Kath and Kim have been running competing craft shops in the same small country town. There is not enough business for two craft shops so Kath offers Kim a lump sum payment of $80,000 if she will close her craft shop and not open another one for 3 years within a 200 kilometre radius of the town. Kath and Kim agree and Kath pays Kim the $80,000 on 25 June of the current income tax year.


Which of the following statements is most correct in relation to Kath and Kim's taxation affairs for the current income tax year?
 -The payment is assessable to Kim under section 6-5 ITAA 1997 as one-off restrictive covenant payments are usually capital in nature.
 -The payment is deductible to Kath under section 8-1 ITAA 1997 as it is incurred in the current income tax year.
 -The payment is assessable to Kath under section 6-5 ITAA 1997 as one-off restrictive covenant payments are usually capital in nature.
 -The payment is not deductible to Kath in accordance with the decision in Broken Hill Theatres v FCT (1952) 85 CLR 423.
 -The payment is deductible to Kim in accordance with the decision in Broken Hill Theatres v FCT (1952) 85 CLR 423.

Answer rating: 100% (QA)

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