The following case study is concerned with the determination of assessable income of Paul who ran the business of golf instructor (Barkoczy, 2016). Usually during the computation of the assessable income of an individual’s business one is under obligation to exclude all the gross earnings produced from the normal business course.
- Henderson v. FC of T (1970)
- Subsection 6-5 (2) and (3) of the Income Tax Assessment Act 1997
- Taxation Rulings TR 93/11
- Subsection 25 (1)
- Barratt v. FC of T92 ATC
As defined under subsection 6-5 (2) and (3) of the Income Tax Assessment Act 1997 taxpayers should take account of the taxable income in the gross proceeds that is derived by them (Blakelock and King, 2017). Where income that is earned during the income year and it is but received in next year, the acceptance of suitable means of ascertaining income that is derived under subsections 6-5(2) and (3) in the applicable income year that forms the subject of the taxpayers and their consultants (Cao et al. 2015). The rulings are applicable to the persons and entities for the purpose of tax and they should use the proceeds or the income scheme of tax accounting in determining the taxable income.
According to the TR 93/11 fees that are derived under subsection 25 (1) is regarded as income in accordance with the normal conception of the Income Tax Assessment Act 1936 by those professionals person whose proceeds is taxable based on the accrual basis. The effect of the statutory obstruction is based on the starting the legal proceedings for recovering the professional fee income (Christie 2015). As evident from the following scenario, Paul earned a fee income from the private lesson provided to his client. The question arises that when the professional fee earnings is received under subsection 25 (1) of the ITAA should be determined in reference to the facts of the present case of Paul and particularly with reference to the terms of the contract that is entered into by Paul and his client (Miller and Oats 2016). In present case, it is also foundthat Paul also received a fee after five years for lesson provided to one of his client. On an appropriate creation relating to the contract or agreement, a recoverable debt is formed in such a manner that the professional debt individual will not be obliged to undertake any additional steps prior to being entitled for payment. A fee is recoverable in the applicable logic if the time to make payment has been endorsed.
As held in the case of Henderson v. FC of T (1970) income that is assessable in terms of the accrual basis is derived under the subsection 25 (1) of the ITAA when the recoverable debt is established such that the person paying tax is not required to undertake any kind of supplementary actions before they become entitled for payment. Furthermore, a professional person at times receives fee in advance for the job to which it is related. Given the arrangement has been formed between the professional and the client, the income from fee is derived during the earnings year during which the professional individual completes the work to which the fee is related. In the present case of Paul, it is found that the fee, which is derived by him in present scenario, forms the element of the earnings and must be incorporated in the taxable income of the Paul.
As stated under the Taxation Rulings of TR 93/11 recoverable debt can be established with the person who is professional that does not need the bill to the customer once the job is entirely completed (Snape and De Souza 2016). In the present scenario, Paul under whom the estimate the work was entirely completed derives the fee income. The professional person under these situations generates the earnings from fees in the year during which the professional work ended very early. The receipt of fees by Doreen represents income during the year and the professional lesson imparted by him ended very early. Therefore, such income would be included in the assessable income of Paul since the fee receipt constitutes recoverable debt since the lesson imparted was entirely completed early. In calculating the taxable income, a person is under obligation to include all the gross earning or proceeds arising out of the regular business course (Somers andEynaud, 2015).
Citing the reference of Barratt v. FC of T 92 ATCthe federal court of Australia has viewed that the statutory obstruction to begin the lawful events for recovery of a bad debt (Saad 2014). This does not postpone the instance during the earnings from fees is derived under the subsection 25 (1) by the professional individual whose income shall be considered for assessment under the accrual basis.
To conclude with, the present case has taken into the considerations the income that is earned by Paul during the course of his business. The study has successfully highlighted that Pual receipt of fees under the sub-section 25 (1) shall be held assessable based on the cash basis. Furthermore, Paul also derived a fee income for the lesson provided to Doreen as the recoverable debt for the fee income received in the advance of the lesson
Barkoczy, S. 2016. Foundations of Taxation Law 2016. OUP Catalogue.
Blakelock, S., and King, P. 2017. Taxation law: The advance of ATO data matching. Proctor, The, 37(6), 18.
Cao, L., Hosking, A., Kouparitsas, M., Mullaly, D., Rimmer, X., Shi, Q., ... and Wende, S. 2015. Understanding the economy-wide efficiency and incidence of major Australian taxes. Treasury WP, 1.
Christie, M. 2015. Principles of Taxation Law 2015.
Miller, A., and Oats, L. 2016. Principles of international taxation. Bloomsbury Publishing.
Saad, N. 2014. Tax knowledge, tax complexity and tax compliance: Taxpayers’ view. Procedia-Social and Behavioral Sciences, 109, 1069-1075.
Snape, J., and De Souza, J. 2016. Environmental taxation law: policy, contexts and practice. Routledge.
Somers, R., and Eynaud, A. 2015. A matter of trusts: The ATO's proposed treatment of unpaid present entitlements: Part 1. Taxation in Australia, 50(2), 90.