Determination Whether Lump Sum Received †Myassignmenthelp.Com

Question: Discuss About The Determination Whether Lump Sum Received? Answer: Introducation The amount of $7,500,000 in the form of compensation received by Connect IT may constitute as income and will held taxable as income as per the ordinary concepts of Section 6-5 of the ITAA 1997. As a held in the case of F C of T (NSW) v Meeks (1915)[1] sum received in association with the cessation or deviation of deal or other forms of business contract that is made in the due course of performing on of a trade that are in the nature of income. As a rule, to decide whether the sum of compensation received by Connect-IT is of income or capital in nature it is vital to understand whether the annulled contract is linked to the purpose of providing service and formed the part of the profit making structure. In the present case, Connect-IT may find an alternative service provider and it can be argued that the agreement would not however substantially affect the Connect-IT income making composition. The contract did not create an impact on the permanent composition under which Connect-IT executed its business activities and the amount of compensation received would be of revenue in nature. However, if the service provided formed the significant fraction of their commercial operations, an argument can be put forward that the compensation was capital. As held in the case of Californian Oil Products Ltd (in liq) v. Federal Commissioner ofTaxation (1934) 52 CLR 28; (1934) the decision passed supported the view[2]. As evident the assessee entered into the agreement of five-year with international oil company that provided them only right of distributing the oil merchandise in Australia. Afterwards, the foreign company sought after to end the agreement and compensated Californian oil with a sum in the form of compensation for the cessation of deal. The court passed its verdict by stating that the sum received as reimbursement for rescission of the contract was capital in nature. Consequently, it is vital to determine that the vitality of contract was to Connect-IT. Although it is assumed that Connect-IT would be able to discover an alternative arrangements with another clients and can be considered that compensation received was of revenue account[3]. Citing the reference of Allied Mills Industries Pty Ltd v. Federal Commissioner of Taxation(1989) the amount of $7,500,000 paid constitute an un-dissected lump sum payment as an arrangement for the settlement of the claims. Pursuing the decision in Allsop v FC of T (1965) these amounts therefore be assessable in the form of recoupment of a loss under section 20-20 (2)[4]. Conclusion: The sum of compensation received by Connect IT constitute as income and will be held taxable as an income as per the ordinary concepts of Section 6-5 of the ITAA 1997 Reference List: Barkoczy, Stephen. "Foundations of Taxation Law 2016."OUP Catalogue(2016). Blakelock, Sarah, and Peter King. "Taxation law: The advance of ATO data matching."Proctor, The37.6 (2017): 18. ROBIN, H.AUSTRALIAN TAXATION LAW 2017. OXFORD University Press, 2017. Woellner, R. H., et al.Australian Taxation Law Select: Legislation and Commentary 2016. Oxford University Press, 2016. [1] Barkoczy, Stephen. "Foundations of Taxation Law 2016."OUP Catalogue(2016). [2] Woellner, R. H., et al.Australian Taxation Law Select: Legislation and Commentary 2016. Oxford University Press, 2016. [3] Blakelock, Sarah, and Peter King. "Taxation law: The advance of ATO data matching."Proctor, The37.6 (2017): 18. [4] ROBIN, H.AUSTRALIAN TAXATION LAW 2017. OXFORD University Press, 2017.