(a) Heads of liability (b) Definition of "fringe benefit" (c) Inter-relationship between Fringe

Benefits Tax Assessment Act and Income Tax Assessment Act

3. INCOME FROM PROPERTY (1) Annuities Income Tax Assessment Act 1997, s 10-5 Income Tax Assessment Act 1936, s 27H

(a) What constitutes an annuity (b) Significance of "a fixed gross sum"

Egerton Warburton v DFCT (1934) 51 CLR 578 Just v FCT (1949) 8 ATD 419 IRC v Ramsay [1935] 1 All ER 847 (2) Royalties Income Tax Assessment Act 1997, ss 10-5, 15-20 Income Tax Assessment Act, ss 6, 6C

(a) Common law meaning of "royalty" McCauley v FCT (1944) 69 CLR 235 Stanton v FCT (1955) 92 CLR 235 FCT v Sherritt Gordon Mines (1977) 137 CLR 612

(b) Extended definition of "royalty" Murray v Imperial Chemical Industries [1967] 2 All ER 980

(c) Deemed source of certain royalty payments

(3) Interest Income Tax Assessment Act 1997, s 6-5

(a) Nature of interest payments (b) Disguised interest payments

Lomax v Peter Dixon and Son [1943] 1 KB 671

(c) Deemed source of interest payments

(4) Lease and rental income Income Tax Assessment Act 1997, s 6-5, 10-5

(a) Nature of lease/rental payments (b) Premiums

4. INCOME FROM A BUSINESS (1) Concept of a business Thomas v FCT (1972) 72 ATC 4094 Ferguson v FCT (1979) 79 ATC 4261 FCT v Walker (1985) 85 ATC 4179 Evans v FCT (1989) 89 ATC 4540 (2) Taxation of business income Income Tax Assessment Act 1997, ss 6-5,10-5 Income Tax Assessment Act 1936, ss 21A

(a) Normal proceeds of business

Kosciusko Thredbo v FCT (1984) 84 ATC 4043 Memorex v FCT (1987) 87 ATC 5034 FCT v Cyclone Scaffolding (1987) 87 ATC 5083 GP International Pipecoaters v FCT (1988) 88 ATC 4823

(b) Isolated transaction or undertaking

Scottish Australian Mining Co v FCT (1950) 81 CLR 188 FCT v Whitfords Beach (1982) 82 ATC 4031

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(c) "Extraordinary" transactions FCT v Myer Emporium (1987) 87 ATC 4363 FCT v Spedley Securities (1988) 88 ATC 4126 Westfield v FCT (1991) 91 ATC 4234

(d) Realisation of investments by investment/ insurance companies

London Australia Investment Co v FCT (1977) 138 CLR 106

(e) Non-cash business benefits FCT v Cooke and Sherden (1980) 80 ATC 4140 (3) Trading stock Income Tax Assessment Act 1997, Division 70

(a) Definition of "trading stock" (b) Tax accounting for trading stock (c) Value of trading stock

Australasian Jam Co v FCT (1953) 88 CLR 23 (4) Compensation Income Tax Assessment Act 1997, ss 15-30, 20-20(2), 70-115

(a) Cancellation of a "structural" agreement

Van den Berghs v Clark [1935] AC 431 Californian Oil Products Ltd v FCT (1934) 52 CLR 28

(b) Restriction on ability to carry on a business

Dickenson v FCT (1958) 98 CLR 460

(c) Cancellation of business contracts Heavy Minerals v FCT (1966) 115 CLR 512

(d) Termination of agency and management contracts

Allied Mills Industries v FCT (1989) 89 ATC 4365

(e) Reimbursement of previously deducted expense

H R Sinclair v FCT (1966) 14 ATD 194

(f) Apportionment of compensation payments

McLaurin v FCT (1961) 104 CLR 381 Allsop v FCT (1965) 113 CLR 341 FCT v Spedley Securities (1988) 88 ATC 4126 5. CAPITAL GAINS TAX (1) Structure of Income Tax Assessment Act

1997 Income Tax Assessment Act 1997, Part 3-1 (2) CGT events Income Tax Assessment Act 1997, Divisions 103 and 104 (3) Meaning of "CGT assets" Income Tax Assessment Act 1997, Division 108 (4) Cost base Income Tax Assessment Act 1997, Divisions 110, 112 and 114 (5) Capital proceeds Income Tax Assessment Act 1997, Division 116 (6) Calculation of capital gain/loss Income Tax Assessment Act 1997, Division 102 (7) Exemptions Income Tax Assessment Act 1997, Division 118 (8) Anti-avoidance provisions Income Tax Assessment Act 1997, Division 149 (9) Other provisions Income Tax Assessment Act 1997, Division 109 and 128 6. ALLOWABLE DEDUCTIONS (1) General deductions Income Tax Assessment Act 1997, s 8-1

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(a) Determinative tests of deductibility Ronpibon Tin v FCT (1949) 78 CLR 47 Herald and Weekly Times v FCT (1932) 48 CLR 113 Nevill v FCT (1937) 56 CLR 290

(b) Relevance of purpose Magna Alloys and Research v FCT (1980) 80 ATC 4542 FCT v Total Holdings (Aust) (1979) 79 ATC 4279 Ure v FCT (1981) 81 ATC 4100

(c) Apportionment Ronpibon Tin v FCT (1949) 78 CLR 47 Ure v FCT (1981) 81 ATC 4100

(d) Meaning of "incurred" FCT v James Flood (1953) 88 CLR 492 FCT v A G C (Advances) (1984) 84 ATC 4776

(e) Negative limbs: capital outgoings Sun Newspapers and Associated Newspapers v FCT (1938) 61CLR 645 B P Australia v FCT (1965) 112 CLR 386

(f) Negative limbs: private outgoings Lunney and Hayley v FCT (1958) 100 CLR 478 FCT v Payne [2001] HCA 3 FCT v Finn (1961) 106 CLR 60 Handley v FCT (1981) 81 ATC 4165 Forsyth v FCT (1981) 81 ATC 4157 Lodge v FCT (1972) 72 ATC 4174 (2) Repairs Income Tax Assessment Act 1997, s 25-10 FCT v Western Suburbs Cinemas (1952) 86 CLR 102 W Thomas and Co v FCT (1965) 115 CLR 58 Lindsay v FCT (1960-1961) 106 CLR 377 Law Shipping Co v IRC (1924) 12 TC 621 Odeon Associated Theatres v Jones [1972] 1 All ER 681 (3) Capital allowances Income Tax Assessment Act 1997, Divisions 40 and 43 Wangaratta Woollen Mills v FCT (1969) 119 CLR 1

(4) Bad debts Income Tax Assessment Act 1997, ss 20-20, 20-30, 20-35, 25-35 (5) Losses Income Tax Assessment Act 1997, Divisions 36, 165, 166 Avondale Motors (Parts) v FCT (1971) 71 ATC 4101 7. TAXATION OF COMPANIES AND

SHAREHOLDERS (1) Definition of "dividend" Income Tax Assessment Act 1936, s 6(1) (2) Taxation of shareholders Income Tax Assessment Act 1936, ss 44(1) (3) Deemed dividends Income Tax Assessment Act 1936, ss 108, 109, Division 7A (4) Operation of imputation Income Tax Assessment Act 1997, Division 200 to 205

(a) Franking a dividend (b) Maintaining a franking account:

debit/credit entries

[See also Income Tax Assessment Act 1997, s 10-5] 8. PARTNERSHIPS (1) Definition of "partnership" Income Tax Assessment Act 1936, s 6(1) (2) Creation, dissolution and variation of

partnerships FCT v Happ (1952) 9 ATD 447 (3) Taxation of partnership income Income Tax Assessment Act 1936, ss 90-93

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(4) Taxation of "uncontrolled partnership income"

Income Tax Assessment Act 1936, s 94 Robert Coldstream Partnership v FCT (1943) 68 CLR 391 (5) Assignment of partnership interest FCT v Everett (1980) 80 ATC 4076 (6) Overview of the application of capital

gains tax to partnerships [See also Income Tax Assessment Act 1997, s 10-5] 9. TRUSTS AND THE TAXATION OF

CHILDREN (1) Concept of a trust (2) Taxation of trust income Income Tax Assessment Act 1936, ss 95-101 FCT v Whiting (1943) 68 CLR 199 Taylor v FCT (1969) 119 CLR 444 (3) Revocable trusts and trusts for minors Income Tax Assessment Act 1936, s 102 Truesdale v FCT (1970) 120 CLR 353 Hobbs v FCT (1957) 98 CLR 151 (4) Taxation of income of children Income Tax Assessment Act 1936, pt III, div 6AA [See also Income Tax Assessment Act 1997, s 10-5] 10. RETURNS, ASSESSMENTS, OBJECTIONS AND APPEALS (1) Obligation to lodge tax return Income Tax Assessment Act 1936, ss 161-164 (2) Assessment/amended assessment Income Tax Assessment Act 1936, ss 166-177 (3) Objections Taxation Administration Act, pt IVC

DFCT v Richard Walter (1995) 183 CLR 168 (4) Appeals to the Administrative Appeals

Tribunal or Federal Court Taxation Administration Act, pt IVC 11. COLLECTION AND RECOVERY (1) Powers of the Commissioner Income Tax Assessment Act 1936, ss 263-264 FCT v Citibank (1989) 89 ATC 4268 (2) Recovery of unpaid tax Income Tax Assessment Act 1936, ss 206-209 Taxation Administration Act, ss 14ZZM, 14ZZR (3) Pay-as-you-go (PAYG) Taxation Administration Act, Schedule 1 pt 2-5 and 2-10 12. GENERAL ANTI-AVOIDANCE

PROVISIONS (1) Form versus substance in interpreting

legislation (2) Income Tax Assessment Act 1936, pt IVA

(a) Scheme (b) Tax benefit (c) Dominant purpose of obtaining a tax

benefit Peabody v FCT (1994) 94 ATC 4663 FCT v Spotless Services Ltd (1996) 186 CLR 404 Commissioner of Taxation v Hart [2004] HCA 26

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WEEKEND SCHOOL QUESTIONS FIRST WEEKEND SCHOOL

1 Micron Pty Ltd is a manufacturer and supplier of computer software. In July 1987 Micron Pty Ltd

enters into a contract with Logic Ltd under which for a flat fee of $10,000 per year, Micron Ltd will supply Logic Pty Ltd with certain technical information relating to computer software. The contract was for 10 years. A second contract is entered into under which Logic Ltd agreed to sell to Micron Pty Ltd some of its own computer software for a total price of $100,000 (the "purchase price") payable by five annual instalments, each one being equivalent to five percent of the annual sales revenue derived by Micron Pty Ltd. If, after the fifth instalment, the total amount paid is less than or exceeds the purchase price, then the purchase price is to be adjusted accordingly.

Advise both Micron Pty Ltd and Logic Ltd of the taxation consequences of these arrangements.

2 Reginald works for Supa-Nova Ltd ("SN") as an electrician. He also works occasionally on

weekends for a number of different companies, including Cosmo Pty Ltd, which is manufacturer of small electric products. He is married to Beatrice, and they have a 19 year old daughter, Penelope. Advise generally as to the taxation implications of the following arrangements: (a) In November 2003 SN makes an ex gratia payment of $1,000 to Penelope to help her

defray her costs of studying at university. SN makes similar payments to the children of a number of other people who work for them.

(b) Cosmo is so pleased that Reginald is able to do emergency electrical repairs for them one

weekend that, in addition to his cash remuneration, they give him an electric razor and send a gift of an electric kettle to Beatrice.

(c) Reginald leaves SN in January 2005 to work permanently for Cosmo. In appreciation of his

services in the past, SN gives Reginald, in June 2005, a gift of $500. 3. The Astaire Dance Company offers a special deal if a student signs up for a series of 100

dancing lessons. These lessons may be taken over a period of six years. The special deal is only available if a student pays for the 100 lessons before taking the second lesson.

Anne pays for 100 lessons in advance in a lump sum. In the first year (1 July to June 30) she takes 20 lessons, in the second year 45 lessons and, in the third and fourth (the present) year, she has taken no lessons. Thus she still has available 35 lessons. When will the Astaire Dance Company have to bring the lump sum payment to account for tax purposes?

4. Nicole is an electrician employed by International Electronics Ltd ("IE"). In September 1986 IE, in

recognition of Nicole's marvellous abilities as an electrician, grant her a loan for 13 months at an interest rate of one percent per annum.

In November 1986, Nicole retires from her employment with IE. In December 1986, IE gives her a further loan of $5,000 for a period of two years, interest free, to provide her with some assistance in her retirement.

In January 1987, Nicole, to help pass her time during her retirement, gives her next door neighbour, Fred, some assistance in installing new electrical wiring in his fruit and vegetable shop. In return for this assistance, Fred gives Nicole a box of fruit and vegetables which he has grown on his land. Unfortunately, in February 1987, there is a short circuit in the wiring, and Fred's shop is damaged by fire. Nicole gives Fred, by way of recompense, a lump sum payment to cover the damage caused to the shop, together with profits which are lost to Fred by reason of the shop being closed for repairs.

Explain the taxation implications of the loan and gift made to Nicole and the payment made to Fred.

5. Until 30 April 1993, Robin carried on the business of selling lawn mowers in shop premises at

Liverpool, and employed four persons. On that day she sold her business to Sharon. Robin now carries on business on her own account as a lawn mower repairer. She has no business

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premises, but travels from her home to the premises of customers with faulty lawn mowers, and carries out the repairs there.

(a) Advise Robin as to the proper basis of accounting for the preparation of her income tax

returns for the year ending 30 June 1993. (b) What are the consequences for Robin of a change in her basis of accounting? What would

be the tax implications of Robin offering her clients one year lawn mower servicing contracts which are paid for by the clients in advance.

6. Veronica, in December 1988, left her job as cosmetic consultant with a department store, and

became a distributor of women's cosmetics manufactured by Nova Pty Ltd ("Nova"). Nova entered into an agreement with Veronica under which she was granted the right to distribute cosmetics from Nova at wholesale prices and sold those cosmetics on a door-to-door basis at prices recommended by Nova. Veronica did exceptionally well in selling cosmetics and, in June 1989, Nova gave her a ticket for an all expenses paid holiday in Tasmania. Veronica, unfortunately, hates Tasmania and asked Nova whether she could have cash in lieu of the ticket, but Nova would not agree. Veronica thought that she should take the holiday anyway as a sign of good faith. As she expected, she did not enjoy the holiday at all.

Advise Veronica as to the tax consequences, if any, of having taken the holiday.

7. David is employed by Shonky Merchant Bank ("SMB"). In relation to the following matters,

advise David and SMB of the relevant tax ramifications:

(a) So that David may work at home at night and on weekends from time to time, SMB gives David a personal computer. David and his wife and children are permitted to use the computer for their personal business.

(b) As part of the incentive offered by SMB to employees who have performed well, SMB offers

to pay part of the private school fees in respect of the children of those employees. In the year ending 30 June 1991, David performed well, and SMB paid $2,000 of the school fees of David's son, Ben. The payment was made directly by SMB to Ben's school.

8. Sally is a politician, being a Member of the House of Representatives in the Federal Parliament.

While attending a public meeting in relation to a forthcoming Federal election, an egg was thrown at Sally. Sally had to have her clothes dry-cleaned at Fred's Dry Cleaners. Fred is a supporter of Sally's political party, and told Sally that she could have a 50 percent discount off the normal price for dry-cleaning her clothes.

Advise Sally of the relevant tax ramifications.

9. Jim has a one man business cleaning office building windows as an independent contractor. He

has a five year contract to spend one day a week (either by himself or his agent) cleaning the windows of Office Ltd's four storey building for a fee of $20,000 per year. Jim has similar contracts with four other building owners. When the contract with Office Ltd has four years to run, Jim falls from the building and suffers injuries which prevent his ever working again as a window cleaner. Office Ltd immediately terminates Jim's contract and engages another window cleaner.

Jim threatens legal proceedings against Office Ltd for termination of his contract and for the injuries he has suffered which are due, he alleges, to Office Ltd's negligence. Office Ltd offers Jim $100,000 for his injuries, and four annual payments of $18,000 each in respect of his contract.

Jim is disposed to accept Office Ltd's offer, and seeks your advice as to the taxation consequences of doing so.

10. Advise as to the consequences (if any) under Pt IIIA of the Income Tax Assessment Act in

respect of the following:

(a) Ben acquired shares in Acme Pty Ltd in 1980. At that time the company's assets consisted of a $100 deposit in a bank account. In 1987, Acme acquired a block of land for $100,000,

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which is now the major asset by the company. Ben has decided to sell his shares in Acme to Ken for a substantial profit.

(b) Anne is the managing director of Frazzle Ltd, a company which manufactures cutlery.

Frazzle is successfully taken over in September 1988, and an agreement is reached with Anne under which she is paid $100,000 in return for her resigning from the office of managing director and entering into a restrictive covenant in which she agrees not to be engaged in any capacity in the business of manufacturing cutlery in Sydney for a period of five years.

(c) Penny, an avid stamp collector, acquired, in October 1986, a rare stamp for $50. She sold

the stamp in February 1988 for $1,000. In the same month she sold a block of land for $50,000. She had acquired this land in January 1987 for $55,000.

(d) Brian acquired a cottage in 1967 for $20,000, which he rents to other persons. In 1991,

Brian expended $100,000 in building an additional storey on to the cottage. He has now received an offer of $200,000 to sell the cottage.

Brainstorm Ltd is a company incorporated in Singapore. A group of Australian resident companies control 49 percent of the voting power of Brainstorm. Brainstorm's business activities consist of constructing, for profit, high rise buildings in Singapore and other Asian cities. Brainstorm is taxed on its profits in the various Asian countries in which it carries on its construction business. Its activities are managed by three directors, Brown, Smith and Jones, none of whom is a resident of Australia. Brown is a resident of Singapore, Smith lives in Hong Kong, and Jones lives in Papua New Guinea. The directors make decisions and resolutions concerning the company by sending telexes to one another from the locations in which they live. Brown, Smith and Jones, although very expert in matters concerning the construction of buildings, do not have great expertise in the financial and other commercial affairs of the company. They rely on the expertise of Blanco White, who is retired, lives in Sydney, and was formerly the managing director of a large Australian company. White receives all the information concerning the business activities of the company, and advises each of Brown, Smith and Jones via telex concerning the business affairs of Brainstorm. Brown, Smith and Jones invariably rely on the expertise of White, and make directors' resolutions according to his recommendations. White owns one percent of the shares of Brainstorm, and is paid a yearly fee of $200,000 for his services.

(a) Advise whether Brainstorm is a resident of Australia for the purposes of the Income Tax

Assessment Act. (b) Irrespective of your answer to (a), assume that Brainstorm is treated as a resident for

Australian tax purposes. Explain the Australian taxation treatment of Brainstorm's profits from construction projects.

11. Advise as to the consequences (if any) under pt IIIA of the Income Tax Assessment Act in

respect of the following:

(a) In September 1991, Raymond borrowed funds from Big Bank Ltd to buy an undeveloped block of land as an investment. The cost of the land was $30,000. He pays interest to Big Bank in respect of the borrowings, as well as council rates in respect of the land. He has spent $200 in fixing the fences on the perimeter of the land, which were falling down. He has also been spending $100 per year to keep the land clear of refuse and long grass, which could otherwise be a fire hazard. He now plans to sell the land for $60,000.

(b) Beth is in partnership with Jan. The interests of each in the assets of the partnership are

equal, and Beth and Jan agree to share profits and losses equally. In 1987, the partnership assets comprise 3,000 shares in A Ltd, which were acquired for $6,000. In 1989, the partners admit Sue to the partnership in consideration of her paying to each of them an amount of $6,000. It is agreed that each partner will have equal entitlements to assets, profits and losses of the partnership. The partnership now plans to sell the shares in A Ltd for $18,000. Jan is in need of money, and plans to sell a painting she bought for herself in 1989 for $10,000. She expects however that she will only receive $8,000 from the sale.

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(c) Bob was interested in sailing and, in July 1991, acquired a yacht for $8,000 which he sails on weekends.

(ca) Bob sold the yacht in 1991 for $6,000; alternatively (cb) Bob sold the yacht in 1991 for $9,000; alternatively (cc) Bob used the yacht extensively during the week to entertain and hold business

negotiations with persons with whom he did business, before selling it in 1991 for $9,000.

(d) King Biscuit Inc ("KB") is a corporation incorporated and based in New York. Although the

company is primarily involved in the manufacture of biscuits, its board of directors are always on the lookout for investment opportunities throughout the world. The directors decide that, because of the low price of units in various Australian property trusts, an acquisition of such units may prove a fruitful investment. KB acquires a small number of units in the Heinz Property Trust and 30 percent of the issued units in the Wide-Aust Property Trust. KB's directors expect the value of the real estate held by these property trusts to substantially increase by 1994, and they plan then to sell the units they have acquired at a substantial profit.

12. Advise as to the consequences (if any) under pt IIIA of the Income Tax Assessment Act in

respect of the following:

(a) Digger Inc, a company in the United States, is in the mining business. In 1987 it acquired some excavation equipment in Texas for $500,000. An Australian company, X, is undertaking mining operations in Western Australia, and Digger ships the excavation equipment to Australia and rents it on a daily basis to X.

Digger opens an office near the mining site, and employs a person to run the office, to collect the rent on the equipment, and to maintain the equipment. Digger ships the equipment back to the United States in 1991, where it is sold for $900,000.

(b) In 1986, Sally acquired an eighteenth century wooden cabinet for $5,000. She died in 1988,

and in her will left the cabinet to Tom. At the date of her death, the market value of the cabinet was $8,000, and Sally at that time would have had an indexed cost base of $6,000 in respect of the cabinet. Tom sells the cabinet in 1991 for $10,000.

(c) April was told by her employer, Apex Ltd, that her employment would be terminated. She

commenced an action against Apex claiming inter alia wrongful dismissal. The action was settled by

Apex paying April $50,000 in settlement of all actions which April may have had against Apex.

(d) Ben bought a block of land as an investment in 1988 for $50,000. In 1989, Ben's son, Bill,

was married. In 1990, Ben, in an effort to assist Bill in starting a home, sold the land to Bill for $50,000, notwithstanding the rise in land values since Ben originally bought the block which valued the land at $70,000. Bill built a house on the land at a cost of $100,000 and lived in the house with his wife. In 1992, Bill sold the house for $250,000.

13. In March 1984, Felicity acquired an old motel on the beach at Byron Bay. Soon after

commencing operations at the motel, she noticed that the beach front occasionally suffered from pollution. Upon making further investigation, she discovered that the cause of the pollution was an adjacent dwelling owned by William, which had been converted into a guesthouse without Council approval. The septic tank system of this dwelling was not able to cope with the additional effluent resulting from the use of the dwelling as a guesthouse, and as a result, sewage was seeping onto the beach near Felicity's motel. William was advised that he could cure the illegality by applying to the Council for a rezoning of the land, and accordingly did so. Felicity learnt of his application, and opposed the rezoning on the basis of the sewerage system on William's premises. Felicity was not only concerned about the health risk caused by the pollution, but also the adverse affect it might have on her business. She incurred legal expenses $3,000 in contesting the rezoning application, and was successful.

In January 1989, Felicity learnt that a block of land adjoining her motel, on which was located an old grass tennis court, was to be auctioned. She thought the tennis court might improve the

15

business of her motel, and successfully bid for the land. In March 1989, she replaced the grass court with a cement tennis court at a cost of $40,000, and in February 1990 replaced the dilapidated wooden fence surrounding the tennis court with one constructed of steel mesh. The steel mesh fence cost $5,000 and was, in fact, cheaper that a replacement wooden fence. She did not know if the steel mesh would last any longer than a wooden fence.

Felicity, in March 1991, had health problems and so sold, at a substantial profit, the motel and adjoining block of land containing the tennis court to Raelene Ramanda.

Advise Felicity of the implications under the Income Tax Assessment Act of her dealings involving the motel, the adjoining land and the $3,000 tennis court.

14. Jill Brown is employed by Amazon Ltd, which manufactures computers in Australia. Although Jill

is employed in a senior management position in the company's manufacturing operations, she has an interest in computer programming and, to further her interests in this regard, she pays to attend part-time university courses on the subject. Unknown to Jill, the directors of Amazon Ltd have for some time been considering the diversification of the company's business into marketing computer programs. When they find out that Jill has passed all her university examinations, they decide to make her a director in a newly formed company, Piranha Ltd, which is a wholly owned subsidiary of Amazon Ltd, and which specialises in marketing computer programs. As a result of this appointment, Jill receives substantially more income than when she was employed by Amazon Ltd.

By 1990, Piranha Ltd has become operational in the marketing of computer programs and, in that year, it purchases rights to a computer program which has been developed by Steve Software in consideration of:

(a) a lump sum payment of $1 million (which was in fact paid to Steve in 1990); and (b) 10 percent of the annual gross sales proceeds of any computer programs sold by Piranha

Ltd which are based on the program developed by Steve. In 1991 Piranha Ltd pays Steve $100,000 pursuant to clause (b) of the agreement. What are the income tax consequences of these facts for Jill, Steve, Piranha Ltd and Amazon Ltd?

15. Mr Fu is currently a resident of Hong Kong, but decides to apply for Australian nationality under

the Business Migration Program established by the Australian Government. Under the Program, an applicant and his immediate family are granted Australian nationality on condition that a certain sum of money is invested by the applicant in an Australian business. Mr Fu, in compliance with the Program, invests the requisite money in an Australian business. He and his family are thereafter granted Australian nationality. Mr Fu proposes to buy a house in Sydney, and to send his wife and children to live in Sydney. However Mr Fu owns a substantial business in Hong Kong and, because of adverse Australian tax consequences, does not want to become a resident of Australia. What are the adverse Australian tax consequences if Mr Fu becomes a resident of Australia? By reference to the statutory definition of resident and case law, advise Mr Fu whether he will be a resident of Australia and, in particular, what steps he may take to reduce the risk of becoming a resident.

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SECOND WEEKEND SCHOOL 1. Sam Spade is employed by Dinkertons, a private detective agency engaged in private

investigations and protective security work. Sam becomes concerned about his personal safety and future career, so Dinkertons pay for him to undertake a self-defence course conducted by the Bruce Lee Martial Arts Centre. Dinkertons buys a pistol for Sam, which he can use in his work, and Sam himself pays to take an automatic weapons course run by a pistol club, to improve his experience and accuracy with automatic pistols. Dinkertons encourage employees to take such courses, and associate course experience with their more successful employees. One consequence is that more specialist and more highly paid work can be assigned to the employee. Sam acquires, at his own expense, a bulletproof vest for use on dangerous assignments.

Dinkertons acquire a house at Burwood for use as office premises. Shortly after the purchase it is decided that the colour the house is painted is not suitable. The whole house is repainted in a more appropriate colour at a cost of $5,000. Discuss the deductibility of the expenditures incurred by Dinkertons and Sam.

2. Narelle receives the following statement from Nova Pty Ltd together with a dividend cheque for

$60.00:

Shareholder dividend statement

Name of company: Nova Pty Ltd Date of payment: 9 June 1989 Name of shareholder: Narelle Pappas Number of shares: 1200 Cents per share: 5.00 cents Dividend Type Imputed

Credit Franked/Unfranked $ $ Franked amount: 36.00 23.02 Unfranked amount: 24.00 The dividend is 60 per cent franked.

Note: you will need to retain the above information to assist you in preparing your tax return.

Narelle seeks your advice as to the tax treatment of the $60.00 dividend. [Assume a company tax rate of 39 percent and individual rate of 50%.]

3. Tom owns a large property on the south coast of New South Wales. Tom has experience in the

forestry industry, and he acquired the land in 1984 because it had several fine stands of timber. The stands of timber are a long way from Tom's house on the property and so, in 1986, he acquired a caravan for $3,000 which he uses as a base camp when he is involved in logging. Tom uses the caravan to store equipment, prepare meals, shelter during bad weather and, on occasions, sleep in overnight. Tom drives a four-wheel drive vehicle from his home to the base camp and then drives from the base camp to the various stands of timber on his property. He spends approximately $150 per week on petrol. Tom has also entered into an agreement with Bob. Under the agreement Tom sold Bob 5,000 metres of timber for $20,000, payable in advance. Bob has the right to enter Tom's property to cut and remove the timber as he requires it.

During 1988 Tom had difficulty with persons protesting about the environmental damage caused by his logging operations. On occasions the protesters actually entered his property and obstructed him in the cutting of timber. As a result, Tom spent amounts on erecting fences around his property and, from time to time, hired security guards to prevent protesters entering his property. By 1989, Tom had cut most of the timber on the property, and was facing increasing opposition from environmental groups. He therefore decided to sell the property. In expectation of the sale he spent $5,000 on upgrading several of the roads on the property. In

17

1989, he sold the property at a substantial profit and also sold the caravan for $5,000.

Advise Tom generally as to the income tax ramifications of these facts. 4. On 1 July 1992, Bob Brown borrows $100,000 from Big Bank Ltd. The annual interest rate is 14

percent. Bob then lends this amount to Brown Pty Ltd at an interest rate of three percent per annum. Brown Pty Ltd is Bob's family company, and it uses the money to buy a house which it then rents to Bob for $20.00 per week. In his return for the year ending 30 June 1993, Bob declares as income the interest payments he has received from Brown Pty Ltd and claims deductions for the amount of interest he has paid to Big Bank Ltd and the amount of rent paid to Brown Pty Ltd. On 1 October 1993, Bob receives a Notice of Assessment and an Adjustment Sheet indicating that the deductions claimed have been disallowed.

(a) Bob wishes to object to the assessment. Advise him of how he should do this, what

arguments he may use in support of an objection and the issues involved. (ii) Discuss the possible application of pt IVA of the Income Tax Assessment Act to the

transactions entered into by Bob. 5. Shoppers Ltd carries on the business of designing, constructing, letting and managing shopping

centres. Its method of business generally involves identifying a suitable area for shopping centre development, acquiring land in the area, designing and constructing a shopping centre, leasing shops to retailers, and managing the general operation of the centre. Shoppers has been in business for 20 years, and currently manages 35 shopping centres in New South Wales and Victoria. Shoppers has only ever sold one shopping centre, when the returns fell below profitable levels and improvement in returns was expected due to changing demographics in the area where the centre was located.

In 1986 Shoppers identified the outer north-west region of Sydney as a suitable area for a shopping centre development. It acquired substantial vacant land in the area with a view to constructing its largest shopping centre, North-West Plaza, with space to be leased to major department stores, electrical goods retailers and grocery chains. As Shoppers had some difficulties raising finance, construction did not start immediately. In the meantime, Shoppers arranged for the connection to the site of electricity, gas, water and sewerage, and for the construction of roads into and out of the site. In 1991, due to the recession, Shoppers decided not to go ahead with the construction of North-West Plaza. After receiving real estate advice as to the means of obtaining the best price for the land, Shoppers decided to sell it as a subdivision of residential blocks. As utilities had already been connected to the land, Shoppers did no more than "peg" out the lots for sale. The lots were sold for a substantial profit. When Shoppers has excess funds, it lends those funds to its wholly owned subsidiary, Finance Ltd. This company is an investment company, and uses the funds to acquire shares on the stock exchange. The investment policy of Finance is to purchase shares which yield a certain rate on the funds invested. However, under that policy, if the market price of the shares increases by more that 10 percent from their original purchase price, Finance sells the shares and reinvests the proceeds in other shares yielding the same rate of return. Advise Shoppers of the tax consequences of selling the land, and Finance on the tax consequences in respect of the sale of shares. In your advice do not deal with capital gains under pt IIIA of the Income Tax Assessment Act.

6. Transport International Ltd ("TI") is a publicly listed company. TI pays a dividend to its

shareholders, and declares that the dividend is franked to the extent of 60 percent. Payments are made as follows:

(a) a dividend of $1,000 to Sue; (b) a dividend of $10,000 to XYZ Ltd, another public company; and (c) a dividend of $5,000 to Brown Pty Ltd, a private company owned by the Brown family.

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Explain the tax consequences to each of the above shareholders, and the relevant entries in the franking accounts of the companies.

7. David is the residuary beneficiary under his mother's will, of which his father is the sole executor

and trustee. David's mother died on 1 January 1990, and the administration of the estate was completed on 30 June 1990. The residuary estate comprises an investment of $1,000,000 which yields an annual income of $120,000.

David is left the income from the residuary estate which is to be paid to him by quarterly instalments commencing on his eighteenth birthday, and upon his twenty-first birthday he is to have the benefit of the residuary estate absolutely. In addition to this, his father as trustee is given a discretion to make advances from time to time for his maintenance, education and advancement.

On 1 October 1990, David's father pays $12,000 from the income of the estate to finance a trip by David to Paris to undertake a holiday course in French at the Sorbonne. David returns in February 1991 to commence his final year at high school. He attains the age of 18 on 1 October 1992. In what manner and by whom should the income from the investment be returned for the years ending on 30 June 1990, 1991, 1992 and 1993?

8. Magna Pty Ltd ("Magna) is the trustee of the Smith family trust. The beneficiaries of the trust are

the children of Sue Smith; John who is 19 years old, a paraplegic and living in the United States; James who is 14 years old; and Margaret who is 20 years old and married.

For many years the property of the trust has consisted of a factory which had originally been acquired in 1965 and rented to various people. In July 1990, Magna sells the factory to Eva Pty Ltd ("Eva"). Under the terms of the sale, Eva will pay Magna an initial amount of $200,000 and thereafter will pay Magna $20,000 each year during the lifetime of John.

Magna has complete discretion under the terms of the deed as to the distribution of the trust income. On 30 June 1993, Magna pays $5,000 to meet the medical costs of John; $4,000 to James; and $1,000 to Margaret.

Advise Magna and the beneficiaries of the Smith family trust as to their liability under the Income Tax Assessment Act in respect of the year ended 30 June 1993.

9. Max Martin forms a partnership with his wife, Jean, and their son, Jack, aged 13, to conduct a grocery business. Max also decides to employ his other son, Bill, aged 15, on a part-time basis in the business. Both Jack and Bill are still at school. The profits and losses of business are to be divided equally between Max, Jean and Jack. In addition, Jack and Jean are each paid a salary of $150 per week. Bill is to be paid a salary of $200 per week. Max spends about 60 hours per week working in the business. Jean spends approximately 30 hours per week. Bill and Jack assist in the business after school, and each spends about 10 hours per week doing so. Max wishes to encourage his sons to make provision for their future, and so requires Jack to put 75 percent of his share of the partnership profits into a savings account in Jack's name, and Bill to put 50 percent of his salary into a savings account in Bill's name.

Max decides that the taxation position of his family can be further improved if he assigns 50 percent of his interest in the partnership to Bill. Advise Max, Jean, Jack and Bill generally as in their taxation positions.

10. Sam owns 60 percent of the shares of Nostra Pty Ltd ("N"), the remaining 40 percent being held by Jill. During the year, Sam sells all of his shares in N to Jill. N, a company engaged in manufacturing gearboxes for cars, has in prior years made a number of losses which it has been carrying forward. Jill hopes to make N's business more profitable by involving the company in the manufacture of carburettors.

During the year of income ending 30 June 1993, N sells a property which was acquired by it prior to September 1985. It is not expected that N will be subject to tax on the profit it derives from that sale. For the year ending 30 June 1993, although N will derive a small amount of income, it is anticipated by the company's directors that the prior year losses will offset such amount.

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N desires to pay Jill a dividend out of the profit from the sale of the land. Advise Jill and N as to the tax consequences of the above facts.

11. Steel Company Ltd carries on business as a manufacturer and supplier of concrete and concrete

products, including block and reinforced support columns. It owns and uses several old buildings which are in need of maintenance and painting. It also operates a railway to transport material and products to and from port facilities. The railway is functional, but 20 years old. Some sleepers need replacement and some rails are rusted. The company's electrical equipment is in good condition. As business is booming the company decides to expand its production and resolves to do the following:

(a) to repair a leaking roof in an old building, replace some old dangerous awnings and paint all

existing buildings to prevent further damage to timber; (b) to build a new production plant factory at the rear of the present buildings; (c) either to make necessary repairs to the existing railway and extend it to the new buildings,

or to scrap the old one and start again; (d) to buy some additional rundown locomotives and, after repairing them, to use them on its

railway to transport materials; (e) to mechanise fully by installing computerised manufacturing equipment. Advise Steel Company Ltd of the deductibility of money spent in connection with items referred to above.

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COURSE MATERIALS TAXATION OF TRUSTS

Presently entitled

No legal disability

s95A(2) deemed natural person not trustee

Legal disability

not presently entitled

s98(1) trustee assessed on beneficiary's share

resident

Non -resident

s98(2) trustee assessed on beneficiary's share

s97(1) included in beneficiary's income

s

deceased estate

s101A trustee asses

s99 trustee assesrates on aggr

s99A trustee assesand highest m

Commissioner's discretion (ss 99A(2)-(3))

revocable trust

Trust for unmarried child under 18

s102(1)(a) trustee assessed

s102(1)(b) trustee assessed

Net Income Trust Estate

company not trustee

t sb

s

person not trustee

t sb

sed

sed on normal egate

sed on aggregate arginal tax

98(3) rustee assessed

98A eneficiary assessed

98(4)

rustee assessed

98A eneficiary assessed

actual s101 s95A(2)

resident trust estate

non-resident trust estate

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TAXATION OF CHILDREN - DIV 6AA Is a person a prescribed person?

(a) less than 18 years on last day of year of

income and (b) not an excepted person

See section 102AC(2) for classes of excepted persons

s 102AC(1)

Is the income received subject to Division 6AA? YES NO

Div 6AA does not apply

2 categories of income

Income generally - s 102AE Trust income - s 102AG

Income will be subject to Div. 6AA unless within the categories of excepted assessable income listed in s102AE(2): Employment income - see s 102AE(6) & (7) Business income - see s 102AE(5) Income from certain types of investments

Income will be subject to Div. 6AA unless within the categories of excepted trust income listed in s 102AG(2)

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