You have recently been contacted to assist a new client with understanding her income for the 2021 tax year. The clients name is Lauren Free and she is a midwife who is employed by Moreton Health. She has come to you to seek advice about which receipts received could potentially be assessable for the 30 June 2021 tax year.

During the 2020/21 tax year Lauren received a weekly salary of $1850, an annual uniform allowance of $400 paid to her, and $300 reimbursed by Moreton Health (her employer) for the payment she made for annual membership to the Australian Primary Health Care Nurses Association.

During the 2020/21 income year Lauren assisted with the delivery of over 250 babies. One of those deliveries was a set of triplets. The parents of the triplets were so thankful to Lauren for the care and compassion she gave them during the birth that they gifted her a $100 Myer voucher to say thank you. Lauren had only met Fred and Lily (the parents) on the day that the triplets were born, as their usual midwife was on holidays.

When Lauren was offered the position at Moreton Health, she was asked to agree to a term in her contract that prevents her from working as a midwife in another Brisbane hospital for a period of 2 years once her employment ends. Lauren signed the contract and was paid $10,000 in respect of term in the contract.

On 4 April 2021, Lauren sustained a back injury at work from lifting something very heavy. She was unable to work for a substantial period of time. Lauren claimed workers compensation for a 5 week period from the time that the injury occurred. The Workers compensation details are as follows;

§ Workers' compensation payments to replace lost income (for 5 weeks) $9,250

Unfortunately for Lauren, Workers Compensation did not cover all of the costs related to her rehabilitation. Therefore, Lauren entered into a damages claim against Moreton Health to recover these costs. Lauren and Moreton Health reached an agreement during court mediation proceedings. This agreement resulted in Lauren being paid a sum of money for her personal injury and suffering on 31 May 2021. The details of this payment are detailed below;

§ Court awarded damages resulting from a personal injury claim $4,000

On 10 November 2020, Lauren received an unfranked dividend of $600 from the ANZ bank. Lauren also received $20,000 on 1 September 2020 for royalty income from sales of a children's book that she wrote in 2017.

Lauren won $2,000 playing bingo at the local bowls club when she took her grandma out for dinner on 5 March, 2021.

Required:

Explain to Lauren in your professional opinion as to whether each of the receipts mentioned above constitute income under s6-5 of the ITAA97. There is no need to consider the source of the income or when it was derived, just discuss whether the receipts are ordinary income or not. Ensure that you apply the relevant law to the facts.

Note The format of your answer should follow the steps outlined in your Study Guide ( - the steps are amalgamated below). Your answer should apply the primary sources of law discussed in the lecture about Study Guide Chapter Two - Assessable Income. That is, ensure you refer to legislative references and case law where applicable.

IDENTIFYING WHETHER A RECEIPT WILL BE ASSESSABLE UNDER s 6-5 ITAA97:

Step 1: Is there a legislative definition of 'ordinary income' under the ITAA?

Step 2: Is there case law that defines 'ordinary income'?

Consider the common law characteristics of ordinary income - have these been met on the balance?

Does the receipt fit into any of the known categories of ordinary income:

Step 2(a): Are any of the receipts 'income from personal exertion'?

Step 2(b): Are any of the receipts 'income from property'?

Step 2(c): Are any of the receipts 'income from business'?

Step 3: Are any of the receipts exempt or non-assessable non-exempt income?

Step 4: Are any of the receipts a kind of statutory income? The statutory provision usually prevails.

Any receipts that do not fit into the any of the above categories will not be a kind of assessable income.

Answer rating: 100% (QA)

No The phrase income according to ordinary concepts is undefined in the Income Tax Assessment Act 19... View the full answer