Basic Rules: Damages as a Receipt of Income or Capital

Question 1

Non-performance of business contracts

Answer 1

generally regarded as income

Question 2

Cancellation of agency agreements

Answer 2

compensation for cancelling a contract:

• income - if contract was entered into in the course of regular business
• capital receipt - if the agreement is of sufficient importance to constitue part of the company’s total business structure

Question 3

Loss or property

Answer 3

• receipt of capital: if property was fixed capital
• receipt of income: if the property was working capital such as inventory