Compensation Received By Connect-IT-Free-Samples for Students

Question: Advise Connect IT on the Tax Treatment of the Payment received form Viclnvest for the year ending 30 June 2018 applying legislation and Case Law to Support. Answer: Issues: The issue is associated for the ascertainment of tax treatment for the receipt lump sum amount upon the cessation of deal or agreement is chargeable income in respect of Section 6-5 of the ITAA 1997 (Coleman and Sadiq 2013). Legislations: Section 6-5 of the ITAA 1997 section 20-20 (2) F C of T v Meeks (1915) Allied Mills Industries Pty Ltd v. FC of T(1989) Californian Oil Products Ltd v. FC of T (1934) Application: As defined under Section 6-5 of the ITAA 1997 amount that has been received by Vic Invest of $7,500,000 for Connect IT will be regarded as income and will be taxable (Kenny 2013). Citing the reference of F C of T (NSW) v Meeks (1915), sum that is derived or received for the termination of trade or commercial deals that has been prepared at the time of performing of the business activities will be considered as income. To ascertain whether the receipt of compensation by Connect-IT is possessing the nature of income or capital it is necessary to understand whether the ceased agreement is having an association for rendering service and formed the portion of revenue deriving arrangement. As evident from the contemporary state of affairs, Connect-IT will be able to find out an alternative business clients and an assertion can be bought forward that the contract will not be considerably produce an influence on the profitability of the company. The contract do not influence based on the fixed framework in terms of which Connect-IT performed its corporate activities and the receiving of reimbursement would be accounted as revenue. However, of the service rendered by Vic Invest constituted a serious share of their corporate functions, it can be contended that the receiving of payment would constitute capital in nature. Citing the reference of Californian Oil Products Ltd v. FC of T (1934) the judgement passed in this case supported the viewpoint (Krever 2013). From the case study, it is understood that the taxpayer entered in a five-year agreement with an intercontinental oil firm, which allocated them with the solitary right of distributing the products in Australia. Aft erwards, the international firm wanted to cease the contract and paid Californian oil firm with a sum as the compensation for the cessation of agreement. The court judgement stated that the amount received as compensation for termination of contract was capital in nature. As a result of this, it is necessary to ascertain the vitality of the agreement for Connect-IT. Even if it is supposed that Connect-IT would be able to find alternative appointments with another client however, it can be regarded that the sum received was of revenue account. As held in the case of Allied Mills Industries Pty Ltd v. Federal Commissioner of Taxation(1989) receipt of $7,500,000 represents un-dissected lump sum payment for the settling the claims (Morgan, Mortimer and Pinto 2013). Concerning the judgement, these sums would be assessable for Connect-IT as recoupment of loss under section 20-20 (2). Conclusion: In compliance with the Section 6-5 of the ITAA 1997, compensation received by Connect-IT is regarded as income and will be held taxable in terms of the ordinary concepts. Reference List: Coleman, C. and Sadiq, K. (n.d.).2013 Principles of taxation law. Kenny, P. (2013).Australian tax 2013. Chatswood, N.S.W.: LexisNexis Butterworths. Krever, R. (2013).Australian taxation law cases 2013. Pyrmont, N.S.W.: Thomson Reuters. Morgan, A., Mortimer, C. and Pinto, D. (2013).A practical introduction to Australian taxation law. North Ryde [N.S.W.]: CCH Australia.