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Income Tax Liability Case. Before advising Ian Smith we need to perceive following technical questions whether any of the proceeds from the sale of his furniture on 14th, 25th, 27th and 30th January 2009 should be included in his assessable income.

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Introduction

(a) Before advising Ian Smith we need to perceive following technical questions whether any of the proceeds from the sale of his furniture on 14th, 25th, 27th and 30th January 2009 should be included in his assessable income. As per section 6-1(1) Income Tax Assessment Act 1997 Assessable income consist ordinary income and statutory income and under subsection 6-5(1) ITAA 1997 an amount is assessable income if it is income according to ordinary concepts (ordinary income). Ordinary income can be income from personal exertion, income from property and income from business. Statutory income is defined in section 6-10 (2) ITAA 1997as amounts that are not ordinary income but are included in assessable income by the operation of a provision of the law about assessable income. We can see that above proceeds not the income from a personal exertion as Ian is working fulltime as a policeman with NSW police and not the income from property as well. Now the question is that these proceeds from Designer Furniture sales is income or not or putting into other words is Ian carrying on business or not. Under 995-1 Income Tax Assessment Act 1997 business is defined that 'business includes any profession, trade, employment, vocation or calling, but does not include occupation as an employee'. ...read more.

Middle

The larger the scale of the activity the more likely it will be that the taxpayer is carrying on a business of primary production. However, this is not always the case. The size or scale of the activity is not a determinative test, and a person may carry on a business though in a small way (Thomas at ATC 4099; ATR 171). Therefore it is unclear that in this indicator that Ian's activities are hobby of a business but usually the smaller the scale of activity the more likely it will be mere hobby. Do you have more than just an intention to engage in business? If you are still setting up or preparing to go into business, you might not have actually begun business yet. So, we can see that these activities were only of a 'preliminary or preparatory' nature and did not amount to the carrying on of a business. In Softwood Pulp and Paper Ltd v. FC of T 76 ATC 4439; (1976) 7 ATR 101, expenses relating to the establishing of a paper production facility were not deductible, as they were held to be entirely preliminary and directed at deciding whether or not an undertaking would be established to produce assessable income. ...read more.

Conclusion

recreation or an addiction to a sport, he will not be held to be carrying on a business, even though his operations are fairly substantial.' Hence, the sale of his furniture on 14th, 25th, 27th and 30th January 2009 should not be included in his assessable income, is more likely. (b) As earlier given and discuss legislation reference and definition of Assessable income, ordinary income, Statutory income and the definition of a business, $73,500 (210 x $350) should be included in Ian's assessable income in relation to the sale of his furniture in the income year ended 30 June 2010 Now in this year all the circumstances are changed and we can see the application of following indicators. * Purpose and intention of the taxpayer in engaging in the activity - purpose being to carry on business (see Case C1 (1952) 3 TBRD 1 * An intention to make a profit from the activity (Case C1, Case P67 82 ATC 317; (1982) 25 CTBR (NS) 867, Case R96 84 ATC 637; (1984) 27 CTBR (NS) 1159,Case L57 (1989) 11 NZTC 1326) * Repetition and regularity of activity ( Case P67, Case R96, Case L57 ) * Activity organised and carried on in a businesslike manner and systematically - e.g. ...read more.

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