"Income Tax Exemptions and Assessable Income: Practical Case Studies" MLC301 Assignment

MLC301 ASSESSMENT 1 (TOPIC 2)

1)Required: Explain (citing sections where appropriate) whether the following receipts are specifically exempt from income tax (1 mark each, total 4 marks):

• (i) A not-for-profit association formed for the purpose of promoting the development of Australian tourism receives income; and
  (ii) one of its employees receives a weekly salary of $1500.
  (Please discuss both (i) and (ii)).


• A man receives, from the mother of his child, regular maintenance payments to help pay for the upkeep of their child. The mother of the child is not currently and was not previously the man's spouse.


• A law student receives a scholarship that pays $10,000 per annum from a major law firm. A condition of this scholarship is that the law student give 5 separate 3 hour presentations to law students (for which she would be paid extra), which emphasise the great things about working for this particular law firm. (Please only discuss the scholarship receipt for this part of the question).


• A parent receives a child care subsidy from the government.

Question 2(4 points)

2)Required: Ignoring capital gains tax, discuss(citing authority where appropriate):

1. whether Mandys receipt of $20,000 constitutes ordinary income; and


2. whether the $5,000 annuity receipts are assessable

(4 marks).

Mandy was offered work as an accountant for a major supermarket chain, PRW Ltd. PRW at the time had a restricted work from home policy where staff could only work from home for two days a week. However, when negotiating her contract, Mandy secured a right to work from home for four days a week.

After working at PRW for a few months, in January 2025, PRW offered Mandy $20,000 to give up her right to work from home more than the standard policy allowed. This meant she would need to comply with the regular work-from-home rules that applied to all other PRW workers. Mandy in writing agreed to this change in January 2025, effective from March 2025. However, in February 2025 PRW changed its broad policy so that all its workers could work from home for 4 days a week.

Mandy then used the $20,000 to buy a 5 year annuity that gave her regular payments amounting to $5,000 a year for 5 years (without any return of capital at the end).

3) Required: Discuss whether the sale of the land with the foundations generates ordinary income for Katie(citing authority where appropriate)(4 marks).

Katie is a doctor (a General Practitioner) who owns two medical clinics. In 2024, she bought a third property with a clinic on it in Burwood for $1 million. She bought this particular clinic due to the fact that she believed that its location would attract many patients, as there were no other GP clinics nearby. She also at the time of purchase believed that the price she was paying for the property with the clinic was cheap, meaning that when she sold it, she was confident that she would be able to make a good gain, even if Melbourne-wide property values remained stagnant, as they had been for a number of previous years.

Right after Katie had purchased the Burwood property, the land was unexpectedly rezoned by the council, allowing higher density housing to be built on it. Katie as a result spent $100,000 on demolishing the medical clinic building and getting approval for building a 3 storey apartment block on the land. She entered into a contract with a builder to have the apartment block built for $10 million on the Burwood property. She paid the builder a $200,000 deposit, for which the builder built foundations on the land for the apartments. However, right after this deposit was paid and the foundations built she and the builder mutually agreed to cancel the building contract, and as a result she would owe them no further payments. She then sold the Burwood property (consisting of vacant land with the apartment foundations) for $3 million to the builder.

Question 3 options:

Question 4(4 points)

4)Required: Discuss whether any part of the $20 million in compensation is assessable as ordinary income(citing authority where appropriate)(4 marks).

Glass Pty Ltd buys and sells certain types of glass. One of its contracts is for the purchase of special resilient glass that it sells to multiple manufacturers of mobile phones. Although this contract accounts for 15% of the costs of Glass, it accounts for 90% of its revenue and profit. This contract is 6 years in length.

However, 2 years into the 6 year contract, the seller under this contract cancels the agreement, and pays Glass $20 million in compensation. This $20 million, in the sellers own internal documents (not communicated to Glass), was calculated so as to represent:

1. i) compensation arising directly from the cancellation of the contract. This was calculated based on the loss of profit Glass experienced due to no longer being able to sell this resilient glass ($15 million); and
   ii) the loss of reputation Glass would experience for the contracts cancellation, which might compromise its ability to sell other types of glass the loss of reputation was likely to only last a few months ($5 million).

Question 5(4 points)

5)Required: Ignoring capital gains tax, briefly explain (citing relevant authority where appropriate) whether the following receipts are assessable as ordinary income or statutory income, or non-assessable (1 mark each)

1. An employee engineer receives a non-transferrable, non-refundable international holiday worth $3000 from his employer's client, due to the excellent work that the employee undertook.


2. An employee flies a lot for work, and joins the frequent flyer program of the airline he always flies with for work-related travel. Due to the work-related flying he earns many frequent flyer points, which he uses to redeem a free non-transferrable and non-cash convertible overseas plane ticket, which he uses for a holiday. (For this issue, please only discuss the receipt of the free holiday plane ticket).


3. An employee owns land, and they enter into a contract with a third party for the third party to remove timber from the employee's land, for which the third party pays the employee $100/kg of timber removed.


4. An employee receives an IT equipment allowance of $3000.