MLC301 Principles of Income Tax Law - Assessment Questions

QUESTION 2. 16

Consider the following situations and discuss whether they are income in ordinary concepts or not. Note: Where no dates are given, the previous tax year is to be assumed.
(a) An amount of $3000 received in a lump sum as compensation following the settlement of a Work Cover claim and representing compensation of $100 each week for a period of 30 weeks. An additional amount of $5000 was received for damage to the taxpayer’s right eye.
(b) Would a receipt, by a professional footballer, for agreeing not play for any other club than his own, be treated any differently for tax purposes to a payment for agreeing to only play for his own club?
(c) The taxpayer runs a business that relies on several agency agreements. Recently, one of these agreements was cancelled due to a breach of contract. As a result of the cancellation the taxpayer received $200 000 in
unliquidated compensation for the loss of the three year agreement which represented about 10% of the taxpayer’s business. During negotiation for the compensation the taxpayer argued that her business would suffer a loss of goodwill due to an inability to supply goods under the existing agency agreement. After the compensation was paid the taxpayer entered a similar agency agreement and suffered little or no loss in business.
(d) Mr Tan accepted early retirement from his employment of 35 years and as part of the package he was paid $20 000 to enter an agreement not to disclose any of the employer’s secret processes and technology.
(e) Damages received by a Member of Parliament arising from a libel action against a newspaper.