This is the sample assignment submitted by student of Taxation on the topic of ordinary income. Here, are seven different cases where we have to find out wether the profit made by company falls under ordinary income or not.
Californian Copper Syndicate Ltd v Harris (Surveyor of Taxes) (1904) 5 TC 159
In this case, disposal of copper- bearing land to another firm with allotted shares where the exchange was done on the basis of substitution of the land for the shares. Later, it was realised that the tax payer was attempting to make benefit from the offer of its land. This shows that, they are trying to make profit from the exchange of assessable substitution of one investment for another.
Eventually, the court inferred that the activities performed and the cost involved in the exchange of any sort of investment accomplished in the aim for carrying on business (Barkoczy 2016, p.10.5). Due to this activities, the emerged of gain and profit plan is income in nature. So the taxpayer is required to pay tax for ordinary business income.
Scottish Australian Mining Co Ltd v FC of T (1950) 81 CLR 188
In the late 1980s, large area was used for coal mining business. After many decades, the area is chosen to dispose because of depletion of the main coal seam. The area was intended to be used for building road and railway station. Further some area was given to public organisation, schools and hospital in the intention to get attractive price.
In this case, high court denies the fact land selling business by organisation. More court clarifies that the scheme is occupied with development activities and focus less on profit making scheme (Barkoczy 2016, p.10.5). Since, the area had been obtained for various reason as opposed to required in a benefit making scheme and the important steps were taken to understand the area to the best favourable position, along these lines, the case displays capital in nature and the organization requires to pay capital gain tax.
FC of T v Whitefords Beach Pty ltd (1982) 150 CLR
In 1954 the taxpayer purchased 1584 acres of land for the purpose of building fishing shacks. Later the new shareholders take over the land who is involved in land development activities. They then engaged in the profit generation by subdivision of that land and offering the land.
Later high court declares that the person was engaged on profit generating activities and was beyond negligible understanding an asset (Hart 2007). Since, initially the land was purchase for the aim of using as domestic purpose however new shareholders were included in profit generating activities. So the organization requires paying tax for ordinary business income as the activities represent income in nature.
Statham & Anor v FC of T 89 ATC 4070
In this case, the tax payer had an expectation to begin a small business of property development and find out the land for acquisition. But he did not give a time to know the development conditions or confinements of area with local authorities. Further he did not check the feasibility of the proposed project too. The agreements had been in this way traded for the obtaining of land which was not anticipated to be beneficial when costing investigation was attempted. Later, the area was sold with no upgrades and no similar projects were initiated.
Later the court declared that a loss incurred is not deductible which is caused by disposal of land. The court show the reason that the initial proposed activities had failed to exhibit an outcome delivering assessable income. Further while carrying on business the event of transaction was not decided (Australian Taxation Office 2008). So it shows capital loss subjected to capital gain tax provisions.
Casimaty v FC of T 97 ATC 5135
Here in this case, the production property was jointly acquired. Later it was deregulated and further was instructed for non-viability regarding conveying their business. As planned the property was then subdivided as the intention of making town planning scheme. There was no involvement of marketing and sales of the properties but the property is arranged in a way that attracts buyers. Later their essential production activities had not been stopped. It was declared that a gain from the disposal of land is capital gain in nature (Australian Taxation Office 2004). Thus, the organization requires paying capital gain tax.
Crow v FC of T 88 ATC 4620
In the mid 1990s, the land was purchased for the subdividing the land and building new house on it. The intention of taxpayer was to generate profit by offering house and land. But unfortunately the disposal of new house result into loss. In this case, the court declared the taxpayer’s intended to carry business and making revenue by land development that speaks to income in nature (Australian Taxation Office 2010). Subsequently, the loss acquired in creating assessable income is deductible.
McCurry & Anorv FC of T 98 ATC 4487
The resigned taxpayer intended for selling of the shares after the result is declared. In this case a margin loan arrangement financed the cost of the purchase of the shares. But unfortunately the selling of those share emerged as loss (Australian Taxation Office 2009). Further there was no any proof of involvement in share trading business and aim of creating assessable income. Since, there was no intention of making a benefit from those transactions, the loss occurred is definitely not deductible in nature.