ABC is in the business of selling computer equipment and related software. In January 2019, ABC entered into a contract with XYZ, a computer retailer, to supply XYZ with computers and software over a period of two years. The contract provided that each computer sold by ABC to XYZ within the two-year period would be sold for a fixed price.

Due to a change in ABC’s suppliers in November 2019, the price of ABC computers increased by an average of 20%. As a result, ABC indicated that it wished to cancel the contract from 1 December 2019. The cancellation of the contract meant that XYZ had to purchase other computers from another supplier at a higher price.

XYZ commenced legal action against ABC seeking $2,000,000 in compensation, being compensation for the increased cost of having to purchase its computers and software elsewhere and also for the fact that the software which XYZ had already purchased from ABC was not compatible with the new computers which XYZ purchased from another supplier. The legal action was discontinued when XYZ paid ABC $1,500,000 to settle all claims against it.

Advise XYZ as to whether the amount it has received as compensation constitutes assessable income. Refer to case law and statutory provisions in your answer.

Answer rating: 100% (QA)

In the case at hand ABC committed a direct breach of contract by failing the deliver the goods at th... View the full answer