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Income from Property (Introduction 9.10 (If a receipt is both ordinary and…
Income from Property
Introduction 9.10
Receipts such as interest, rent , royalties and divideds that "flow" from the passive ownership of capital investments will be ordinary income under s 6-5 of ITAA 1997
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Income earned from the passive ownership of capital is known as property income
(≠The gains ralised on the sale of the property itself)
Property income---> ordinary income
but certain forms of them---> statutory income
should distinguish two of them---tax due is different
If a receipt is both ordinary and statutory income under the Act, s 6-25 of ITAA 1997 ===it is in assessable income only once and it will normally be taxed under the statutory rather than ordinary income.
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Interest
9.20-9.40
Div 16E,s 26B,
s 70B ITAA 36
Div 230
s 15-35
s51-57
ITAA 97
Lomax V Peter Dixon & Son Ltd [1943] KB 671
Receipts of interest income & assessable s6-5 of ITAA 97
1) The House of Lords accepted the argument by the taxpayer that the benefits received as a result of the discount and premium were capital in nature and not interest.
2) The Court also held that a commercial rate of interest was charged & the taxpayer was not in the business of lending money.
A distinction between interest is ordinary income / a capital return =results from an allowance for risk.
This case cited as authority for the principle that if the discount is simply a replacement for interest=ordinary income
Riches V Westminster Bank Ltd [1947] AC 390
"A payment which becomes due because the creditor has not had his money at the due date"
Interest is the return flows from the lending of money & the compensation for the loss of use of that money.
Discounts & premiums
To alter the timing of assessable income and as an attempt to characterise the discount or premium as capital rather than ordinary income--cases
FCT V Hurley Holding (NSW) Pty Ltd (1989) 20 ATR
Gains as a discount security was ordinary income
The Federal Court held that the gain made on the realisation of the investment was ordinary income.
Distinguished the facts in this case from L V PD & S.
The basis of this distinction was because Hurley Holdings didnt receive interest & discount was more askin to a subsitute for interest and not simply an increase in capital value. Same conclusion in MYER
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Cases:
Lomax v Peter Dixon & Son Ltd, McCauley