BTF3931 Study Guide - Final Guide: Royalty Payment, Ordinary Income, Dividend Imputation
6 Aug 2018
School
Department
Course
Professor
(ORDINARY INCOME) INCOME FROM PROPERTY (W7)
(Legislation: Sec 6-5 and Sec 15-2 of ITAA97)
Flow concept revisited
• Recall the “tree” and “ fruit” where income = fruit flows from capital = tree
• In the context of income from property
Rent (ORD)
• Rent is a payment by one party in exchange for the use of the other party’s property for an
agreed amount of time.
• Receipt of rent constitutes ORDINARY INCOME: Adelaide Fruit and Produce Exchange Co V
FCT (1932)
o Even if received lump sum = still ORDINARY INCOME
Interest (ORD)
• Interest is the return that flows from the lending of money and is the compensation for the
loss of use of that money
o Capital sum lent is not affected by the payment of interest
o Constitute as ORDINARY income s6-5
Dividends (STAT
s6(1))
• Definition of “dividend” includes s6(1) ITAA36
o Any distribution in the form of money or property that a company makes to its
shareholders
o Any amount credited by the company to any of its shareholders as shares
o A resident shareholder may be subjected to dividend imputation
Royalties
• A royalty payment is a payment that is calculated based on the usage of intellectual property
or quantity/value of a substance taken McCauley V FCT (1994)
o Section 15-20 deems royalties to be assessable as statutory income, except where
royalties constitute ordinary income
Income from PROPERTY
Kosciusko Thredbo Pty
Ltd V FCT (1986):
RENT (Ord)
Kosciusko Thredbo Pty Ltd V FCT (1986): Taxpayer in business of receiving lease
premiums = constitute ordinary income as it is part of normal proceeds &
repetitive and an essential to the taxpayers business
Lomax V Peter Dixon &
Sons
FCT V Hurley Holdings
(NSW) Pty Ltd (1989)
Federal Wharf Co Ltd V
DCT
INTEREST (Ord)
Lomax V Peter Dixon & Sons: Interest or compensation for risk → capital in
nature and not interest
FCT V Hurley Holdings (NSW) Pty Ltd (1989): Gain on a discounted security (gain
made on realization of investment) was ordinary income
Federal Wharf Co Ltd V DCT: Interest on capital compensation is ordinary
income → paid to account for the fact that the taxpayer had been deprived of
the use of funds that it was due. If funds received immediately and reinvested
then interest = ordinary.
Document Summary
(ordinary income) income from property (w7) (legislation: sec 6-5 and sec 15-2 of itaa97) Flow concept revisited: re(cid:272)all the (cid:862)tree(cid:863) a(cid:374)d (cid:862) fruit(cid:863) (cid:449)here i(cid:374)(cid:272)o(cid:373)e = fruit flo(cid:449)s fro(cid:373) (cid:272)apital = tree. Rent (ord: re(cid:374)t is a pa(cid:455)(cid:373)e(cid:374)t (cid:271)(cid:455) o(cid:374)e part(cid:455) i(cid:374) e(cid:454)(cid:272)ha(cid:374)ge for the use of the other part(cid:455)"s propert(cid:455) for a(cid:374) agreed amount of time, receipt of rent constitutes ordinary income: adelaide fruit and produce exchange co v. Fct (1932: even if received lump sum = still ordinary income. Interest is the return that flows from the lending of money and is the compensation for the loss of use of that money. Fct v hurley holdings (nsw) pty ltd (1989) Kosciusko thredbo pty ltd v fct (1986): taxpayer in business of receiving lease premiums = constitute ordinary income as it is part of normal proceeds & repetitive and an essential to the taxpayers business.
