Ordinary income & statutory income cases

Question 1

Convertible into cash

Answer 1

FCT v Cooke & Sherden (1980)

A benefit is not income within the ordinary meaning unless it consists of money OR is capable of being converted into money

Question 2

Periodic, regular and expected

Answer 2

FCT v Dixon (1952)

A weekly payment to a solder from his former employer to make up the difference between his civilian and military pay. Held: Periodic payments not directly attributable to employment

Keily v FCT(1983)

Aged persons pension paid by the government also held to be ordinary income

Question 3

Income as a reward for personal services and employment

Answer 3

Brent v FCT (1971)

It is irrelevant that the payment for a service is a one off payment or a regular series of payments
Ms Brent was the wife of an infamous train robber who escaped jail
She had an interesting story to tell which she sold to a newspaper
She didn’t write the story herself but dictated it to a journalist
Held: The payment was ordinary income as a payment for services rendered

If she wrote the story and sold the rights then it would have been capital asset (statutory income)

Question 4

Payments for services rendered

Answer 4

Moorhouse v Dooland

Voluntary payments
Assessable where relate to services rendered
•Payment is not required to come from the employer
•Example: tips received by a taxi driver

Moorhouse was a cricketer who handed his hat to the crowd to put money in - money by crowd is ordinary income

Question 5

Voluntary payments (An unexpected payment) - gift

Answer 5

Scott v FCT (1966)

Scott, a solicitor, had acted for Mrs Freestone for a number of years
On the death of her husband he assisted her wind up his estate which included a farm
He helped her rezone the farm which led to a higher sale price
Before the invoice was prepared Mrs F told Scott she was going to gift him $10,000
Scott invoiced Mrs Freestone for the work and was appropriately paid

Held: $10,000 was a gift and not assessable income
• If payment is a product of friendship then a gift
• The fact he was paid in full supported the case
• He did not expect the gift

Hayes v FCT (1956)

Hayes ceased working for Mr Richardson as his business was declining
Hayes continued to give advice to Richardson in an informal manner as they were friends
Richardson’s business became profitable and he gave a number of shares in the business to Hayes
Held: was a personal gift and not a payment for services rendered
•He had been paid for his work
•Hayes didn’t expect the payment
•It was a result of a friendship

s15-2

Question 6

Prizes

Answer 6

Kelly v FCT (1985)

•Income depends on personal services
•Windfall gains depending primarily on luck are generally not income
•Prize where the degree of skill outweighs the element of chance may be ordinary income
The footballer who won the best and fairest player award by a TV company was held to be income

Prize for the top student is generally a gift as its not related to earning income

Question 7

Loyalty Programs

Answer 7

Payne v FCT (1996)

Customer accumulates points while on employer business that can be redeemed as free travel, or accommodation
Issues are:
• Whether the rewards are cash or cash convertible
• Are the points for personal exertion.
The employee flew on company business paid by her employer and accumulated frequent flyer points.

Conclusion:
The use of the points to obtain free personal travel was not ordinary income.
The free travel was not from the employer or able to be converted to cash

Question 8

Restrictive covenants

Answer 8

FCT v Woite (1982)

• A restrictive covenant or restraint of trade may be entered when you give up certain rights in return for a payment . These payments are generally a capital receipt
• South Australian footballer signed agreement with North Melbourne football club that if he played football in Victoria he would only play for that club
• Not bound to play for North Melbourne only that he would not play for any other club in Victoria
• A payment made to an employee on leaving the employer for not disclosing the the secrets of the employer - capital
• A payment for agreeing not to work for another employer in the same business – capital
• Being paid to induce the person to join another firm would probably be income