Tax Law

Tax Law

The lump sum received by you in a sum of $3,300,000 from the TCA Airways constitutes an assessable income in the hands of the Australian Flying Service within the meaning of s6-5(1) of the Income Tax Assessment Act (ITAA97). Your company, being an Australian resident, the income you derived from TCA Airways which is an external source outside of Australia, can be included as an assessable income without any qualifications. The advance payment that was made to you were not subject to any conditions and were directly payable to your Australian bank account and not into a “suspense account” as cited in the Murray case. Besides, you have treated the pre-paid receipts as income and therefore, the income you received by way of lump sum annually has the quality of income derived by the company.
In addition, according to your instructions, your company signed up a contract with FlyAway Limited, an Australian based commercial airline, to provide training for their first officers for a period of six years, commencing from 1 May 2011 at a cost of $550,000 per annum. But, FlyAway terminated the contract prematurely resulting in loss of income to you. However, after legal discussions, your client, FlyAway Limited agreed to pay compensation of $550,000. Based on these facts, the compensation of $550,000 you received would have been included in your assessable income although that amount is not assessable as ordinary income under s6-5. Hence, the compensation received forms part of your assessable income in context of s15-30 of the Income Tax Assessment Act (ITAA97). What you received upon termination of the contract by FlyAway Limited has an income character because the compensation you received, substituted for income that would have been derived under the contract with FlyAway Ltdas cited in the case of Heavy Minerals Pty Ltd v FC of T.
Furthermore, for a debt or part of a debt to be written off as bad in the income year it must meet either of the requirements under...