Question 2 her to join a new television network. She accepted the offer and received an annual salary of $100,000 in addition to the lump sum payment A well-known television personality was paid a hmp sum of $400,000 to encourage Discuss whether both the $400,000 and the $100,000 receipts are assessable income. (8 marks) Note: You will need to refer to case law and legislation to answer this question adequately
Issue: The main issue is whether the receipts show a nexus to work performed and are therefore ordinary incomeunder s 6-5 of ITAA97 or whether any part of the receipts is capital for giving up the right to income as inFCTv Woite(1982) 13 ATR 579.
Rules: The annual salary of $100,000 is clearly assessable as ordinary income as there is a clear nexus with the services provided and this receipt shows many of the indicia of income – ie regular, relied on, nexus withpersonal services etc: see[6.30].
Analysis: The $400,000 receipt is not as obvious and should be compared with decisions such asWoiteandJarrold vBoustead(1963) 41 TC 701. If there is a nexus with some service, then it is ordinary income as inBrent vFCT(1971) 125 CLR 418. However, if the payment is to give up the right to income then it is capital, as inWoite. Conclusion: The conclusion therefore depends on the facts but it appears that the taxpayer is paid as aninducement to enter a contract. As a result, they are being paid to provide a service in the future, thusestablishing the nexus and making it ordinary income: see[6.30]. The taxpayer has not given up anyvaluable right by accepting this contract and therefore it is likely they have been paid to do something which is ordinary income under s 6-5: see[6.180]. Section 15-2 is also relevant if there are sufficient facts to deny the $400,000 being ordinary income. The $400,000 receipts will be income under s 15-2 if theyconstitute a benefit etc, provided it is in respect of employment or services. FromSmith v FCT(1987) 19ATR 274 there is the suggestion that the nexus test required for s 15-2 is easier to meet than for s 6-5, andthe fact that this payment is an inducement to enter an employment contract would show it as arising out offuture services: see[6.220]