Question 1: (2.5 marks)

It is important to determine if there is a sufficient nexus between the receipt and the-income producing activity, in determining whether a receipt is income according to ordinary concepts.

What does this statement mean? Provide two examples where a nexus may exist (and may not exist) for the amount received by the tax payer.

Question 2: (5 marks)

In November 2019, Manly Ltd, a manufacturer of heating systems, was taken to court by one of its competitors, Heating Ltd, under the Competition and Consumer Act 2010(Cth). Heating alleged that Manly sought to enter into exclusive agreements with several retailers that they would only stock Manley's products.

While manly incurred $240000 in legal costs in defending the action, the case was settled out of court. The terms of the agreement on 20 February 2020 provided that Manly would pay Heating $$500,000 immediately, and an amount equal to 3% of profits over the next two years. For 2018/2019 the profit was estimated to be $660,000 and the year after $780,000. Advise Manly on the deductibility of this expenditure.

Make sure you include the relevant sections of the legislation.

Question 3: (2.5 marks)

Discuss and explain how a revenue account for one taxpayer may be of a capital nature for another taxpayer. Include the relevant sections of the legislation and any case examples if applicable.